'Pay What You Can' Pays for Itself

To most business executives, a 'pay what you can' retail strategy sounds like an invitation to bankruptcy.

But Panera Bread, one of the largest sandwich chains in the US, has now opened four such locations and all are profitable.

The concept is to locate such stores in areas where there is a socio-economic mix. The more affluent, who can afford the company's offerings at the standard price, and the less well-to-do who may aspire to the Panera fare, which is healthier than that which typical fast food outlets carry but may be out of their price range. Panera believes that encouraging a mix of customers makes its restaurants more exciting destinations which, in turn, increases the patronage, cash flow and profit. They think it also enhances the brand image.

The company is making the effort - and taking the risk - because its growth trajectory compels it to identify new markets and win them. Since they are not the lowest price alternative available, they have had to be creative in thinking about potential opportunities. The 'pay what you can' strategy was originally conceived as a means to visibly pay back the loyalty of communities that have supported them. Expectations with regard to profitability were secondary. But the reality has been eye-opening. Approximately 20% of customers pay more than is necessary while 20% pay less.

The result suggests that trusting your customers according them respect and dignity may well be good work and good business. JL

Mark Miller reports in Brand Channel:

The idea of running a pay-what-you-can organization is generally laughed at as a business model, but Panera is proving skeptics wrong. So far, the St. Louis-based company has three such eateries and they are turning a profit INSERT>This week Panera opened its fourth pay-what-you-can Panera Cares location, in Chicago. Founder and co-CEO Ron Shaich tells the Trib that the neighborhood that it's the perfect community for such a business because it has “million-dollar townhomes and people on the street."

"When you walk in, it's the full Panera experience," Shaich, who hopes to open a new Panera Cares cafe each quarter, told the Trib. "When you go into a soup kitchen, the energy is so negative and the food is institutional and the experience is institutional."

The idea is simple: consumers who can pay more will do so while those who can’t pay at all can work for an hour in exchange for food. The pay-what-you-can stores all work under the Panera Bread Foundation umbrella, which allows it to not worry about turning a profit.

The proceeds, the Trib reports, don't go back into the company’s coffers. Instead, the foundation “gives the money to social service organizations that provide job training for at-risk youth,” who Panera then hire.

Back in February, one year after the first Panera Cares cafe opened in Clayton, MO, Shaich said in a Sustainable Brands presentation that about 20% of customers leave more money than the suggested donation with no pressure, while 20% pay less: