#1501 2020 · Panera Bread · restaurants / subscription
$8.99 Unlimited Coffee: Sell the Habit, Not the Cup
the problem
Breakfast traffic belonged to McDonald's and Starbucks; Panera had loyalty members but no morning reason to visit.
background
In February 2020 Panera launched a coffee subscription for members of its loyalty program: unlimited hot and iced coffee and tea for 8.99 dollars a month, as the chain tried to gain an edge over breakfast rivals like McDonald's.
During the pilot, the subscription increased visits by 70 percent, with members adding food to their coffee runs: the program was designed to leverage loyalty into a daily habit.
what everyone would do
Discount breakfast combos and advertise more.
what they saw
Do not profit from the subscription; profit from what it makes people do. Prepaid cheap coffee converts occasional visitors into daily ones, and each daily visit is a food sale wearing a coffee costume.
the move
Coffee is the cheapest habit to subsidize: the marginal cup costs cents, but a monthly prepayment converts an occasional visitor into a daily one. The subscription is not sold to make money on coffee; it is sold to buy frequency, and frequency buys the food attached to each visit, where the margin actually lives.
why it works
Marginal cup cost is cents; prepayment locks in the habit before competitors see the customer; the loyalty program already identifies frequency targets; and food attachment, most orders include food, is where margin returns.
the payoff
Visits increased 70 percent during the pilot, with food riding along on coffee runs (CNBC; Restaurant Dive).
where it breaks
It fails if heavy users drink at a loss the food never offsets, hence the caps later added to 'unlimited'; if the habit never spreads to other dayparts; or if the anchor item's marginal cost is not actually near zero.
what came after
Kicked off the restaurant-subscription wave, as chains adopted the cheap-drink-monthly model to manufacture visit habits.
references
- [1]Panera Bread to offer coffee subscription programCNBC, 2020cnbc.com
- [2]Panera's coffee subscription leverages loyalty to fight breakfast battleRestaurant Dive, 2020restaurantdive.com