The other morning when I read about Panera Bread’s new coffee subscription plan, I almost spit out my coffee, pointing the article out to my husband. It’s brilliant. The phrase coffee and breakfast disruption comes to mind.
About the same time, Wendy’s announced its new breakfast menu, and that took some well-deserved buzz away from Panera Bread. If I were Wendy’s, McDonald's or the like, I’d be worried, or else I’d consider something similar.
Here’s Panera’s plan, which it already test-marketed with overwhelmingly positive bottom-line results:
- For $8.99 per month, subscribers can stop by for unlimited hot drip coffee, iced coffee and hot tea—multiple times a day if they want. It’s to Panera’s advantage that for many people, coffee isn’t just nice, it’s necessary. The question is, will they switch their loyalty away from Starbucks? (50% of surveyed consumers have purchased coffee at Starbucks in the past 3 months vs. 25% from a fast casual like Panera Bread, per Mintel’s Coffee and Tea on Premise—US, July 2019 ) Where price is considered, Panera Bread has changed everything. Where Starbucks may not go down easily is in the realm of specialty coffees. Panera is only offering the very basic.
- The super-cheap coffee subscription program is only available to MyPanera loyalty program members. Way to go… signing up new members, tracking purchases and likely extending other offers. This, no doubt, will steal business (coffee and otherwise) away from the competition. Who is that competition? Well, besides the fact that 50% have purchased a coffee at Starbucks in the past three months, 41% have purchased coffee from McDonald's and 32% from Dunkin’ (per Mintel). You have to assume that Panera has good coffee—at least as good as the others. It’s something Panera has worked on. They now buy whole beans and grind them fresh daily in-store with their new grinding and brewing equipment (according to Nation’s Restaurant News).
- Panera has made this coffee subscription convenient, and in that regard it has created a level playing field. At play is in-store pickup/order-ahead, drive-thru and delivery (with a minimum order requirement).
It’s all there. Why had no one thought of this before? Well, I don’t think it would be in Starbucks’ best interest to just give coffee away. Most folks who go to Panera are there for the food. Coffee sales only make up 3% of Panera’s total revenue. Wouldn’t you imagine that those who take Panera Bread up on its cheap coffee subscription program would continue buying food, and probably more-so, boosting the bottom line? You imagine right. In market testing, to quote the Nation’s Restaurant News article, “We saw a 200% increase in frequency of customers, food attachment went up by 70% and we were able to attract new customers.”
But I have a question. Is there a target demographic? The youngsters (Generation Z, those up to age 25) are not so much into brewed coffee. Only 34% of them, compared to 50% of Generation X (ages 44-55), have purchased regular brewed coffee from a foodservice outlet in the past three months, per the Mintel report. However, iced coffee is included in this deal, and Generation Z is by far the biggest purchaser of that.
I think that to some (maybe not many), the subscription will be disappointing in its limits. Among its specialty beverages, Panera offers caramel latte, caffe mocha, chai tea latte and more. Those aren’t included in the coffee subscription program. However, with the robust loyalty program it’s attached to, those beverages could somehow be offered as a reward.
The coffee subscription is indeed brilliant and disruptive. I’ll be curious to see what competitive programs spawn as a result.
Tell me what you think.
Jody Shee
