Panera Expands Pay-Say-You-Want Concept to One Menu Item in St. Louis Cafes

5152efd49a48d.preview-620It started off nearly three years ago as a small experiment at a Clayton cafe to test whether people would be willing to pay full price — or more — when there are no set prices so those in need can pay less or nothing at all.

After following it up with four more nonprofit cafes across the nation, Panera is now taking this concept to the next level.

Starting today, patrons will be able to walk into any of the company’s 48 bakery-cafes in the St. Louis region (where it operates as St. Louis Bread Co.) and pay what they want for a new menu item: turkey chili.

If it proves sustainable, the “meal of shared of responsibility” — as Panera calls it — could be expanded to other regions.

“But we never want to put the cart before the horse,” said Ron Shaich, the company’s co-chief executive and the driving force behind the concept. “So we want to see how this does, how it works, and how people respond.”

Shaich said he wanted to find a way to bring the pay-what-you-want concept into more communities.

“We have five stores now,” said Shaich, who often refers to the Panera Cares cafes as a test of humanity. “That’s big by some standards, and it’s still small. So how do we help more broadly?”

The shareholders of the publicly traded company would not be pleased if all 1,650 cafes nationwide were converted to this nonprofit model, he added.

So instead, the Sunset Hills-based company came up with a single menu item.

The meal, which comes in a sourdough bread bowl, will be offered at the suggested price of $5.89 with tax. The item was developed to be rich in nutrients, protein and fiber, to nourish those who are not sure where they might get their next meal.

Even shareholders may have reasons to like this concept.

While the company says it will not directly profit from this new program, experts note that the company as a whole will likely benefit as a brand in terms of the positive feelings and emotions it will create in the minds of customers.

“Consumers are increasingly — particularly young people — looking for socially conscious values in the things they purchase,” said Ken Harrington, director of Washington University’s Skandalaris Center for Entrepreneurial Studies. “They are looking for corporations who are doing what Panera is doing.”

Such a charitable consideration can tip the balance when people choose which businesses to patronize. In fact, he said studies have shown that consumers are willing to spend 10 to 15 percent more on items to support values or causes they share.

The idea isn’t lost on Panera, whose recently launched marketing campaign encourages customers to “Live Consciously — Eat Deliciously.”

FOOD INSECURITY

The pay-what-you-want chili, Shaich added, is also meant to help elevate the discussion of food insecurity at a time when the unemployment rate continues to be fairly high. According to the U.S. Department of Agriculture, about 15 percent of American households in 2011 were unsure whether they would have enough food to meet the needs of family members.

“We want to challenge the people in St. Louis to understand this issue and vote with us in helping to pay it forward,” Shaich said. “Our commitment is we don’t make anything on this.”

If patrons pay full price for the chili, they will be helping to subsidize the cost for those who don’t pay, because the company will use the 10 percent profit margin on that item to fund the program. But customers can donate to the “meal of shared responsibility” regardless of what they order from the menu.

Any net proceeds after the cost of the program is covered will be channeled to hunger relief efforts, Shaich said.

To be sure, most companies have some sort of charitable contribution built into them as a way to build trust and goodwill with consumers, said Darren Tristano, with food industry research firm Technomic. Just think of the Ronald McDonald House, which helps cover the cost for families to stay close by to hospitalized children.

Panera also donates tens of millions of dollars in leftover products and has recently partnered with Feeding America to channel donations collected in its stores to providing its black bean soup to food banks.

In the case of Panera’s pay-what-you-want model, Tristano said Panera may be better positioned than others to take on the risk of such a program because it is such a profitable company. Panera made $174 million in profit last year, a 28 percent increase from the year before.

And he noted that other companies take on some risk when they offer reduced prices or buy-one-get-one-free deals on new menu items — something that Panera doesn’t usually do.

“Panera is not a discounting kind of brand,” Tristano said. “So they can afford to take these risks. If nothing else, it becomes a trial for this item.”

For his part, Shaich doesn’t see this “meal of shared responsibility” as being a big gamble for Panera. If it doesn’t work, they will just end it.

He said the general competitive landscape in which Panera jockeys against other restaurants is more likely to keep him up at night rather than this pay-what-you-want model.

“Do I wake up in the middle of the night about the ‘meal of shared responsibility’?” he asked. “No, not anymore than I wake up in the middle of the night and worry that somebody is taking advantage of our bathrooms — or our free Wi-Fi.”

In recent months leading up to today’s roll out, Panera has quietly tested the “meal of shared responsibility” at one cafe in St. Louis and at about nine locations in Dallas.

As Panera tests out the pay-what-you-want turkey chili, it remains to be seen whether it will open more nonprofit cafes. For now, Shaich said the company has not announced any plans for more such locations.

“This is not one versus the other,” he said. “It’s kind of a multipronged approach.”

Since opening the first nonprofit cafe in Clayton, the company has opened other Panera Cares cafes in Detroit, Portland, Chicago, and most recently, Boston. Panera spent $1 million to build the Boston cafe, which it then gifted to the foundation and opened in January.

These cafes have ups and downs, but they have mostly stabilized and bring in about 70 to 75 percent of the retail prices of menu items, Shaich said. That’s roughly enough to sustain the cafes. Panera’s foundation kicks in support to fill in any gaps.

Of course, one of the challenges with this model is that it requires a leap of faith on the part of donors that those who are not paying the full price actually need the help and are not gaming the system.

To that end, there are some checks in place. As with the nonprofit cafes, Panera discourages take-out orders and asks that people limit themselves to one free or reduced-price meal per person per day.

For Shaich, the human behavior element has been one of the most fascinating aspects of this experiment. While there have definitely been people who have tried to abuse the system, overall, he says, the results so far show that most people have been responsible.

He said it’s not unlike the question of whether or not you should leave a tip for the housekeeper who cleans your hotel room.

“What do you do?” he said. “Nobody is watching. This is the same kind of thing. It’s meant to create opportunities for people to do the right thing.”

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