#889: The Pay-What-You-Want Experiment In 2010, Panera launched several pay-what-you-want cafes. On today's show: How this charitable experiment worked out.
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#889: The Pay-What-You-Want Experiment

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#889: The Pay-What-You-Want Experiment

#889: The Pay-What-You-Want Experiment

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SARAH GONZALEZ, HOST:

He's a big deal now, the founder of Panera Bread. But back when he was in college, he was just Ron Shaich, some teen getting kicked out of stores.

RON SHAICH: I was tossed out of a local convenience store.

GONZALEZ: Wait. You got kicked out of a convenience store in college?

SHAICH: Yes.

GONZALEZ: What did you do?

SHAICH: They accused us of shoplifting. I did nothing.

GONZALEZ: Are you sure?

SHAICH: I am positive.

GONZALEZ: (Laughter) OK. Ron Shaich vowed to never go back to this store.

SHAICH: And I said, why don't we open our own nonprofit convenience store? If they don't appreciate our business, let's do our own.

DAN BOBKOFF, HOST:

Ron was 19 years old when he opened this store on his college campus.

GONZALEZ: What did you sell?

SHAICH: We sold everything you might want on a college campus - you know, crackers and snacks, the beverages, cleaning supplies.

GONZALEZ: Ron was good at opening stores. He went on to build this little cafe called Au Bon Pain into a big chain. And out of that came another big chain called Panera Bread.

BOBKOFF: There are more than 2,000 Paneras now. And, you know, Ron's a good guy. He's the kind of guy who takes his kids to volunteer at food banks on the weekend.

GONZALEZ: And while they're all volunteering, he starts thinking that food pantries are actually really inefficient. He might as well just write a check, he thought.

BOBKOFF: And then one night, he's watching the news. It was actually a rerun of the "NBC Nightly News," he said. And they had this story about this cafe in Denver called SAME, short for So All May Eat, that allows customers to pay what they want.

(SOUNDBITE OF TV SHOW, "NBC NIGHTLY NEWS")

ROGER O'NEIL: There's the menu, with no prices, and the customers, those with and those without.

GONZALEZ: At SAME cafe, it didn't matter if you had money to pay for your meal.

BOBKOFF: And Ron's thinking, this sounds great. I can do something like this.

SHAICH: I said, we open a cafe every two days. We have more equipment, more resources, more capabilities. This is something we could do.

GONZALEZ: He thinks Panera can do this faster, bigger and better - private sector efficiency.

BOBKOFF: And this is the moment he decides he'll open nonprofit versions of Paneras. They'd look and taste like any other, but customers can decide what they want to pay.

SHAICH: I fundamentally believed that there were enough good people in the world that they would do the right thing. But I particularly loved torturing the cynics, who were arguing, you know, no way this would work. Everybody - you know, it would be lunch on Uncle Ron.

GONZALEZ: Ron was making a big bet not just on the business, but on human nature - that wealthy people and poor people would want to sit side-by-side for lunch and that people would be so generous that these restaurants would break even.

BOBKOFF: And a professor who really knows consumers was watching all this with a lot of interest.

What was your first impression of the idea?

GIANA ECKHARDT: My first impression of the idea was this will never work.

(SOUNDBITE OF FABIEN LANGARD AND PHILIPPE VILLAR'S "OUTSIDE THE CAGE")

GONZALEZ: Hello, and welcome to PLANET MONEY. I'm Sarah Gonzalez.

BOBKOFF: And I'm Dan Bobkoff.

GONZALEZ: Dan is with us from the podcast Household Name. They tell stories about how brands affect our lives.

BOBKOFF: Today on the show, an experiment in charity that goes right to the heart of human nature.

GONZALEZ: The relationship between what we believe in and what we will actually spend money on.

BOBKOFF: It's a story about homelessness...

GONZALEZ: Broccoli cheddar soup.

BOBKOFF: ...And the war between good and evil that rages within every consumer.

(SOUNDBITE OF FABIEN LANGARD AND PHILIPPE VILLAR'S "OUTSIDE THE CAGE")

BOBKOFF: Paneras are kind of like fancier fast food. They're a little healthier and a little pricier.

GONZALEZ: And when Ron said he was going to let customers pay whatever they wanted for Panera food, he decided these special cafes needed to be in areas where there were enough poor people who could benefit from the generosity of enough wealthier people.

SHAICH: Our whole idea here was not simply to create another homeless shelter or another soup kitchen. It was actually to have a real meal, and a real meal with dignity.

BOBKOFF: So he creates a nonprofit arm called Panera Cares. Instead of cash registers, the Cares cafes have donation bins. All the prices on the menu are just suggested prices.

GONZALEZ: You know, to give customers some idea of how much food actually costs. And the whole idea and hope here is that enough wealthier customers will pay more than the suggested price so the needy can eat for less.

BOBKOFF: The first location opens in Clayton, Mo, near St. Louis, in 2010. Ron actually stepped down as CEO to get it off the ground.

SHAICH: I can remember that first day we opened the cafe. I waited on customers. I waited behind the counter. I worked a hundred hours that next week in the cafe.

BOBKOFF: Ron then opens more nonprofit Paneras in Chicago, Boston, Portland, Ore., and Dearborn, Mich., right outside Detroit. I was a reporter in the area then, and I remember thinking hunger is such a big problem, maybe this could actually help.

GONZALEZ: No big restaurant corporation had ever tried this. And there was one professor who studies consumer behavior and consumer ethics who was thinking, what Ron is proposing goes against everything I know about how consumers behave.

What is the most depressing thing you've learned in studying consumer ethics?

ECKHARDT: Oh, my gosh. That's - wow. There's a deep well to pull from.

GONZALEZ: Oh, no.

BOBKOFF: Giana Eckhardt is a professor of marketing at Royal Holloway, University of London.

ECKHARDT: Well, I'll answer that by telling you the title of my most recent book on this topic, which is called "The Myth Of The Ethical Consumer."

GONZALEZ: Yep, there are no ethical consumers. Giana says how people feel about a social issue, like hunger, and how they behave in the marketplace are two totally different things, meaning, like, I can hate sweatshops, but I might still buy a pair of tennis shoes that - from a brand that uses sweatshop labor.

ECKHARDT: Exactly.

BOBKOFF: So she's like, I have to follow Ron's experiment. She actually observes these cafes for years.

GONZALEZ: These Panera Cares cafes got going quick. Soon, they were serving 4,000 people a week.

BOBKOFF: And, of course, there were a few early problems, like Ron had designed these big signs that explain the model, the menu, the mission.

SHAICH: We put so much energy into building these signs to tell people to do the right thing, pay what you want, pay what you can, pay it forward.

GONZALEZ: But apparently, people don't read signs. Everyone was confused, like, what do you mean suggested prices? So now they had to spend money to hire someone who could stand at the door and explain how this whole thing works. But whatever - like, they were serving the needy. This is what Ron wanted.

BOBKOFF: And you know there's a certain kind of person who's going to show up when you do something like this, like those kids who take the whole bowl of Halloween candy. Yeah, they showed up.

SHAICH: I can literally remember a couple of kids - local kids walked into our store in Clayton, Mo. And they walked up to the counter kind of laughing. And they said, I'll have three smoothies and two roast beef sandwiches. And here's my dad's credit card. Put three bucks on it.

I just wanted to jump over that counter, and I wanted to grab the kid around the neck and whack him. And I just wanted to say, don't you get it - right? - somebody else has got to pay.

GONZALEZ: Ron had to keep battling people's bad impulses, even his own staff. They started judging people, profiling them.

SHAICH: People would walk in, and we would assume we knew, either based on how they looked, based on how they were dressed - you know, potentially dread, based on the color of their skin, what they were going to do.

BOBKOFF: The staff would be like, wait, how much did you put in the bin? You look like you could give a bit more. He ended up putting the staff through sensitivity training, but he's really happy with the experiment at this point.

GONZALEZ: About six months in, Ron says more than half of the customers were paying the suggested price. About 20 percent paid extra. And the other 20 percent paid less. Sometimes they paid nothing at all.

BOBKOFF: Hey, free soup.

GONZALEZ: Which overall sounds pretty great. But what Giana is seeing, sitting there on all her visits, looks a little different.

ECKHARDT: At the beginning, people who were homeless were bringing in every possession that they owned into the Panera, which was typically in, like, a shopping cart. That's how they would keep their possessions.

And so you would see all of these shopping carts around, which also smelled, in addition to the people themselves. So the managers had to - yeah - come up with rules about the size of bags that you could bring in and things like that to manage that situation.

BOBKOFF: It fell on employees in these cafes to deal with issues that they weren't really qualified for, like mental health and drug issues. Sharon Davis worked at the Portland store.

SHARON DAVIS: I was probably one of the oldest people there, so it was kind of like Grandma Sharon type of thing.

GONZALEZ: Grandma Sharon saw the best and worst of people.

DAVIS: There was a customer sitting there. And she comes up, and she goes, oh, my God, these people stink. I can't stand eating like this. And I said, well, I'm really sorry, but they are entitled to a meal. And you try to be very, very dignified, you know, graceful about it.

GONZALEZ: And the bathrooms, in particular, were a big draw. Customers were doing things in there that Grandma Sharon should not have seen.

DAVIS: There would be quite a few of them that were shooting up in there. When they'd come out the door, you know, they were loaded. And we'd open the door and look, and there's blood everywhere. So then we'd have to close that bathroom.

BOBKOFF: Sharon says they were trying to do their best. They would refer customers to rehab and shelters and jobs and things like that.

GONZALEZ: But this experiment was really about food. And employees like Sharon told us the real problem was that these cafes weren't attracting enough generous people who wanted to pay more. So pretty early on, Panera's cafe started telling customers that if they didn't have money to pay, they could volunteer for an hour in exchange for a meal - you know, clean under the counters.

The first store was in business for eight years, but then it closed.

BOBKOFF: So did the ones in Dearborn, Chicago and Portland.

GONZALEZ: Panera says it did not make financial sense to continue to operate Panera Cares. They're no longer trying to beat food banks at their own game. Panera is back to donating to them - writing checks.

BOBKOFF: Sharon says she had a month's notice that her store would close.

DAVIS: We poured our last coffees together out of the coffee machine, and then we closed the door. And we all just stood there and looked. You know, we all gave each other hugs and said we'll be in touch. And we left the parking lot for the last time.

GONZALEZ: And Giana, our consumer expert, says Ron was just kind of naive about the whole thing. He didn't understand how those with and those without would behave next to each other.

ECKHARDT: What ended up happening is the people who were not food-insecure did not want to eat lunch with people who were food-insecure.

GONZALEZ: And Giana says those who were food-insecure didn't necessarily feel comfortable sitting next to those with more means either.

BOBKOFF: But Ron is a believer even today. He says the cafes closed because their leases were up and the rent was skyrocketing, not because his idea didn't work.

GONZALEZ: What do you say to people who say maybe you didn't understand, like, human nature when you started this? What is your response?

SHAICH: Excuse me, right? This thing worked. You've served millions of people over many, many years. And so the fact that at the end of five years - or seven, or eight - we closed the store by no means means that this wasn't a success.

BOBKOFF: Giana says there are other models that could've worked better.

GONZALEZ: Like, Panera could make people feel like they're getting a gift. Gifts make us feel guilty. They make us feel like we have to give back. There are pizza shops and coffee shops in the U.S. that do this already.

ECKHARDT: A lot of the ones that have been more successful than Panera Cares tend to be a pay-it-forward model rather than a pay-what-you-can model. So say it's, like, a coffee shop, for example. You're told, someone who came here before you has paid for your coffee, and you're handed a free coffee.

GONZALEZ: Oh, that's a good one.

ECKHARDT: Yeah. And then you're asked, would you like to pay for someone else's coffee?

GONZALEZ: Of course.

ECKHARDT: Yeah. And because this is framed as a gift, it tends to be quite powerful. So you think, oh, I've received a gift from someone that I don't even know. And this - I should repay that gift is a very - yeah - a very strong instinct inside people, I think.

BOBKOFF: Another thing that would work better - take those suggested prices off the menu. If you see a price, Giana says you think that's the amount you should pay. With no price, people actually give more.

GONZALEZ: The cafe in Denver - the one that inspired Ron - that's what they do - no prices.

BRAD REUBENDALE: Yeah. It's soup, salad and pizza. That's what we serve every day.

GONZALEZ: Brad Reubendale runs SAME Cafe. And it turns out they're actually pretty different from Panera Cares. They never wanted to completely rely on the generosity of people. They don't want to be self-sustaining. They fundraise. They have a big gala every year.

And Brad says that if more than half of their customers are paying, they're doing something wrong.

REUBENDALE: It becomes a place where wealthy white people feel good about eating, but it doesn't actually serve the mission.

BOBKOFF: Brad says it's actually a terrible business model if you're trying to break even. This was designed to be a charity. It runs like a nonprofit. And it was actually designed to help the people it serves.

GONZALEZ: Like, there are cubbies so homeless people have a place to leave their stuff. There are what they call introvert tables so people can sit there in peace for hours.

REUBENDALE: You know, I'm a middle-class white guy. And so if I ever want to be left alone, I go pay $5 for an overpriced coffee, and no one's going to bother me. But many of our guests that are carrying all of their belongings that they own are made to feel uncomfortable in those places, even if they pay for a coffee.

GONZALEZ: I haven't thought about it like that, but white men do love sitting by themselves at coffee shops.

REUBENDALE: And we're good at it.

BOBKOFF: But there is one Panera Cares left. After the break, we go, and we pay what we want.

GONZALEZ: Dan and I are in the one remaining pay-what-you-want Panera Cares. It's in Boston.

BOBKOFF: And they take their bathroom security very seriously here. They change their bathroom codes multiple times a day.

GONZALEZ: What's the code right now?

BARRY COMBS: The code is 8053299217 for the ladies' room.

GONZALEZ: How do you remember that?

COMBS: I make them. (Laughter) I make them. I'm kind of a numbers guy.

BOBKOFF: This is Barry Combs, the manager of Panera Cares.

GONZALEZ: The store looks pretty much like any Panera, with a few little differences, like there's this wall of day-old bread when you walk in.

COMBS: This bread wall's for anybody else that's in need. You can come in. We have a bin here. You can add what you can, grab a loaf of bread, bring it to the cashiers, and we slice it for you. You'd add your donation...

(SOUNDBITE OF COINS RATTLING)

COMBS: ...Right into the bin here.

BOBKOFF: There's not a lot in there right now. Is that four bucks?

COMBS: It's not for a profit. Everything is suggested amounts.

GONZALEZ: I've actually never been to a Panera before, so what should I order?

COMBS: Broccoli cheddar soup.

BOBKOFF: That sounds like the, like, gateway drug to Panera.

GONZALEZ: (Laughter) OK. Let's go order something.

BOBKOFF: We see those clear donation bins.

(SOUNDBITE OF FINGERS TAPPING)

GONZALEZ: Plexiglas? Plastic?

BOBKOFF: But you have to look really closely to see the tiny type at the top of the menu that says the prices are just suggested donations.

GONZALEZ: OK, I'm going to do the broccoli cheddar soup.

KIM: Would you like to make a donation today?

GONZALEZ: Meaning, like, I can donate 9.28, or I can not donate 9.28?

KIM: It's up to you to just place your value in the bin - however much you wish to donate.

GONZALEZ: I got a 20, so I'll do that. Oh, my goodness.

What's your name?

KIM: Kim.

Thanks so much. We really appreciate it.

GONZALEZ: How much did you pay?

BOBKOFF: I paid $10. She told me that I donated 30 - what is that? - 32 cents to the next person. And then I felt like a cheapskate, like I should put more money in there.

GONZALEZ: Yeah, that is a little cheap of you, Dan. Come on.

BOBKOFF: But I saw you, like, hold a wad of bills into the bin and just hold it there for, like, a minute. It was like...

GONZALEZ: No, I wasn't, like, conflicted about it. I was just trying to fit it in the little slot.

BOBKOFF: Right, because there were so many bills because you're so generous.

GONZALEZ: (Laughter).

Right now, this store loses money. Barry says they cover about 85 percent of their costs. Panera makes up the rest.

BOBKOFF: You think this place will be here in a year?

COMBS: Yes. I know it'll be here in a year.

BOBKOFF: What makes you so sure?

COMBS: Because we run it right, and we treat people with respect.

GONZALEZ: And it was actually really nice to see. Like, there were customers on laptops sitting next to and talking to people in need - people eating free loaves of unsliced bread out of the bag. There were people volunteering in exchange for food.

BOBKOFF: And I have to say, in the end, I felt guilty about the 32 cents I donated.

GONZALEZ: Good.

BOBKOFF: So I dropped a few more bucks into the bin on the way out.

(SOUNDBITE OF ARNAUD RIGNON AND SEBASTIEN LANGOLFF'S "AIRPORT BLUES")

GONZALEZ: If you have a story idea, send us an email - planetmoney@npr.org.

BOBKOFF: And check out Household Name for more surprising stories about famous brands. Our second season starts right now.

GONZALEZ: Today's show was produced by Darian Woods.

BOBKOFF: With Sarah Wyman, Amy Pedulla and Gianna Palmer at Household Name. Special thanks, also, to Susan Dobscha.

GONZALEZ: Bryant Urstadt edits our show, and Alex Goldmark is our supervising producer. I'm Sarah Gonzalez.

BOBKOFF: And I'm Dan Bobkoff. Thanks for listening.

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