Takeaways from Panera's Unlimited Coffee Subscription
The fast-food breakfast wars intensified last week. What can we learn from the latest advancement?
Panera rolled an unlimited-coffee subscription model last week. For a monthly fee of $9, you can now get unlimited hot/iced coffee/tea. A cup of Panera coffee usually costs $2.20, so once you've had the 4th cup in a month, you start to get the bang for your buck.
As a sports & entertainment organization, what can we take away from this latest move?
1) Test the marketplace for new ideas.
Perhaps you pilot new, behind-the-scenes content from your student-athletes for a small group of donors. Maybe you add a new service like expedited entry to your arena for select season ticket holders. Test it, measure it, expand or delete it.
Panera tested the marketplace by offering this subscription model in 150 stores across three states before going nationwide. In those test markets, more than 90% of subscribers renewed their subscription, with most test subscribers visiting every other day, often buying food along with their free coffee.
The test run gave them a great idea of some early indicating key performance indicators. Things like usage rate, % of subscribers purchasing additional items, and renewal rates which allow them to better forecast stable future revenue.
The test run follows the design thinking approach clearly:
Empathize - Consumers behaviors are changing. My dad used to drink a Dr. Pepper to start every morning. In contrast, I haven't drank a full-soft drink in 10+ years (humblebrag). But coffee fits right in with current dietary trends. It’s naturally no-calorie, gluten-free, dairy-free, and carb-free. Soda consumption hit a 30-year low in 2016, opening the door for coffee as beverage of the morning.
Define- In the US, roughly 64% of adults drink coffee daily, the highest proportion since 2012. Looking at Americans spending habits, they are spending more on coffee than ever according to the National Coffee Association. As Panera looks to solve the larger problems of their customers based on their goals and motivations, a defining question becomes, "how can we help our customers save money on coffee but still get their fix?"
Ideate- This is the fun part, where you challenge your assumptions and "think outside the box." A subscription service for unlimited coffee sure fits that.
Prototype- This is where you start to try scaled down versions of your service or product, and fits perfectly with the 150 store experiment Panera ran before launching nationwide.
Test - In an interview with Business Insider, Panera CEO Niren Chaudhary said the company could use different subscription price points or bundle propositions to add more versatility to the subscription model. As the model continues to gain traction, it makes sense they will test new products and tweaks on the model.
Before rolling out new offerings to your entire fan base, are there new services and products you can introduce in a limited capacity to see the actual response and feedback?
2) Create a low cost acquisition tool.
16oz of coffee grounds (the biggest contributor to a cup of coffee costs) costs anywhere from 0.08 cents to 0.52 cents, depending on the quality of the coffee bean. In reality, Panera's cost per 16oz is probably even lower, considering their parent company, JAB Holdings has a huge influence on the supply chain.
In coffee, Panera has found a desirable offering with very little cost to produce. If a 16oz of quality Panera coffee costs 0.25 cents to make, and we find a Panera coffee super-fan who takes advantage of the unlimited coffee and visits every day, we’re still only talking about $7.50 in coffee... a positive net return for Panera.
So how often were subscribers in test markets actually using their offer for free coffee? It seems that in the 150 test restaurants, subscribers were visiting Panera almost every other day, and as you might assume, many of those customers purchased food during their visits.
Additionally, in early market studies, Panera found an increase of 25% in new registrants for the MyPanera rewards program. For anyone unfamiliar with the program, for the cost of your email address and phone number, you get free surprises every few visits. And the free surprises are GREAT - a few years ago, I literally got a free bagel, every day, for the entire month.
On average, I get about seven to eight emails a month from Panera, reminding me and providing me reasons to come in. But even better, the program captures data about my preferences in orders, flavors, what items I order together, etc. That way, Panera can shape their offerings to better reflect what their customers are actually looking for. And they can directly market to you on a platform that you spend multiple hours a day - your email inbox.
Not only are they winning new customers, they're also getting more frequent visits from already loyal customers. How are you getting fans into you CRM outside of potentially expensive ticket purchases? What’s your low cost acquisition tool?