Panera has launched a new coffee subscription program. Consumers pay $8.99 a month for unlimited ... [+]
Panera may have just thrown down a major gauntlet in the so-called breakfast wars.
The company today announced the launch of a subscription program offering unlimited coffee, iced coffee and hot tea for $8.99 a month. That offer is available any time of day through any one of Panera’s channels (including delivery).
In other words, for consumers who want some coffee with their meal–and there are lot of them, particularly in the morning–Panera is making things very cheap and easy.
CEO Niren Chaudhary goes so far as to call the program “disruptive.”
“A staggering number of Americans like to start their day with coffee,” he said. “When we did some research, we found that half of those people are enthusiastic about their coffee, but they’re conflicted about the price. They feel guilty about spending so much money on high quality coffee.”
Investing app Acorns estimates that the average American spends about $1,100 per year on coffee, or $92 a month. It doesn’t take a dexterous mathematician to understand the savings Panera’s $8.99 subscription will yield for those consumers.
The company derived that specific price point from researching successful subscription models, including Amazon Prime and Netflix.
“We asked ourselves how we could eliminate their conflict, that feeling of guilt, and $10 appeared to be the value watermark. We believe strongly that our customers should not have to compromise between convenience and access and high quality,” Chaudhary said.
Of note, profit margins for coffee (and beverages in general) are materially higher than most food offerings, and Panera believes it has found a sweet spot with its $8.99 value proposition without compromising that profitability. Insights from its 100-day, 150-unit test support this.
During that test, for example:
- Panera’s frequency of customers grew by more than 200%, a dramatic jump that included both existing and new users.
- Most of those consumers purchased food with their coffee subscription; there was 70% increase in food attachment during the test.
- The subscription renewal rate was between 90 and 95% every month.
“The test truly showed the tremendous upside and we feel very comfortable with the overall economics with this initiative,” Chaudhary said. “Especially considering these results are in the absence of any advertising.”
Subscription programs aren’t new to the restaurant industry, and there’s a reason brands have experimented with the idea: The subscription e-commerce market has grown by more than 100% a year throughout the past five years. This perhaps explains why KFC had such tremendous success with its 10-week wing subscription program that featured about $400 worth of wings valued at $75. Tickets for the program sold out in less than two hours.
Subscriptions to coffee specifically aren’t new, either. Last spring, Burger King added a coffee subscription of its own, which allowed consumers to get a daily cup of hot coffee for $5 a month.
Chaudhary said Panera’s program is not comparable to Burger King’s, however, because there are no restrictions on the amount of coffee or tea a subscriber can request, nor are there restrictions on size, daypart or channel.
“It’s truly unlimited and we are able to do this better than our competitors because we have a uniquely powerful digital ecosystem,” he said. “Without that, it would be virtually impossible to execute a program of this nature. We have 38 million members on our MyPanera loyalty program and a very strong omnichannel business that includes eat-in, to-go, Rapid Pickup, drive-thru, delivery and catering–all strong channels for us that are tech-enabled. No other competitor is able to offer this level of frictionless coffee because of those credentials.”
Panera anticipates those loyalty numbers to increase with this service, which is a feat worth mentioning on its own. For context, that 38 million number compares to about 17 million Starbucks Rewards members and about 20 million Domino’s loyalty members.
“We think this subscription program is the future of loyalty,” Sara Burnett, senior vice president of food policy and wellness. “This is about building onto that traditional loyalty model and asking how to bring true value to those loyalty members. We’re doing that by offering them something unique and convenient.”
Another objective for the chain is to win the intensifying battle at breakfast, one that will include a new player in Wendy’s next week. Just last year, Panera announced a menu overhaul to appeal to the growing breakfast crowd, and an upgraded coffee platform was part of that work.
None of these objectives will come easy. The American coffee market is expected to grow at a CAGR of 8.1% through 2024, and plenty of players are stepping up their games to capture that growing demand. This was especially obvious during the most recent round of earnings calls, when Starbucks, Dunkin’ and Tim Hortons all discussed their deep investments in new equipment in their quest for coffee supremacy.
Still, Panera has plenty of confidence from its subscription test and believes it has a significant advantage.
“We believe this program will drive more awareness of our food, which is what we want because our food is distinctive,” Chaudhary said. “We also think we can win here because we have a very compelling proposition. We believe consumers don’t have to compromise craveability for wellness, or convenience for quality.”
Consumers can begin signing up for the program Feb. 27 via the Panera website and mobile app. On March 2, consumers can sign up at kiosks in the cafes.
