Pay What You Want at Panera

A new non-profit Panera outside of St. Louis has caught the eye of a number of Freakonomics readers. Customers are told to pay what they want for their meals. “The pilot restaurant is run by a nonprofit foundation,” the Associated Press reports. “If it can sustain itself financially, Panera will expand the model around the country within months. It all depends on whether customers will abide by the motto that hangs above the deli counter: ‘Take what you need, leave your fair share.'”[%comments]


DanInesanto

This is also something that may work at a small, localized, unique sort of situation but may not be effective if scaled up.

The special status of that particular Panera location may provide an incentive/reminder/expectation to customers to pay a "fair" share sufficient to sustain the place. However, once the practice moves to a larger scale, the special status may disappear and with it the incentives for everyone to pay.

This may also not work in different locations because of the different microcultures of places.

Elton

How do I know what's fair for a Panera sandwich, once profit is removed from the equation? Do they at least post what the marginal cost of producing the sandwich (plus amortized fixed costs like rent and electricity) so people know whether $4 or $8 properly compensates them?

carl reisig

One consequence:

I, for one, will change my coffeeing patronage to
Panera, no questions.

Vineet

It says it is a "new store in the upscale St. Louis suburb". I don't want to be presumptuous about the result of the study, but the natural set up of the experiment is somewhat biased - a well-to-do area where most likely people stumble across each other rather regularly?

I don't believe people are 'bad', but the context/environment mattters. It would be interesting if such an experiment were set up in an area like where Sudhir Venkatesh spent his PhD days. In particular, it would be good to compare how long before the 'equilibrium' sets in both cases - when people begin - and continue - to pay 'fair value' for the products.

Audrey

Caitlin Hartsell of the Show-Me Institute (which used to have its offices just a block away from this Panera), explains the set up with more detail, and writes that Panera isn't the first restaurant to try this:

http://www.showmedaily.org/2010/05/for-profit-restaurant-goes.html

bsl

This Panera is a few blocks from my office. It is located in an affluent neighborhood/business district outside of St. Louis .

The menu is the same and the prices are the same as before, but now you're given the option to pay what you want. The menu has "suggested prices" but the cashiers stress that you only pay what you want. I figure that the company was making a decent profit before so paying the regular price (and rounding up to the nearest dollar) is a fair price.

Panera usually donates day old bread to homeless shelters and/or food pantries. There was a stack of day old bread sitting by the door with a sign asking you to pay what you think it's worth. No prices were available for those items. I guess they figure getting money for the day old bread instead of donating the food is more efficient (of course).

The one question I have is the flyer I was given at the store states the company will donate the profits to charities it supports. Very vague - I would like to know what charities are receiving the money. But that won't stop me from buying lunch there every once in a while.

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kisha

I love this concept and hope that it will work. Barter systems is what many countries and business relationships have been built on. So back to the basics at this time seems fair and reasonable. Hopefully all participating act in an appropriate manner.

Bernie Goldman

It will most definitely fail for sure because the overall moral condition in America and Americans acquired focus on ROI.
Question: can an ethical person success in America business environment?

Nylund

Regarding comment 7, "pay what you want" is not bartering, the exchange of non-money goods and services. As for proper bartering, there is nothing stopping it from happening, but the benefits of conducting transactions with a universal medium of exchange usually outweigh the benefits of barter (due to issues like "the matching problem"). Nonetheless, bartering does happen all the time. In the magazine industry it is not uncommon for makers of alcoholic beverages to pay for their ad space by providing alcohol for the parties magazine's often throw. There is nothing outlawing paying for your medical care in chickens, its just that most medical providers would prefer actual money, but you're always free to try! Its not illegal to do so. Its also not illegal for business to refuse such payments, and rightfully so.

Point being, this is not an example of bartering. Its more like a one-sided negotiation or a one-player auction.

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Harry Brindley

"Take what you need, leave your fair share" is the same as asking for the suggested price. If this non-profit aims to help feed the needy, the very first charity they should consider, they should advertise "Take what you need, pay what you can afford" -- much like Denver, Colorado's So All May Eat (SAME) http://www.youtube.com/watch?v=R8cXgT33PkU. Some need encouragement to pay MORE so that others can pay LESS.

Dave

I believe that if this model were to expand to less affluent areas, we wouldn't see a "fair" bartering system so much as we would see "Free Grand Slam at Denny's"-caliber lines for cheap food. People, no matter how well-intentioned, will always give in to their baser incentives: get as much as you can for as little as possible.

PaulD

I personally don't like the concept. I always feel like I'm being a sucker if I pay full price and a heel if I pay less.

An interesting sidenote: according to an account that I read (which may be apocryphal) the reason we have set prices in retail establishments in the US (and don't allow haggling over prices) is because Shaker (or Mennonite?) shopkeepers in the 19th century felt that they could not in good conscience mark one price on the item for sale and yet be willing to accept another price, because it would be misleading to do so. I agree and I don't like economies in which buyer and seller are expected to haggle. It is unseemly, first of all, and secondly I don't think the price I pay should be dependent on how good I am at haggling.

Sean

This is why all other Panera Breads are so over-priced - they're sucking up the costs of this retarded one.

Sam

In St. Louis, it is still called St. Louis Bread Company.

John

There is some bartering involved in that if you feel you can't pay anything at all, you are given the option of working behind the counter for an hour.

I think the model is set up for slightly affluent areas where there is an influx of less affluent individuals for whatever reason. For example, in this case, the location is the "St. Louis County Seat" so people from all over the county come to conduct business.

David B

The question is not at all "will this work?" but "what can we do with the data?" If it doesn't work, the practice will be modified before bankruptcy hits. Along the way, though, we might have the opportunity to learn who pays full price? more? less? for which food types? under what advertised prices? under what competing prices?

And, by the way, being non-profit has little to do with this. It might slightly increase my willingness to pay, but a for-profit could try pay-what-you-think-is-fair, and plenty of pay-what-I-say-you-pay businesses are registered as non-profit.

mmmagk

This concept of "pay as much as you like" works very well for over 3 years for a restaurant in Vienna. It's called "Der Wiener Deewan" (http://www.deewan.at/ - in German). It for meals only. Drinks are paid separately.

See also http://www.theglobeandmail.com/life/article975626.ece (in English).

Uthor

@Sean - I agree. Whenever I eat at Panera, I always think "I paid HOW MUCH for this?" I'd definitely be paying a couple bucks under "suggested" if I went there.

Emily

Won't work. The businesses that can work like this are the ones with either practically-0 marginal costs (music downloads - some musicians have done this) or ways of screening out enough non-payers (donation yoga - there's a value system that operates against freeloading). Sandwiches are not this sort of market, unless you can artificially constrain who gets to be a customer (like: a sandwich shop in a gated community or workplace, where you have a small, steady base of customers who know each other.) And in that sort of case, I'm not sure what the appeal would be. There are very functional and stratified food markets already.

Californian

I was recently at a used bookstore and was so ecstatic to be at a used bookstore that I paid more than the price tag on my book. But, when I go to my usual corner shops I pay the price tag. I agree that the novelty and appreciation are HUGE for this sort of thing, but wouldn't be on a national scale.