In introducing a monthly subscription service for coffee, Panera is pursuing an innovative pricing strategy that reflects shifts in how people view the food they eat and how much they should pay for it. The strategy is thus both a result of insights into consumer behavior and a novel tactic that Panera hopes will lead to enhanced customer loyalty and revenues.
An inspiration for the subscription, which costs $8.99 per month and allows people to refill their cups every two hours, began with the realization that more consumers are eating breakfast on the go. Sales of cold cereal to eat at home are down; at the same time, breakfast items are accounting for increasing amounts of most fast food restaurants’ sales. Thus Panera recognized an opportunity. It already has menus in place to serve breakfast customers. What it really needs to do is convince them to visit its restaurants, instead of competitors like Dunkin’ or Starbucks.
A regular cup of coffee from Panera costs about $2.20, so if a person visits to grab a cup of coffee (or tea) just four times in a month, the pricing plan is beneficial. Such a promise is extremely appealing to many consumers, especially those who express increasing concerns and guilt about how much they spend on coffee when they buy away from home. When people feel guilty about their consumption, it reduces their enjoyment. By reducing this sense of guilt, Panera believes it can improve people’s enjoyment and attitudes toward its brand.
To obtain the subscription, consumers have to download and use Panera’s app, which also enables them to preorder items, so that they can grab and go. They even can schedule pick-ups up to two weeks in advance, such that someone who knows she will be driving by every morning at precisely 7:30 a.m. can set multiple orders, conveniently and easily. In this way, the subscription provides additional benefits, in terms of efficiency and convenience, to consumers, and it helps Panera make closer connections with those consumers, through its app as another relationship channel.
In limited pilot tests, the subscription appeared popular, so Panera is rolling it out nationwide. In particular, more than 90 percent of test subscribers agreed to reenroll for a subsequent month. In addition, in these test markets, participation in its loyalty program increased by 25 percent, which indicates that the subscription is encouraging more people to interact with and exhibit some level of loyalty to the restaurant chain.
Of course, in offering all these benefits and relationship links, Panera also hopes to encourage more profitable consumer behaviors. Someone stopping by for a morning tea or coffee is more likely to grab a bagel or breakfast sandwich than a consumer who does not stop. If they do so consistently, Panera even might expand the subscription service, such as offering a daily bagel plus coffee for a higher price.
- Is Panera likely to earn profits off this subscription service? What factors would you need to consider to determine this likelihood?
- Would you subscribe to such a service? Why or why not?
- Do you anticipate that other restaurants will adopt a subscription model too?
Source: Hayley Peterson, “Panera Just Launched an Unprecedented Subscription Offering Unlimited Coffee and Tea for $9 per Month,” Business Insider, February 27, 2020; Janelle Nanos, “A Netflix for Coffee? Panera Offers an $8.99 a Month Coffee Subscription,” Boston Globe, February 27, 2020