How a restaurant with no cash registers and no prices makes money

Panera’s donation-based business has been a huge success.
Panera’s donation-based business has been a huge success.
Image: AP Photo/Jeff Roberson
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A Panera Cares Café looks just like any one of the other 1,600 Panera locations around the United States: the same striped awnings, the same comfortable booths, the same ridiculously tasty Cobblestone Rolls that will add 10 pounds if you so much as look at them.

But look closer and you’ll notice something unusual for a restaurant chain that brings in more than $3 billion each year. There are no prices listed next to items on the menu boards and no cash registers. Instead, donation boxes sit on the counter, with signs telling customers: “Take what you need; leave your fair share.” Panera cashiers take meal orders, hand patrons receipts indicating how much the items would normally cost, and let them decide how much to leave in the donation box or to take off their credit cards.

Panera Bread opened its first pay-what-you-can store in a St. Louis suburb in May 2010, and now operates five such cafés through its foundation. In 2013, these five locations are expected to serve more than 1 million people. Panera funds the initial conversion or build-out of a Cares Café and then donates it to the Panera Bread Foundation. From there, each café is expected to cover its operating and food costs.

The goal, as Kate Antonacci, Panera’s Director of Societal Impact Initiatives, explains is to provide a way for some of the millions of Americans who are food insecure to have a regular meal while paying little or nothing. “These cafés prove that people can eat in a warm and welcoming place, and be served the same food as everyone else,” says Antonacci. “It’s not compromising the experience, but just changing who would be able to access that food.”

The bet Panera has placed is that other customers will pay more than their meal costs in order to subsidize those who cannot afford to pay full-price. So far, it’s worked. Most of the cafés are consistently self-sustaining, with approximately 60 percent of patrons paying the suggested price, 20 percent paying less or nothing, and another 20 percent paying more than the cost of their meal.

The concept of a pay-what-you-can restaurant isn’t new—several dozen small independent coffee shops and restaurants around the country have tried the same experiment. But it’s not easy and many, like Seattle’s Terra Bite coffeehouse, don’t last more than a few years. Even those that do survive are often housed in low-traffic locations like churches and serve at most a few hundred people in a week.

The bet Panera has placed is that some customers will pay more than their meal costs to subsidize those who can’t.

Panera Cares is the first time a major corporation has put muscle and resources behind making pay-what-you-can work. CEO and co-founder Ron Shaich spent the better part of a year researching the idea with a team of employees before opening the first location. They decided, for instance, not to place these cafés in strictly low-income neighborhoods because the concept requires a steady stream of mixed-income customers in order to work. They also knew that suburban locations could reach food insecure Americans, roughly a quarter of whom own their own homes.

The mix of customers was important as well. One reason smaller restaurants haven’t been able to maintain pay-what-you-can is that they exhaust the goodwill of their regulars, as customers lose their enthusiasm for paying more after the first few months. The Panera Cares in Boston is located in Government Center, a city neighborhood that gets a good amount of tourist foot traffic and a regular downtown office crowd, while also serving Boston’s homeless and working poor. In Clayton, Missouri, the Panera Cares is across the street from a courthouse, with a similarly diverse customer base.

That’s not to say there haven’t been problems. After Panera opened up a location in Portland, Oregon, students from a nearby high school began coming in and abusing the system—ordering multiple meals without paying. The café’s managers eventually met with the high school principal, who sent letters home to parents, a move that eased the situation. The concept is also confusing to most customers, and Shaich—who worked at the Clayton location for the first two weeks after it opened—quickly learned that Panera Cares cafés needed to add a greeter at the door who explains the system as each customer enters.

One of the stores’ biggest challenges was internal: training Panera staff—many of whom have had personal experience with food insecurity—to overcome their initial impulse to judge customers for behavior they deemed unfair. “The whole bet was a test of humanity,” says Shaich. “It was fascinating how our staff would get mad at people who didn’t do the ‘right thing,’ in their minds. One of our most fundamental challenges in the beginning was helping them deal with those feelings. We needed to protect the dignity of the guests from Panera instead of the other way around.”

Shaich could empathize with his employees because he had the same reactions himself at the beginning. “I remember so clearly when these young high school kids walked in and ordered about $40-worth of food and put $2 on their credit card,” he says. “I wanted to jump across the counter and grab those kids around the neck and whack them.” Now, if customers who can’t—or don’t—pay come in more than once a week, they’re asked to volunteer by donating an hour of their time to cleaning tables or performing another task in the store.”

The Panera experiment has worked because most customers don’t look at it as an opportunity score free food. Perhaps that’s surprising, but researchers at the University of California at San Diego and at Berkeley have found that when customers have a say in how much they pay, they’re more inclined to give. In part, that’s because people assume that others are paying more and they want to look—and feel—generous as well.

Last summer, Panera began testing a new twist on its experiment, adding one pay-what-you-want item in regular cafés. Customers can currently order turkey chili in a bread bowl at 48 stores around St. Louis and decide for themselves how much to pay for the item. The company has also expanded its charitable activities, which include the day-old baked goods they have always donated to food kitchens and other charities, include job training. Profits from Panera Care cafés go into partnerships with organizations that work with at-risk teens. “They provide life skills, we provide job skills,” says Shaich. “And if the kids graduate, we’ll offer them a job.”

Shaich knows that five pay-what-you-want cafés aren’t going to change the world. “We’re not going to cure poverty with this,” he says. “This isn’t going to end hunger.” But he wants the Panera experiment to challenge other companies. “Home Depot has the capability of helping after major storms. The Gap could run thrift stores,” says Shaich. “It’s a challenge to view your business as not just extracting profit from society.”

Amy Sullivan is a correspondent for National Journal and director of the Next Economy Project, a joint effort of National Journal and The Atlantic.

This originally appeared at The Atlantic Cities. More from our sister site:

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