Will coffee subscriptions raise some dough for Panera?

Discussion
Photo: Panera Bread
Mar 02, 2020
Tom Ryan

Panera Bread is looking to push the envelope in the fast-casual/QSR space with the introduction of a new subscription program that offers unlimited coffee for $8.99 a month.

The subscription covers the purchase of hot drip coffee, iced coffee and hot tea every two hours, any time of the day, and runs across all cup sizes. Cold brew iced coffee and espresso and cappuccino beverages are excluded.

Subscribers have to first join or be an existing member of the chain’s free loyalty program, MyPanera, which already has 38 million members.

The rollout follows a three-month test in four markets — Nashville, Raleigh, Cleveland and Columbus — that delivered a 200 percent increase in the frequency of visits, a 70 percent increase food purchases made with the coffee, and a 90 to 95 percent renewal rate.

In a statement, Panera said more than 160 million adults in the U.S. drink coffee every day, and the average American spends $1,100 on coffee a year. Studies show nearly half are “conflicted” over the money they spend.

Panera says its program is designed to make quality coffee “accessible to all.” The $8.99 charge is less than the average price of five cups at Panera. One cup daily in a 30-day month averages 30 cents each.

Niren Chaudhary, Panera’s CEO, said in a statement, “Coffee is an important daily ritual for so many — it can give you a dose of optimism — it lifts you up. We kept asking ourselves, why can’t it be more accessible, more affordable? Moreover, could unlimited coffee translate to unlimited optimism?’”

The launch follows the sandwich chain’s move last April to upgrade its coffee offerings and introduce sandwich wraps to join the highly competitive breakfast war. Today, perhaps not coincidentally, McDonald’s is offering free Egg McMuffins on its first “National Egg McMuffin Day,” the same day Wendy’s launches its breakfast menu across the country.

No major chain offers a similar subscription. Burger King in March 2019 offered a program that charged $5 a month for one small, hot coffee per day, but discontinued the offer a few months after. Some local coffee shops offer unlimited monthly programs that are significantly more expensive.

DISCUSSION QUESTIONS: Does a coffee subscription program make sense for Panera Bread, and should other fast-casual chains or QSRs come up with their own programs? What metrics should define the success of such a program for Panera?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"A brilliant idea, as proven by the results in their test markets. "
"So many breakfast QSRs have tried this but given up. I hope that Panera can stick with it –and genuinely leverage the excellent data/insights that will arise from it."
"If successful, perhaps this is the first step towards broader (non morning) monthly services at Panera."

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16 Comments on "Will coffee subscriptions raise some dough for Panera?"


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Mark Ryski
BrainTrust

It’s an interesting move by Panera to be the Netflix of coffee. I think Panera is right to focus on the ritual coffee buyers and, if everything impressive from the tests holds, then it seems like the program will be a winner. That said, the real question is how many new customers the coffee subscription will attract. If the program ultimately causes existing customers who would have purchased anyway to pay less, the program may be a win for customers but not a win for the business. Overall, I think the program sounds like a good fit for Panera and its customers.

Peter Fader
BrainTrust

So many breakfast QSRs have tried this but given up. I hope that Panera can stick with it –and genuinely leverage the excellent data/insights that will arise from it. Lots of potential here!

Nikki Baird
BrainTrust

I have to imagine that they did this with eyes wide open after running their loyalty program for a few years. If the benefits they got in their test scale as they expand the program, then I would say kudos to Panera for demonstrating how to use loyalty data wisely: identify a pattern of behavior that you can target to shift in a way that drives the results you want. Even better, do it in a way that makes customers feel delighted, special, and appreciated, and you’ve got a winning combination…

Ben Ball
BrainTrust

This is a very interesting proposition. Amazon Prime effectively increased visits and purchases by creating a consumer perception of “free shipping.” Will Panera be able to create that same perception of “free coffee”? I think the frequency of the $8.99 charge monthly might remind shoppers who don’t use the service as frequently as they thought they would to drop out. With Prime you typically lock in for a year. But automatic monthly billing to a credit card is practically invisible to most consumers. The financial trade-off of margin for increased frequency hinges on add-on purchases. So far it sounds like that’s working from the reported test results.

Brandon Rael
BrainTrust

This is a brilliant move by Panera Bread, which will not only provide recurring revenue but also consistent traffic to their cafes. Anything could be monetized as a service, however, considering how powerful the coffee culture is in our country, this is a key strategy to help differentiate Panera from the other fast-casual restaurants. Coffee could become a loss leader for Panera if the customers take advantage of this offer, however the majority of visits will include breakfast, lunch and snack incremental purchases.

To quote one of my favorite movies, Field of Dreams, “build it and (they) will come.” However in this case it’s not a fantasy baseball field in Iowa, it’s unlimited coffee at a very affordable monthly subscription.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
6 months 16 days ago

This should help Panera, but it depends on their goals. With not many Panera locations offering drive-thru, the uptake would be considerably less than, say, at a Dunkin’ Donuts. But they could attract new breakfast customers. Really attractive value prop. I am going to sign up.

Georganne Bender
BrainTrust

Any cup size all day for $8.99 a month? Brilliant. Bonus: Panera will benefit from a bump in add-on food sales. Burger King’s small cup offer aside, you have to wonder why other coffee houses haven’t tried subscription services. I bet they will now.

Kathleen Fischer
BrainTrust

Definitely a compelling move to drive customer traffic and increase loyalty to the brand. Short-term there will definitely be a payoff but they may struggle over the long-term to keep customers happy unless they offer other perks or incentives to increase the value.

Dave Bruno
BrainTrust

A brilliant idea, as proven by the results in their test markets. Now if only they would incentivize people to bring re-usable cups with them when they stop in for that coffee.

Peter Charness
BrainTrust

Good one. I think a cinnamon roll once a month as a reward for going renewable would do it. That’s enough to challenge loyalty to Starbucks, if you live near enough to a Panera to make use of it. It’s a very worthwhile initiative. If you can drive extra traffic through the door, the add-on purchases should more than cover the costs. Fresh baked goods’ aroma alone will do the trick. Discounted gym memberships will come next. (We all need a little levity this morning …)

Stephen Rector
BrainTrust

This absolutely makes sense. My guess is that this will cause their members to buy other items more often which increases the lifetime value of these customers. Another way to increase loyalty to Panera!

Jeff Weidauer
BrainTrust

This is a solid move by Panera, with little downside risk. If it works – we won’t know for several months if the bump will stick – they need to have a next step to keep subscribers engaged and keep out the copycats.

Matt Sebek
BrainTrust

This definitely strengthens Panera’s position in their (already strong) morning day part. While it should improve same store sales (from incremental regular traffic) … it still seems their largest growth opportunity is tied to the mid-afternoon valley where consumers strongly prefer Starbucks. If successful, perhaps this is the first step towards broader (non morning) monthly services at Panera.

Harley Feldman
BrainTrust

This appears to be a great idea based on the test markets data. Since the coffee is free after five cups, it will draw their subscribing customers for return visits, and they are likely to buy other items when picking up their coffee. Competitors will notice and likely follow. Success metrics are the number of return visits from their members that purchase the coffee subscription and the incremental sales for additional items from the same group.

Steve Montgomery
BrainTrust

Circle K offers a form of coffee subscriptions in some of its European operations. Based on my observations, it is a huge success. It not only brought in new customers, but also increased the frequency of visit for existing customers. Have no hard numbers to back up what I saw and was told, but there is little doubt that it was a big success.

The metrics are basic. Did trips increase, did sales of other items increase, and most importantly — did they make more money from those customers than they did previously?

Ricardo Belmar
BrainTrust

This didn’t make sense for Burger King and they dropped their program, but it absolutely makes sense for Panera. We’re talking about different customer demographics here. Plus, let’s be honest — who do you know that passes by a Burger King and says to you “let’s stop for coffee”? With Panera, that will happen, and if you happen to be a subscriber to this program, you’ll look forward to it, and probably pick up a bakery product for a snack, or if it’s lunchtime, a sandwich. While not as prolific in locations as other dedicated coffee chains, Panera has shown in their test markets that they can leverage their loyalty program coupled with this offer to drive considerable uplift in sales, so I expect other brands to watch this closely and follow suit with their own subscription programs.

wpDiscuz
Braintrust
"A brilliant idea, as proven by the results in their test markets. "
"So many breakfast QSRs have tried this but given up. I hope that Panera can stick with it –and genuinely leverage the excellent data/insights that will arise from it."
"If successful, perhaps this is the first step towards broader (non morning) monthly services at Panera."

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