Services

Panera's $9 a Month Coffee Subscription Is Not Just About Coffee

In an unprecedented move that could shake up Americans’ apparently inexhaustible taste for premium coffee, Panera Bread has launched an unlimited coffee subscription that costs $8.99 a month and entitles subscribers to a bottomless cup of coffee. Panera, which is owned by Netherlands-based JAB Holdings, operates more than 2,100 stores in the United States and Canada.

If the subscription service is a hit, should we be on the lookout for a Big Mac subscription next? Or will Starbucks Corp. (NYSE: SBUX) follow Panera’s lead and offer a subscription to their coffee?

According to Panera, the monthly subscription gets you “one (1) cup of drip hot coffee, hot tea, and iced coffee every two (2) hours during regular bakery-cafe hours, including free refills of the same beverage at any participating U.S. Panera Bread bakery-cafes.” The drink may be any size. Not included are Cold Brew, espresso drinks, iced tea and other beverages.

The company says that the subscription price works out to about $0.30 a day, or a monthly cost equal to the cost of four 12-ounce cups of coffee. Given that the average American drinks about four 8-ounce cups a day, an average coffee drinker could drink free for more than 28 days a month.

Panera CEO Niren Chaudhary told Business Insider, “We feel that this is a terrific way to get consumers more interested in not only in our coffee platform but also for them to get exposed to the strength of the food that we have in our cafes, particularly around breakfast.”

This might not have been the best time to enter the breakfast wars, though. McDonald’s Corp. (NYSE: MCD) was giving away free Egg McMuffin sandwiches Monday, the same day that Wendy’s Co. (NASDAQ: WEN) launched its own breakfast menu. Does Panera really want to compete with McDonald’s and Wendy’s?

Probably not, but it could be trying to find a place between the fast-food giants and the more upscale vibe that Starbucks promotes. Starbucks has defined the premium coffee experience for Americans for decades. While Starbucks’s food is not especially high-priced, the moderately priced menu bolsters the company’s revenue. Panera is unlikely ever to topple the Starbucks image, so why not try a different tack?

Panera parent JAB owns several well-known coffee brands, including Peet’s and Caribou. Last November, JAB announced that it would combine its Jacobs Douwe Egberts coffee brands with Peet’s and “explore” an initial public offering (IPO) in a company that it said would have a presence in more than 140 countries and generate revenues of approximately €7 billion. JAB hopes to complete an IPO this year and retain a controlling stake in the combined company, which will be named JDE Peet’s.

Panera is almost certainly sourcing its coffee from a JAB company and likely paying a low price for it. That spreads the cost of the coffee subscription around the JAB corral, and if the holding company can get investors to help pay for Panera’s coffee, so much the better.