Have you heard about Terra Bite Lounge in Kirkland, WA? It’s a coffee shop that sells coffee drinks, pastries, and sandwiches based entirely on the honor system. Yep, there are no prices for anything Terra Bite Lounge serves customers. The expectation is that customers will voluntarily pay whatever amount they feel comfortable paying.
The founder of Terra Bite Lounge, Ervin Peretz, knows his coffee shop must attract enough honorable customers to offset those customers who will abuse the voluntary pay system. Currently, Terra Bite Lounge serves about 80 customers a day with each paying, on average, $3.00.
Hmm … this social experiment sounds a little familiar.
In Freakonomics we learned about Paul “Bagel Man” Feldman who setup a bagel business built totally on the honor system. Feldman would deliver bagels to offices and leave a money drop box with the expectation that people would pay for the bagels they ate.
According to Freakonomics, the honor system worked for bagels. The payment rate for Feldman’s bagels hovered at nearly 90%.
Feldman kept copious notes on bagel sales data and some of his conclusions are fascinating. For example…
• When the weather is pleasant … people pay at a higher rate.
• When the weather is cold, rainy, windy … payment declines sharply.
• During the holiday weeks of Christmas and Thanksgiving … payment is lousy.
• But, during the holiday weeks of Labor Day and 4th of July … payment is strong.
Because Feldman’s bagel customers were office workers he was able to draw interesting conclusions about how workplace morale affects payment. The more sweeping conclusion was: The better workplace morale at a business, the greater the payment rates. And more interestingly, Feldman came to believe higher-paid executives cheated the bagel honesty system more than did workers lower on the corporate ladder.
It’ll be interesting to learn if Feldman’s bagel honesty findings jibe with Terra Bite’s coffee honesty findings. And given Feldman’s data that cold and rainy weather adversely affects volunteer payment, it’ll be super-interesting to know how this honesty system plays in the cold and wet Seattle-area.