Thinking about Pay-What-You-Can Restaurants

The idea of a pay-what-you-can restaurant raises obvious questions. Could it sustain itself? Or would those paying more than face value be swamped by those paying less? Are there ways of running such a venture that might be more sustainable than others?

The question arises because the Panera company starting in 2010 ran a group of up to five stores called Panera Cares that operated on a "pay-what-you-can" basis. The last one of these stores, based in Boston, is closing this week. Ben Johnson offers some background and reflections in "‘Pay what you can afford’ runs Panera out of bread," published at the Acton Institute blog (February 12, 2019).  He notes: “`Panera Cares' were indistinguishable from other Panera eateries in their branding, menu, or furnishings, except they announced that no one would be turned away if they did not pay one cent of the `suggested prices.' Those who could not afford to pay full price could volunteer for an hour at the store in exchange for the food."

Johnson emphasizes what went wrong, and it's more-or-less what you would expect. Some homeless people start eating there for every meal, but high school students dropped in for free food as well. The stores tried to explain their mission, telling the poor that they should be an irregular stop, rather than every day, and asking the high school principal to rein in the students. But trying to discourage misuse or overuse then led to accusations of profiling, followed up by requirements for sensitivity training.

Meanwhile, drug users were taking over the bathrooms, and the Panera Cares stores were typically covering only about 60-70% of their costs. Panera was sold in 2017 to a new set of investors in 2017, and probably not coincidentally, the Panera Cares experiment is now shutting down.

Clearly, those who are cynical about pay-what-you-can have some justification. But  just as clearly, cynicism isn't the whole story here. The Panera Cares experiment didn't last nine weeks or nine months, but more like nine years. Very large numbers of people got free or low-priced food. Others were willing to use Panera Cares as a charitable mechanism by paying more for food.

How widespread are pay-what-you-can restaurants? An organization called One World Everybody Eats serves as a clearinghouse for this model, offering expertise and network-building. The organization is now trying to find a replacement for Panera Cares to use a pay-what-you-can model in Boston. From the organization's website:

There are more than 60 community cafes around the world that have adopted the One World Everybody Eats model, including Panera Bread’s Panera Cares Cafes and the Jon Bon Jovi Soul Kitchens. Dozens of cafes are in development. New cafe development teams are joining our network of community cafes every month, proving that a cafe can thrive when guests are invited to pay what they can afford or offered the opportunity to volunteer for their meals.

Cafes in the OWEE network operate predominately with volunteers. Together, they serve nearly 4,000 meals a day, or more than 1.4 million meals a year.

OUR SEVEN CORE VALUES:

Pay-what-you-can pricing

Patrons choose their own portion size

Healthy, seasonal food is served whenever available

Patrons may volunteer in exchange for a meal

Volunteers are used to the maximum extent possible to staff the organization

Paid staff earn a living wage

I haven't looked over the full list of the 60 or so pay-what-you-can places, but I checked the one location in my state of Minnesota. It's in a smaller city about 25 miles from Minneapolis. It's run by a church, and it's only open on Tuesdays and Thursdays for a couple of hours in the morning. This operation seems to me a valuable and praiseworthy and useful method of involving the community in helping the hungry. But it's not what most people would call a "restaurant."

What determines the feasibility of a pay-what-you-can restaurant? The key seems to be whether it can attract a decent-sized clientele of those who are willing to pay full price, and more than full price. Otherwise, if this kind of operation runs almost entirely on volunteer labor and donated money, then it may be a worthwhile and worthy operation, but if hardly anyone is paying, it's probably not appropriate to refer to it as pay-what-you can.

Giana M. Eckhardt and Susan Dobscha look at these issues in "The Consumer Experience of Responsibilization: The Case of Panera Cares," published in the Journal of Business Ethics in January 2018. To have a sense of how Panera Cares was operating, consider this description:

Greeters called “Ambassadors” are situated at the front of the café to explain to the customers that when they get to the counter, they can pay what they want, and that the café is a nonprofit, as most people think they are in a Panera Bread rather than a Panera Cares. Greeters must be able to “diffuse potentially difficult situations,” which as we will see arise fairly frequently when the food insecure eat at the restaurant. The food secure are encouraged to pay above what their meal is worth. Because the cafés tend to be overwhelmed with homeless people, the food insecure can only eat one entrée for free per week, and must earn it via 1 h of volunteering. To discern between the two groups, the greeter relies on consumer profiling, done solely via physical appearance and dress. 

After studying the operation of Panera Cares, talking with managers and in particular looking at online reviews posted at Yelp.com, Eckhardt and Dobscha describe the social tensions that arise in this way:

We demonstrate that consumers feel discomfort with the conscious pricing policy. This discomfort takes three forms: physical, psychological, and philosophical. ...

Although most Panera Cares consumers profess to care broadly about the social problem of food insecurity, they are not comfortable with the very real experience of being proximal to those consumers. ... The food insecure are also not comfortable with eating in close proximity to the food secure. An important principle that undergirds the notion of serving a temporarily food insecure population, and providing dignity, is that of anonymity. ... Yet the reality within the cafés differs from this, and because of the proximity to food secure customers, results in discomfort stemming from physical proximity. ...

In addition to physical discomfort, consumers were also uncomfortable with other non-physical dimensions of conscious pricing in Panera Cares, including the social comparison with other consumers that takes place and the consumer profiling that the café employees engage into determine who is food secure and food insecure, which we label psychological discomfort. First, in the café, consumers monitor the donation behavior of other consumers. ...  In this case, social comparison takes the form of noticing how much other customers are paying, and interpreting the amount, if it is low, as free rider behavior. ...In particular, how he food insecure look plays an important role. On the one hand, if they look presentable, they fulfill the temporarily food insecure profile that Panera Cares wants to cater to, and are more likely to be treated with dignity. On the other hand, by virtue of looking presentable, they are also questioned as to why they cannot pay more. In sum, consumers feel uncomfortable with the social comparison and profiling which regularly occur in Panera Cares, and this results in psychological discomfort. ...

There was also discomfort with motives and tactics behind the conscious pricing model, which we label philosophical discomfort. That is, consumers were uncomfortable with the general philosophy behind what Panera Cares was doing and how they were doing it. This manifested itself in two ways: discomfort with how the conscious pricing policy is explained and questioning the motives of the parent company, Panera Bread. . ... Overall, this questioning of the motives and tactics of Panera Cares (a nonprofit) may be intensified because of the close connection it has to its for-profit parent company Panera Bread. Lee et al. (2017) argue that the distinction between companies that have a social mission versus those who have a profit mission is salient for consumers, and in the case of Panera Cares and Bread, is not clear. A nonprofit orientation can paradoxically drive consumer perception of organizational greed. This is because communal norms rather than exchange norms are invoked by consumers, and any perceived breach of communal norms is seen as an indication of greed. As we saw with customers using terms like tax haven and marketing gimmick to describe Panera Cares, this effect seems to be at play here. 

The evidence suggests that a pay-what-you can restaurant model is more likely to last if it is clearly a nonprofit, if it have an outside source of funding, if it is located in areas with a supply of customers willing to participate both by paying and by sharing space with the homeless, and if it able to establish a set of customary behavioral expectations for all parties who enter the restaurant. In one way or another, a pay-what-you-can restaurant will have to find ways of addressing these issues of physical, psychological, and philosophical discomforts.

A version of this article first appeared on Conversable Economist.