Ron Shaich, founder of the Panera line of restaurants, attracted considerable media attention with his announcement that the company would open various pay-what-you-can restaurants in Dearborn, Michigan; Portland, Oregon; Boston, and Chicago. He called it his “test of humanity.” It may actually be a test of economics and the experiment failed. After nine years and huge debt, the restaurants will now close, according to Eater Boston.
Shaich heralded the concept of offering the same food but at a “suggested donation price” He added in a Ted Talk “Would people pay for it? Would people come in and value it?” The answer is that rational actors seemed to overwhelm altruistic actors when it came down to forking over money that could be eaten for free. The restaurants fell roughly forty percent short of even covering the cost of the meals.
Shaich and his staff quickly saw the breakdown of the plan as homeless swarmed the restaurants. Some locations had to limit homeless to “a few meals a week” though it is not clear how they determined people were homeless. Nevertheless, in a 2011 interview Shaich simply said that “We had to help them understand that this is a café of shared responsibility and not a handout.”
That still did not make the business plan viable. Moreover, Panera was attacked by people who said that it was hostile and that it used security officers to intimidate people. Others objected to shaming conduct by employees to make them feel like they were abusing the system. That was not part of the Ted Talk.
Shaich later stepped down as CEO and the stores began to close. He later admitted that “the nature of the economics did not make sense.”
When I was at the University of Chicago, Professor Milton Friedman used to tell students “The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” He also said “there is no such things as a free lunch.” Well, I suppose Shaich has shown that you can have a free lunch . . . just not for long.