Starbucks Tip Conspiracy
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Any frequent coffee user can confidently describe their local Starbucks. Coffee, pastries, lattes and cappuccinos are all served up by happy, smiling employees shouting through the buzz of machines and blaring background acoustics (available on iTunes). Every item on the overpriced menu and every collectible on display seems to be handpicked. Not surprisingly, it is well known that Starbucks goes to great lengths to create a consistent and believable “coffee house” environment in each one of its 15,000 stores. The paradox of Starbucks has always been their desire to create that alternative cache within one of the most mainstream brands in the World.
Granted, if mood can be staged, Starbucks has figured out a way to do it. I’m convinced that everything down to the store temperature and music volume is mandated from the corporate office. That’s why some recent developments have me thinking… conspiracy. To the untrained eye, that jar is nothing more than a give-a-penny trey.
To semi-quote Ron Burgundy,
“That little tip jar is kind of a big deal.”The tip jar is a significant source of employee income. The volume of coins and occasional greenbacks in that vessel is larger than you would think. It’s so large that it has to be emptied a couple of times a day and carefully counted. The money is deposited with the rest of the store’s take for that day and the tip amount is documented. The tips are split equally among the employees who logged time that day. Income from tips alone can routinely equal 30-50% of the standard barista’s hourly wage; a barista might make $8-10/hr and an extra $3-5 per hour in tips. The amount is so significant that Starbucks does not distribute the cash every day. Instead, it is saved and sent to payroll where it can be properly taxed and garnished. The tip jar has always been an interesting dynamic. Cash is the ultimate zero sum resource. If I have $5 and my latte is $4.50, there is a good chance that my other 50 cents is going in the jar. If my barista up sells me a flavor shot and my total comes to $4.95, there’s a good chance that the tip jar gets 5 cents. I’ve always wondered how much thought goes into pricing and the constant battle over our spare change. Would the corporation structure things so that profits are maximized at the expense of tips?
Take a look at this recent development; Starbucks’ new reward program. Customers are encouraged to buy their drinks with registered cash cards. As a reward, you gain status, and eventually, perks for your loyalty. The program itself is a shrewd move. Research has shown that reward programs increase loyalty and cash card purchasing increases the average spend per customer per visit.
But is there another benefit for share holders? The move toward cash-less purchasing will undoubtedly decrease the take in the tip jar. With less money going in the jar, that leaves more on the card and eventually more revenue in the corporate coffers. Perhaps in anticipation of this increase in spending, I’ve already observed some upward price adjustments during a time where there is almost no inflation.
So, are the employees outraged by this move? In general, “no”… or at least “not yet”. I asked one barista if she noticed a decrease in tip money, she shrugged it off and said the holiday season had been great. Some patrons were dropping twenties in the jar, a common occurrence this time of year. I guess we’ll need to wait until the dog days of summer to find out for sure. In the meantime, I find it hard to believe the corporate office hasn’t factored this into their equations.
