Retailing with Heart

Venture into a Panera Cares café and you’ll see the same menu and racks of freshly baked breads that are staples at the 1,400 Panera Bread restaurants across the United States. The only thing missing is the cash register. Instead, there’s a donation box where customers pay on the honor system.

Venture into a Panera Cares café and you’ll see the same menu and racks of freshly baked breads that are staples at the 1,400 Panera Bread restaurants across the United States. The only thing missing is the cash register. Instead, there’s a donation box where customers pay on the honor system.

“We tell you the suggested price but the choice is yours,” explains Panera co-founder Ron Shaich, who recently stepped down as CEO to focus more of his energy on philanthropy. (He continues to chair Panera’s board of directors and heads the Panera Bread Foundation.) “If you’ve got a few extra bucks, the right thing is to leave it. If you’re feeling pressure, you can take a discount. If you’ve got nothing, you’re free to enjoy your meal with dignity.”

Since opening its first “restaurant of shared responsibility” last May in a St. Louis suburb, the chain is poised to take its upscale version of a soup kitchen nationwide. A second Panera Cares café opened in November outside Detroit, and a third was slated to open in Portland, Ore., in January. Neighborhoods have been selected to include a mixed clientele, with well-heeled professionals dining side by side with homeless families.

The concept is groundbreaking in the food service sector. “It’s not like a free Grand Slam breakfast that Denny’s offers on one day a year,” Shaich says. “We want this to be sustainable.” Any profits generated by the cafés will be channeled into job training for disadvantaged youth and other community programs. Unlike the Ben & Jerry’s PartnerShops that are franchised to local nonprofits, Panera Cares cafés are managed by the corporate foundation.

The model offers the company a way to put its core strengths to work on social problems. Panera has long been active in philanthropy, donating more than $100 million worth of goods annually to local agencies, Shaich says, “but that product goes out the back door in brown bags. Nobody gets connected to where it goes.” He liked the idea of getting his workforce more personally involved in solving challenges. “How do we take our skills and add more value than just writing a check?”

An answer started to take shape when Shaich heard about a Denver-area nonprofit that was running a no-price café to serve the community’s hungry. The idea sounded promising but had taken years to implement. In the corporate world, Shaich says, he’s used to opening two restaurants a week. He also thought about an experience of helping his young children deliver food to shut-in elderly. “The three of us spent three hours driving to the warehouse, filling bags, and taking food to a couple of people. That’s nine hours of human capital for two bags of food.” The entrepreneur in him knew he could make giving more efficient.

To fine-tune the Panera Cares concept, Shaich visited soup kitchens in various communities. His decades in food service didn’t prepare him for what he saw. Waiting in line for a handout “is an experience that lacks in dignity. With all due respect,” he adds, “it’s negative energy.” That’s when he decided the new cafés needed to offer a full menu, not just bread and soup. “Then it became a dare to ourselves. If we’re serious about offering a high-quality experience to everybody, then we have to put all the power of our brand behind this.”

Patrons have responded favorably, with about 60 percent challengpaying suggested price, 20 percent paying more, and the rest taking a deduction. It averages out to 80 percent to 85 percent of suggested retail, which is more than enough to cover costs, Shaich says.

Nordstrom may be the next national chain to start retailing for charity. The upscale clothier will open a unique store in the SoHo neighborhood of Manhattan in fall 2011. All profits will benefit charitable causes. Devoting a whole store to charity goes beyond cause marketing campaigns like Product RED.

It’s not yet clear what merchandise will be sold or which charities will benefit, says Nordstrom spokeswoman Pamela Lopez. But unlike Panera, Nordstrom will not brand the store as its own. “There will be no Nordstrom sign,” Lopez says. “This is a chance for us to do something unique.” Not coincidentally, the store will offer the company a window into the New York retail market, “where we aspire to have a full-line store eventually.”

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  • BY Shawn Basak

    ON March 22, 2011 10:04 PM

    Bravo to Panera for instituting such a brilliant consumer engagement strategy.  Since my high school days when I would go with friends to our local Panera for donations for a school bake sale, the company has made it a priority to not just operate extremely profitably (even while strategically increasing prices during the recession), but espouse a community feel throughout its retail stores. 

    I am reminded about a story I heard at the Net Impact conference last fall by Seth Goldman, CEO of Honest Tea.  Honest Tea set up racks of their delicious drinks all across the country on college campuses for people to grab a bottle.  A box for payment was left there for people to pay via the honor system.  Many college campuses paid the $1 per bottle and some even more.  Whether the consumer knew it or not, Honest Tea was engaging consumers on an emotional level without even needing a person there.

    Strategies like this go far beyond simplistic cause marketing campaigns.

  • Linda Mihalik's avatar

    BY Linda Mihalik

    ON March 31, 2011 03:56 PM

    I like that all kinds of ‘customers’ are welcome, where families that need a hand can get a healthy, hearty meal alongside folks who can afford to pay. I’d eat there! I’m interested in learning how they are fareing in about a year….

    Perhaps the next step would be to use the Panera Cares cafe as a place where the unemployed can work for a few hours.

  • Gayle Taylor's avatar

    BY Gayle Taylor

    ON March 31, 2011 04:41 PM

    I have been following the Panera story with much interest and hopes that it would be a success. I am part a small group that actually started what we call Third Tuesday Suppers (http://www.ThirdTuesdaySuppers .com) in Geneva Il, a suburb of Chicago. We have been putting on a meal once a month that over 18 months has grown from 100 guests to now 500. It is amazing to hear the stories of how unemployment has effected our normally affluent area and that we are able to make a little contribution to people’s lives . We try to offer a restaurant type meal,serving everyone with the same dignity and without the check.So far we have been able to sustain through donations both monetary and food, including Panera, who last year donated rolls for one of our dinners. Keep up the good work—there’s much to do.

  • Chirag Desai's avatar

    BY Chirag Desai

    ON March 31, 2011 07:59 PM

    No doubt this is excellent and heartening to see that a fantastic majority of their customers pay at or above the expected price.  What are some thoughts on scalability?  Is there a critical mass beyond which point this can’t be sustained or beyond which point people take unfair advantage of the honor system?  The reason I ask this is because of conversations on transferring such an idea to other countries, in which most individuals believe that too many people would take unfair advantage of this model.  While this is clearly wholesome, I fear that over time, people could begin to take it for granted, and increasingly pay less and less.

  • BY Jill Poet

    ON April 3, 2011 01:51 PM

    I think this is a fabulous idea and really hope it is successful. It would be great to see it working in other countries too? I wonder if it would be successful in the UK?

  • Panera’s pitch is that donations generally balance out—but that’s only because they position their “honor-system” restaurants in upscale neighborhoods.  There are certainly more homeless people than their capacity, so if they actually opened it up to all hungry people, they simply couldn’t sustain themselves.

    I volunteer for a restaurant experiment called Karma Kitchen.  On Sundays in Berkeley (and now other cities), volunteers rent a restaurant space with cooked food, null the check and ask everyone to pay forward whatever they want for each other.  It started at a restaurant next to People’s Park and where it shared a wall with a tattoo parlor in Downtown Berkeley.  Yet, they are not trying to address or solve the hunger problem.  Their hope is to create a generosity-based community experience for regular restaurant goers—which hopefully ripples out to solve many deep inequities in the world. 

    Whatever the deeper intention of both these models, neither Panera nor Karma Kitchen are setup to “feed the hungry”.  Today, the world produces enough food to feed everyone—but it doesn’t happen because of the boundaries we create amongst ourselves.  Despite the limited contexts that they operate in, if Panera, Karma Kitchen and the like are able to inspire more people to experience their inter-connection with each other, it will take humanity a small step forward.

    In that vein, the nuanced difference between pay-what-you-can and pay-forward-what-you-want is also worth considering:

  • BY Timothy Devinney

    ON April 7, 2011 08:07 PM

    The idea is good and jives with a lot of psychological research.  A requirement to pay and a choice to pay normally leads to the sort of results found.  In general, however, it actually leads to slight overpayment relative to what people would have paid if there were simply posted prices and this was enforced (e.g., the suggested price can be reduced or increased and this will lead to changes that are not proportional).  The overpayment effect (as a percentage) is larger when you don’t post any prices.

    Also, the idea is not all that new.  For example, many wine bars (e.g., in Weinstrasse in Berlin) and tapas bars in Spain operate with a system where you decide what you want to pay.  The evidence there seems to indicate that people overpay relative to what they would have paid had there been straight prices.  The reason is that people separate the payment from the consumption and end up “over consuming” and hence compensate by “overpaying”.  In the Panera case this might be ok if what you want to do is get people too eat.  It may also not be an issue since what you are attempting to do in not exclude people from a meal.  It would be very interesting to study this further.

  • Mariette's avatar

    BY Mariette

    ON April 15, 2011 01:10 PM

    It is a disservice to the experiment in which Panera attempts to engage its customers to call it an “upscale version of a soup kitchen”. 

    In a soup kitchen, the intention is to provide hungry people with free food.  It is often an one-way exchange.  In pay-forward or pay-what-you-wish restaurants, the intention is to use food as a means to connect with others, to identify the impact of our actions, to expand our view of our world.  When I reach into my wallet at the end of the meal, I enable tomorrow’s customer to experience this same space.  I also start thinking of all the actors in the chain that made it possible for me to enjoy this food: the growers of the food, the makers and servers of the food, even the landlord of the building and the transporters, the cleaning staff of the restaurant, the past and future customers…

    Instead, how about calling it “an open restaurant” or “an experiment in generosity”?

  • BY Kathleen Franks

    ON April 17, 2011 02:52 AM

    With all the negative news we get daily about corporate greed and exploitation, it is so refreshing to hear about these experiments in generosity. Thank you, SSIR, and please keep up the good work!

  • Ravi Sheshadri's avatar

    BY Ravi Sheshadri

    ON May 1, 2011 04:32 AM

    Dear Friend,

    Very very gutsy experiment. In Ahmedabad also there is an experiment going on “SEVA CAFE” which offers limited menu. You can pay whatever you please. It has been running from the last 5 years and recently turned profitable.

    Most of the people woking there are volunteers who chip in 3 hours a day as a waiter and serve guests. Many people well-placed in life, come here and give their time.

    Their contact numbers are +91-79-32954140, 32918033

    With regards

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