Panera Opens “Pay What You Want” Restaurant

Panera LOGO (2) copySomething tells me this idea isn’t going to work:

CLAYTON, Mo. (AP) — Panera Bread Co. is asking customers at a new restaurant to pay what they want.

The national bakery and restaurant chain launched a new nonprofit store here this week that has the same menu as its other 1,400 locations. But the prices are a little different — there aren’t any. Customers are told to donate what they want for a meal, whether it’s the full suggested price, a penny or $100.

The new store in the upscale St. Louis suburb of Clayton is the first of what will Panera hopes will be many around the country. Ronald Shaich, Panera’s CEO until last week, was on hand at the new bakery Monday to explain the system to customers.

The pilot restaurant is run by a nonprofit foundation. If it can sustain itself financially, Panera will expand the model around the country within months. It all depends on whether customers will abide by the motto that hangs above the deli counter: “Take what you need, leave your fair share.”

It’s an interesting concept, but I honestly can’t see it being anything other than a loss-leader and a publicity stunt on the part of a corporation that generated $ 364 million in revenue in the First Quarter of 2010. If it did expand this beyond the demonstration store stage, I imagine Panera would learn the same lesson that Red Lobster did a few years back with it’s “all you can eat” specials:

One of Red Lobster’s key marketing planks–all-you-can-eat seafood–will be scaled back in the future, the company said.

Darden Restaurants CEO Joe Lee told analysts that Red Lobster will rely less on such promotions in order to protect profitability.

“We’re going to be doing less of those kinds of promotions and less of the all-you-can-eat,” Lee said. But he quickly added, “We’re not going to discontinue them.”

Red Lobster currently runs an all-you-can-eat shrimp promotion and occasionally does the same thing with Alaskan crab. The company found last summer that consumers ate more crab than anticipated, denting margins.

Who would’ve thought that making something essentially free means people eat more it ?

FILED UNDER: Economics and Business, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Just because you can read Freakonomics doesn’t mean that you understand it. What drives the pay-what-you-want mechanism chronicled there and elsewhere is the dimension of guilt. People don’t feel guilty about depriving a large corporation of a high profit margin.

  2. Brett says:

    Who would’ve thought that making something essentially free means people eat more it ?

    It depends on the food. I remember my uncle (who owned a restaurant and hotel) told me once that the best things to do “all-you-can-eat” offerings with were pasta and pancakes.

  3. JKB says:

    Doh! Thousands of dollars spent for millions of MBAs over the years. Many from elite Ivy-league schools and not one of those geniuses thought of this? How could all those CEOs making enough money and whole lot more miss this opportunity? Where are the corporate raiders of the 1980s to execute hostile takeover of the companies that fail to take advantage of the new paradigm.

    I know there are a few of these places that are getting by but Panera picked a bad location

    The clientele at the Clayton location is a mix of well-to-do attorneys and bankers from Clayton, as well as lower-income customers who work nearby or are visiting the sprawling St. Louis County offices and courthouse nearby

    Lawyers and bankers, they are so screwed.

  4. James Joyner says:

    I would probably leave a decent amount but less than they now charge. And, were this to remain in place a long time, less over time as I became less influenced by the old pricing mechanism.

    The problem is that I don’t think $9 is a “fair” price for a bowl of chicken noodle soup, half a sandwich, and some off-brand potato chips. I’ll pay it on occasion, as it’s expensive to eat out in these parts, but the pricing seems skewed for the level of product.

  5. pete says:

    Why doesn’t Panera continue to charge and give its profits to charity? What cheeky arrogance it shows by giving away its profits to lawyers, bankers and other well heeled customers. This seems to be the liberal mindset-“guilt, because I make more than I need.” There are far better uses for that “free money” than this idea.

  6. It’s a St. Louis thing, you wouldn’t understand.