Tipflation Is Changing Spending Habits of 1 in 6 Consumers

Inflation continues to impact American households, with high prices keeping consumers from spending. Though CPI data shows inflation has lessened slightly in recent months, PYMNTS Intelligence’s newest data finds that consumer sentiment has not caught up, and they still perceive heightened inflation. In particular, we find a notable impact on spending in industries requiring tipping. Consumers are visiting establishments that expect them to tip less regularly. This trend may be concerning, as pressure to tip is on the rise and industries historically not known for tipping are adopting the practice — and scaring away customers.

PYMNTS Intelligence has studied and analyzed U.S. consumers and the link between their sentiments on inflation, consumer trends and tipping habits for well over a year. This report is the 17th installment in the “Consumer Inflation Sentiment” series. For “Tipping Over: Consumers Reducing Spending and Avoiding Tips,” we surveyed 2,024 U.S. consumers between Nov. 6 and Nov. 22 to better understand their views on tipping.

Inflationary pressures drive many consumers to spend less on services that require tipping.

Consumers across all income groups are cutting back on spending due to tips driving up the cost of goods and services. Data shows that 29% of consumers feel that tipping has gotten out of hand as of late. Seventeen percent report they have cut back on spending because tips are increasing costs. Younger consumers are particularly likely to hold this view: 27% of Generation Z and 23% of millennials agreed with the statement, “I have cut back on spending because tipping makes things cost too much.” In contrast, just 13% of Generation X and 12% of baby boomers and seniors said the same.

Nearly 2 in 5 consumers have cut spending on personal grooming services due to the rising costs of tipping, a behavior trending across services where tipping is the norm.

Data suggests that consumers who have cut spending due to the rising costs of tipping are most likely to have cut back on dining out. Sixty percent of these consumers cut back their spending on food from table-service restaurants. Forty-nine percent cut spending on food from quick-service restaurants, many of which now encourage tipping. This consumer response is a negative for these businesses and a trend likely to expand across the economy, especially in business segments where tipping is standard and often a high percentage of the cost.

Consumers are much less likely to cut spending on goods and services that do not usually involve tipping. For example, of consumers who cut back due to tips driving up costs, just 12% restricted spending in the typically expensive consumer electronics or home furnishings categories.

Six in 10 consumers who are tipping less this year note price increases drive their behavior change.

Fifteen percent of consumers are leaving smaller tips, reporting they are tipping approximately $19 less per month compared to this time last year. Fifty-nine percent of these consumers say they cannot afford to tip as much because of increasing prices.

Managing spending can be a delicate balance for consumers, particularly during the holiday shopping season. Data shows, however, that fewer consumers have cut back on grocery spending due to price increases in non-grocery retail compared to October. However, 46% of consumers cut back on grocery spending to deal with price increases in non-grocery retail items. Fifty-one percent cut back on non-grocery retail spending due to price increases in groceries.

Despite many consumers opting to spend less due to the high cost of tipping, nearly two-fifths who bought select products or services felt they were prompted to tip more often.

The demand for tips has spread across the economy as real wage growth has not kept up. Thirty-two percent of consumers report that fast-food establishments have asked them to tip, 31% report that personal grooming services asked them to tip more and 30% report more tip requests from dine-in restaurants. Consumers are also dealing with establishments asking them to tip that did not do so before, such as grocery stores.

Many consumers whose wages have kept up with inflation have adopted a Robin Hood mentality, redistributing wealth to those needing it.

Consumers with inflation-matching wage increases are in a better position to deal with the increased pressure to tip. Data shows this group was more likely to leave larger tips this year. Nearly half of consumers whose wages kept pace with inflation opted to share the wealth by increasing the amount and regularity of their tipping. Philanthropic sentiment and social pressure drove this choice. Fifty percent felt they should tip more because service workers need more money during high inflation times, and 36% felt socially pressured to assist service workers. This is a relatively small subset of consumers, unfortunately, as just 18% of consumers saw their wages keep up with inflation.

Conclusion

As inflation continues to undermine U.S. consumers’ purchasing power, they are lashing out against one boogeyman in particular: tipping. As tipping pressure rises and more establishments that typically do not request tips do so, consumers are reacting, especially those whose wages have not kept up with inflation.

One outcome is that consumers are decreasing the frequency of dining out and decreasing spending on goods and services — even those not directly impacted by tipping. Data shows that 23% of consumers who have tipped less in the last 30 days compared to one year ago are frustrated with evolving tipping norms. Merchants and retailers should keep this in mind. If tipping has reached a tipping point — and just 18% of consumers’ wages continue to keep pace with inflation — these trending spending cutbacks could become more widespread.

Methodology

“Tipping Over: Consumers Reducing Spending and Avoiding Tips,” produced independently by PYMNTS Intelligence, analyzes the relationship between inflation and tips. We surveyed 2,024 U.S. consumers between Nov. 6 and Nov. 22 to better understand their views on the increase of tipping. Our respondents’ average age was 48.1 years old, 51% identified as female and 38% annually earned more than $100,000.

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Read the November “Consumer Inflation Sentiment: Consumers Overwhelmed as Inflation Pressures Reach Tips” and other previous editions of the series for more.