Starbucks

Starbucks' new digital tip jar won't benefit baristas

March 20, 2014: 10:54 AM ET

Customers can now tip through its mobile app, but that doesn't mean workers will make more.

By Sanjay Sanghoee

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FORTUNE – Starting this week, customers at Starbucks Corp (SBUX) can tip baristas with a few swipes on their mobile phone. The Seattle-based coffee chain on Wednesday updated its popular mobile app, giving its 10 million active users the convenience of tipping their baristas digitally.  While the move is well-intentioned, and will likely make some baristas extra eager to please customers, the tipping app may not necessarily help Starbucks workers solve the problem of low tips.

Starbucks baristas, who earn an average hourly wage of $8.80, make only about $1,300 in tips per year, according to Glassdoor. The hope is that the growing popularity of mobile payments and the introduction of digital tipping will increase tipping.  Electronic payments are easy to execute; inevitably, it feels less burdensome than parting with hard cash.  But these factors alone won't automatically change customer behavior, not to mention that this option is only available in 64% of Starbucks stores in the U.S.

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Given that Starbucks stores average 618 customers per day, according to a study by Trefis, and customer service across the chain is generally good, the yearly tip number seems inadequate. By my own estimates, a minimum gratuity of 50 cents (which is the least you can tip through the mobile app and also a reasonable amount by experience) applied to the yearly average of $1,300 per barista, implies that 2,600 customers tipped.  But even if you assume that baristas (being part-timers) only work 3 days a week, they would still encounter more than 100,000 customers a year. That means only 3% of customers bothered to tip at all, and that is a low number by any standard.  It's worth noting that some customers probably tip higher than 50 cents, which would suggest that a fewer share of customers tip.

A likely, if surprising, reason for this is that the staff at Starbucks may be too efficient.

Walk into any Starbucks at most times and you will encounter a long line of customers waiting for coffee or food, and a team of baristas rushing to serve them as quickly as possible.  It's a very efficient assembly-line system, but the irony is the more efficient the system, the less customers are aware of the hard work that goes into your cup of joe.  The speed with which customers are served and physical detachment from the barista (behind the counter) detracts from perceived value – unlike, for instance, at a restaurant, where customers feel that they are really being 'served' by a waiter.

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Making the earnings of a Starbucks barista worse, at least in New York, is the state Court of Appeals ruling last year that requires them to share their tips with shift supervisors (who, to be fair, do some of the same work as the baristas), further diluting the meager pool of tips available for sharing in the first place. And since companies that enable employees to receive tips also typically pay lower salaries, this situation can actually wind up shortchanging Starbucks employees.

To be fair to its workers, Starbucks should analyze the actual tips received and correlate that with the salaries it pays. That will help to ensure that the chain keeps its employees happy and maintains its high quality of service in the future.  It also wouldn't hurt for customers to recognize that the best service is sometimes one you don't even notice.

Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee

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