Like Netflix for Coffee
The Strategy Behind Panera’s Winning Subscription Service
From streaming platforms like Netflix and Spotify to essential work tools such as Salesforce and Microsoft 365, it seems everything these days is becoming subscription based. Even beyond the software industry, countless companies are offering online, mail order subscription services for such varied consumer products as wine, chocolates, gift boxes and more. But can the benefits of the subscription model also be applied to primarily offline businesses like traditional retail and restaurants? An interesting marketing experiment by Panera bread puts this question to the test.
Launched during the height of the pandemic in 2020, Panera Bread’s new subscription service, MyPanera+, offers customers one coffee of any size, any flavor, every 2 hours for just an affordable $8.99 monthly fee. The first fast-casual restaurant chain to offer a coffee subscription, MyPanera+ quickly became a roaring success for the brand.
According to Eduardo Luz, Chief Brand and Concept Officer at Panera, the subscription service has been critical for driving continued growth despite the challenging industry environment created by Covid-19. The coffee service has accrued over 800,000 new MyPanera members for the brand in just its first year.
Although the subscription service was planned well in advance of the pandemic, it became the keystone of Panera’s COVID era strategy, ensuring their customer base continued to grow even as in-person dining plummeted. So, what’s Panera ‘s big secret to its success? Mr. Luz points to Panera’s periodic free, 3-month long promotional trials as the key for bringing in so many new users.
In June of 2020, Panera made the decision to offer its subscription free of charge for all new and existing MyPanera+ members all summer long with an encore campaign launched in Fall of 2021 to follow up on its success. This immensely popular campaign helped Panera build buzz and attract a new audience while simultaneously building brand loyalty with their existing customers by cutting them a great deal during tough times.
Aside from the obvious brand image value, the true brilliance of Panera’s savvy subscription strategy is in how it combines the benefits of the loss leader and free trial pricing models.
The free coffee strategy costs Panera very little to fulfill, especially considering its effectiveness at acquiring and retaining customers. By Panera’s numbers, the lifetime value of a typical loyalty program member is approximately five times that of a regular customer. The lure of unlimited coffee also helps with encouraging diners to return regularly to their stores. To see the full value of the $8.99 subscription price, customers will need to order an average of four drinks per month. That presents stores with at least four opportunities to upsell baked goods or other more costly menu items to that customer. Even if a customer does not visit as frequently as Panera would hope, the company is still making stable and recurring revenue off their monthly membership fees.
Of course, there are some unanticipated downsides to Panera’s strategy. By offering the free promotion to everyone, Panera could see its valuable restaurant space taken up during peak hours by unpaying customers hanging around for free drinks. This could crowd out more valuable diners resulting in a loss of their business. With the decline in in-person dining caused by Covid-19, this problem was minimal for Panera, but it could be a much more significant challenge for brands attempting to imitate this strategy as the country reopens. Panera’s strategy is also heavily reliant on monetizing repeat customers which requires proximity to their subscribers. Smaller businesses may not have the number of locations required to see the most value.
So, what can other marketers take away from Panera’s success? The subscription model can be viable for in-person businesses provided they follow Panera’s example on a few key points. First, any promotion should be universal and not just targeted at new subscribers. By offering free coffee to both new and existing Panera subscribers, the brand was able to use its already loyal audience to spread the word with enthusiasm and better bring in new customers. The second is thoughtful selection of the right product for a subscription service. The ideal choice is something that is purchased frequently and has a low cost to produce, while also leaving room to upsell other products. Panera’s coffee fit all these criteria wonderfully. When executed intelligently, as Panera did with MyPaneraPlus, a subscription service is a win-win for business and customers alike, offering good value for the shopper and stable and further monetizable recurring revenue for the company. With its overwhelming success, we can expect many food chains to follow along in the near future, continuing the trend of subscription services being popularized in more industries.
- True Fong-Vig