Panera Brea
PNRA
Subscribers could take advantage of the Unlimited Sip Club in all of its channels: its cafes, drive-thrus, delivery or rapid pick-up.
A coffee subscription program at Panera’s is bringing in new customers and adding to what customers buy, a win/win for the fast-casual chain.
When Panera’s Coffee Club launched in February 2020, the Coffee Club cost $8.99 monthly. By the end of 2021, Panera’s Coffee Club had grown to 600,000 subscribers, of which 300,000 were paying (most new members receive free membership for the first three months and then are charged).
Panera used to be owned by its stockholders, but in 2017, JAB Holding Company, a German-owned conglomerate, acquired the company for $7.5 billion and took it private. It owns a slew of restaurant brands, including Krispy Kreme, Caribou Coffee, Pret a Manger and Peets Coffee.
The impetus for launching the coffee subscription program stemmed from Panera’s goal of “making good coffee accessible to everyone. Why should premium coffee be so expensive?” noted Niren Chaudhary, Panera’s CEO, who is based in Boston, Mass.
Its goal was to “democratize” coffee, Chaudhary said. It also wanted to be the “first disrupter to introduce subscriptions to help unlock the benefits for our customers,” he added. Hence, customers feel they’ve already saved money and can add a breakfast sandwich to their order.
Asked if Chaudhary was concerned that customers would take advantage of the service, come in for free coffee, not spend money, and Panera’s would lose out, he swats that notion away. “There’s absolutely no loss factor. The reason is the following: coffee for us was an underleveraged product. Panera’s has never been known for coffee,” he acknowledged.
He pointed to a study he read that said most coffee-drinking Americans spend $1,500 a year on premium coffee annually, and with Panera’s subscription that cost has dwindled to about $130 yearly at the new price.
Recurring revenue has been boosting sales at Panera since many subscribers end up frequenting its restaurants more often and buying more items to accompany the beverage. Hence, its coffee club subscribers frequented its eateries at eight times higher visits than in the past and 30% of them added a food item to their check.
Moreover, Panera reports that 43% of its coffee subscribers were new customers to the brand. The coffee was driving its breakfast business.
Subscribers were only eligible for ordering coffee; it doesn’t include purchases of cappuccino, café au lait or espresso. It covered any coffee that was self-served and was restricted to new cups of coffee every two hours.
Existing coffee subscribers will be grandfathered into the new Unlimited Sip Club for the previous price of $8.99 a month through the end of the year. Their membership price will increase in 2023 to $10.99 a month.
The Unlimited Sip Club includes coffee but expands the selections to 26 various beverage products. “It has the same logic of why should coffee cost so much to why should beverages cost so much?” Chaudhary cited.
Why raise the price $2 a month? Chaudhary said, “We’ve realigned the price because the repertoire is much broader. Now we have to make sure the economics of the program works with a broader range of the costs of the beverages.”
To become a subscriber, guests must become a MyPanera loyalty member, at no charge. Its loyalty program has been one of the most successful in the fast-casual restaurant industry and currently numbers 47.7 million member as of first quarter 2022. Members are eligible for discounted deals such as free bagels for a month. Guests must tap their loyalty cards to activate it and use it, enabling Panera’s to track their purchases.
In fact, an April 4, 2022 Harvard Business Review study on loyalty programs written by Raghuran Ivengar, Young-Hoon Park and Qu Yu, revealed that customers of these subscriptions “spent more than twice as much per month after subscribing to the retailer’s loyalty program.” But it also concluded that “some customers contributed substantially to the increase in revenues, while others did not.”
It also noted that 75% of the increases stemmed from new products that customers had not previously bought. It concluded that “If implemented well, paid loyalty programs can be highly profitable.”
What has Panera’s Bread learned from its coffee subscription service that will be incorporated into its new beverage service? Chaudhary replied, “We were able to make beverages completely accessible for a flat price.”
Hence, people can come to Panera’s for healthy food and save money on their beverages, Chaudhary suggested. “I think the subscription program is a disruptive way to unlock value for our customers. And given the high inflationary macro-environment, it is extremely well-timed.”
He doesn’t envision a food subscription service in Panera’s future. Changes in subscription service, he indicated, could include certain “experiences, or be based on specific times of the day,” he said.