Pay What You Want: Could It Actually Work?
How much should a bowl of turkey chili cost? Well, at 48 of St. Louis-area Panera Bread locations, that's up to the customer. As of yesterday, these locations will be offering Panera's turkey chili as a pay-what-you-want item.
Panera is no stranger to the pay-what-you-want model. In the past three years, Panera has opened five nonprofit locations, which run as regular Panera cafes--only nothing on the menu has a set price. These five cafes, called Panera Cares, are located in St. Louis, Detroit, Portland, Boston and Chicago and operate as a 501(c)(3) nonprofit organizations.
This turkey chili item will be the first pay-what-you-want item at the chain's for-profit stores. But because the company has used the model in a nonprofit initiative, they have at least some evidence of how customers might react.
Kate Antonacci, director of Panera's societal impact initiative, told Inc. the company has found that these nonprofit locations typically make 70 to 80 percent of what a for-profit Panera would bring in. Antonacci said that approximately 60 percent of people pay suggested amount for Panera Cares items, while 20 percent leave more and 20 percent leave less or nothing at all.
In terms of their new turkey chili experiment at their for-profit locations, Antonacci said the company will be looking at the metrics and observe whether its patrons are responding.
Unfortunately, the odds might not be in their favor. Pay-what-you-want has left plenty of casualties in its wake. Among them are Terra Bite Lounge of Kirkland, Washington, and Santorini Grill of Brooklyn, New York.
In 2008, Ervin Peretz, founder of Terra Bite Lounge, started the pay-what-you-want cafe to remove the stigma of receiving free food. A year later, Terra Bite began charging set prices for its merchandise because the neighborhood, which was popular with teenagers, undermined the sustainability of the pay-what-you-want model.
Paula Douralas tried to implement the pay-what-you-want model in her sit down restaurant, Santorini Grill. At first, Douralas saw 15 percent increase in the number of customers-- thanks to media attention and waves of customers attracted to the novelty of the idea. However, three months later, Santorini Grill closed down.
"The business went down. We couldn't make up the expenses to pay the bills. Not because people abused it. They just stopped coming," claimed Douralas.
What does an expert think?
Tara Berman, founder and managing partner of TaraPaige Group, a management hospitality advisory firm, said that the profit margin for food establishments are tight and, consequently, the pay-what-you-want model does not work for them when implemented on every day basis.
If a business wants to implement the model at their establishment, Berman recommended offering the pay-what-you-want options only at a given hour or one time a week.
"Doing so could build loyalty within the community and create excitement about the company," she said.
Only time will tell if by offering just one pay-what-you-want item, Panera had figured out the trick of running a for-profit business while helping those down on their luck with pay-what-you-want offers.
JANA KASPERKEVIC is a graduate of Baruch College, City University of New York, where she earned a bachelors degree in Journalism and Political Science. She covers start-ups, small businesses, and entrepreneurship for Inc. Her work has appeared in The Village Voice, InvestmentNews, Business Insider, and Houston Chronicle, among others. She lives in Brooklyn.
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