Panera Doesn’t Plan to Stop at Free Coffee Subscriptions

It feels years, not months, since Panera Bread unveiled one of 2020’s buzziest deals in late February. The 2,200-unit chain announced customers could subscribe to unlimited coffee and tea, iced or hot. Any size, for $8.99.

It was an effort other restaurant chains pursued in the past, like Burger King and its $5 program, but to uneven results. Panera thought it could break through, however, for two clear reasons: It cut the strings off the promotion, like size and product restraints. And notably, touted an ecommerce platform robust enough to handle demand along with omnichannel outlets for guests to find it, like Rapid Pick-Up, drive thru, delivery, and on-premise.

Also, Panera reports some 40 million members in its loyalty program, roughly double that of Starbucks. More than 50 percent of its transactions come from loyalty members and users represent, on average, five times the value of customers outside the platform.

When COVID-19 shut down dining rooms nationwide in March, Panera shifted course. The deal faded back.

On May 26, Panera brought on Eduardo Luz, former U.S. chief marketing officer at Kraft Heinz. He took over as chief brand and concept officer, overseeing Panera’s marketing, digital, strategy/insights, and culinary teams.

One of his early tasks was to jolt the coffee subscription back to life. About three weeks in, Panera’s #FREECOFFEE4SUMMER campaign landed. Anybody who signed up (the same was true of guests currently enrolled), were instantly eligible for unlimited coffee and tea until Labor Day at no cost.

There’s a simple and compelling metric to judge how successful the restart was. In the first, late-February phase, Panera picked up roughly 100,000 sign-ups, Luz says in an interview Monday with QSR.

After the latest offer? The fast casual added 700,000 people in a three-week span.

“It is way above what we predicted in our best-case scenario,” says Luz, who most recently worked at nutritional supplement company 8Greens as chief executive. “We’re very excited about that.”

The success spawned yet another phase of the program called “The Fellowship of Unlimited Coffee,” set to launch nationally this week. But before diving in, Luz hinted at another development that could shake up the quick-service value proposition—coffee might just be the beginning for Panera.

Luz says the fast casual is “cooking those plans as we speak,” in terms of additional subscription models. Customers and competitors should expect more versions of recurring revenue models from Panera, he says. “Coffee is great,” Luz says, “but it’s not the only one.”

Why Panera launched a subscription model in the first place—and why it’s investing in future possibilities—boils down to a few goals. CEO Niren Chaudhary shared some 150-store pilot results ahead of February’s coffee launch that pulled the operational curtain back.

Frequency jumped more than 200 percent for customers after they signed up compared to before, generating a significant rise in footfall. Panera witnessed a 70 percent increase in food attachment for subscribers, something Chaudhary called “staggering” at the time.

An elementary concept that carries wide potential: Come in for free coffee, grab a bite to eat you wouldn’t have considered before.

Panera Bread

According to recent data from Clarus Commerce, nearly three out of four consumers (73 percent) said they were likely to invest in a premium loyalty program or subscription if they’ve already tried the free version.

This was an especially intriguing target for Panera since the company traditionally pushes 75 percent of its business post-11 a.m. It entered 2020 with a relaunched breakfast lineup intent on capturing one of the sector’s fiercest daypart battlegrounds. The high-margin, generally low-labor segment has long been a golden egg for counter-service chains.

During tests, Sara Burnett, Panera’s VP of wellness and food policy, said attachment value was in the double-digits from a food perspective.

Additionally, close to 75 percent of coffee redemption occurred off-premises—an element critical to a COVID landscape. And Panera witnessed about a 25 percent hike in new MyPanera members asking for the deal, with a vast majority of those fresh to the brand. It succeeded in driving light users into restaurants.

Lastly, a result Chaudhary labeled “perhaps the most important,” Panera enjoyed a 90–95 percent renewal rate each month.

The full-picture: Frequency, food attachment, driving off-premises orders, and current and engaged data through loyalty.

Luz says the more recent, free deal accomplished other essential aims for Panera, placed under the microscope in a coronavirus world. For one, it provides a mental break he believes customers need amid dire news stories and quarantine gloom. “A ray of sunshine on a very dark stretch coming into the summer,” he says.

“People need something good,” Luz adds. “That’s it. It’s as simple as that.”

On the business side, however, the reason people choose to dine out has adjusted dramatically in recent months. The frequency game isn’t about discovery and variety anymore. Trust and familiarity, safety, ease of ordering, and accessibility have pushed forward. It’s why many consumers report a COVID restaurant rotation of sorts. Brands they understand, are comfortable with, and know how to access safely, and they keep coming back. It’s a choice dynamic fueled by the reality safety is now a top-of-mind factor when picking a place to eat.

A coffee subscription, Luz says, is undoubtedly an interesting way for people to keep Panera in their consideration set. One key: It gets them through the door to see all of the chain’s updated strategies and efforts in action.

Similar to how the original deal courted food attachment, you could say this one brings about “safety attachment.”

But that’s not to say it’s not accomplishing Panera’s original hope, either.

“Every time you increase traffic to our cafes or to our app or virtually or digitally, you increase your chances of cross-selling something,” Luz says. “… We’re not forcing that, just saying it’s available. If you want to take advantage of that, please do.”

On the safety note, Luz says, people need to see an experience with their own eyes to trust it, especially in terms of dining room reopenings. “It’s more what we do versus what we say,” Luz explains.

The sheer number of sign-ups can’t be undervalued. It’s helped stack what Luz says is “probably the largest loyalty database in the country.” While people aren’t paying Panera, they’re providing detailed information about themselves and their purchasing habits. It’s a cost equation Panera is willing to trade coffee sales for—a cup can historically give operators 300–400 percent in profit.

“And we believe those people have a relationship with us based on a lot of trust over the years,” he says. “And we believe we can take that trust to a next level of engagement where people who subscribe to certain categories will trust us to execute that need.”

Again, subscriptions of products and services other than coffee are coming down the pipe.

In the near-term, though, “The fellowship of Unlimited Coffee,” presents Panera with potential to web its subscription network further. Current subscribers who sign up five or more people instantly unlock free coffee for themselves and everyone they referred through Halloween.

How it works:

A MyPanera email is sent to each subscriber with a unique link to refer friends. This link and offer will also be available on a guest’s MyPanera+ Coffee subscription page.
They spread the word to friends and family. When their unique link generates five new coffee subscribers, all six receive free coffee through the end of October.
The sign-up window for the Fellowship runs through September 7.

Luz believes the platform is going to stir brand noise and give core customers a unique way to interact. “You bring something of value to your personal network,” he says. “It’s super cool.” Panera did a beta test last week to work out IT kinks and make sure systems were synchronized.

But the full platform goes live this week. Luz says its foolhardy to predict social media and the ensuing response, yet he’s hopeful for a splash that also proves useful and lasting to guests navigating the pandemic.

And say just 5 percent of that 800,000 group engages and stops at adding five friends, Panera would onboard another 200,000 loyalty members.

“It’s a way for you as a current subscriber to do something for your close community and friends,” he says.