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Can Coffee Be Served as a Software? An Analysis of Pret’s Bold Experiment
- Pret’s coffee subscription offered five drinks a day for £30 a month. The model was viable because the marginal cost of producing one cup of coffee was only around £1. Customers don’t all use subscriptions in the same way, with each contributing differently to total costs. To offset this, Pret relies on in-store purchases. By offering a 20% discount on food items for subscribers, they aimed to increase the average spend per visit. While the unlimited coffee model was unsustainable, Pret likely gained valuable insights and strategic advantages from this experiment.
- The offer was launched during the pandemic, an initiative designed to pull customers back into their stores. Three years after its launch, Pret has ended the ‘5 coffees a day’ offer, pivoting to a new subscription model. Pret used the fixed monthly fee regardless of usage, which works well in software.
- The success of a coffee subscription model largely hinges on customer behavior. Specifically, the number of coffees consumed and the average cart size. Pret kept the overall subscription model straightforward but made a few strategic choices to ensure its sustainability.
- Without concrete data, it’s hard to say definitively, but with in-store foot traffic returning to normal levels, the model may not have provided significant long-term financial benefits. Pret likely gained valuable insights and strategic advantages from this experiment.
- While the unlimited coffee model was unsustainable, it offered long-term benefits that could shape Pret’s future approach in meaningful ways. The experiment yielded lasting benefits: valuable insights into user behavior, a growing digital presence through app sign-ups, and new channels for direct communication with customers.
- The subscription model was designed to bring customers back to the store. By offering a 20% discount on food items for subscribers, they aimed to increase the average spend per visit. Since the marginal cost of these food items is relatively low, additional food purchases help offset the narrow margins on coffee.
- Pret’s coffee subscription emulationsthe business model of tech companies that offer software as a service (SaaS), using a fixed monthly fee regardless of usage. This model works well in software because of the low marginal costs associated with digital products.
- In a subscription model, all customers pay the same fee, but usage varies significantly, resulting in different costs per customer. Typically, customer usage falls into three categories. Serving costs depend on the balance among customer types, with each contributing differently to total costs.
- While the unlimited coffee model was unsustainable, Pret likely didn’t incur a loss with this model. Without concrete data, it’s hard to say definitively, but Pret gained valuable insights and strategic advantages from this experiment.
- Pret’s model relied on the draw of ‘free’ coffee to attract customers, with the goal of increasing the average basket size through food purchases. Pret made a few strategic choices to ensure its sustainability. This experiment demonstrated the power of simple, customer-friendly offerings in building loyalty and driving foot traffic.
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