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Coffee, cookies but no cashiers When a business leaves payment up to the customer(1)

(From Monday's Globe and Mail, July 28, 2008 at 9:44 AM EDT)
KITCHENER, ONT. — Would you steal if no one was watching? Are people basically good? Is trust dead?

Weighty questions to ponder before your morning coffee, but they percolate daily along with the fair-trade coffee at the City Café Bakery in Kitchener. The café operates on the honour system: Grab what you want, drop your money into an old streetcar fare box next to the doughnut counter and waltz out.

Prices are scrawled across blackboards: Sourdough bread $3.50, bagels 75 cents, butter tarts $1.75, coffee $1.50.

Cynics may scoff, but the City Café Bakery has been going strong for eight years. Co-owners John Bergen and Rudolph Dorner conduct regular audits, and have only come up short once, by about $20.

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After grabbing their pizza, customers at the City Cafe Bakery are trusted to pay for their food by dropping money in a fare box. (Fernando Morales/The Globe and Mail)

"Our theory is, we get ripped off by about 2 per cent and we get overpaid by about 2½ per cent," says Mr. Bergen, eyes gleaming behind large, bright, blue-framed eyeglasses.

"Payment is not optional," clarifies Mr. Dorner, whose blazer and conservative yellow tie underscore his role as the business end of the partnership. "We price the bagel for you, but we trust you to pay it. Just like you trust us not to poison you."

The classic honour system business is the roadside stand: Take the tomatoes and leave your money in the lockbox. The band Radiohead embraced the concept last year when it released an album online, allowing people to pay whatever they wanted for the download - including nothing at all.

Employees at the City Café Bakery will make change if needed, and a large calculator sits next to the fare box for the mathematically challenged. Mr. Bergen rousts the occasional freeloader, following them into the parking lot and politely but firmly suggesting they not return.

Mr. Bergen says returning patrons are his best enforcers. They show newcomers the ropes and give the evil eye to suspected spongers. One regular describes the café as "a cross between the Soup Nazi [from Seinfeld] and Cheers."

The café accepts only cash, though Mr. Bergen is likely to say "just pay me next time" to a new customer who doesn't know the score.

That sort of attitude engenders strong customer loyalty.

"I always overpay, just to support it," says Robyn Harrison, who was eating lunch at the café with her family last week.

"It's totally a different feeling," says her mother, Janet Schuller.

Joann Freed, lunching at a nearby table, said she's forgotten to pay a few times, and when she returns with the money, the employees don't seem too worried about it. The café's survival reinforces her belief that people are basically honest. "It makes you feel more that we're all in this together," Ms. Freed says.

The success of the City Café Bakery and similar ventures shows that honour isn't entirely an outdated notion, says Claus Rerup, an assistant professor at the Richard Ivey School of Business.

When confronted with an unsecured doughnut next to an unmonitored payment box, Dr. Rerup says, "I'm being asked here, 'Who am I?' ...

"If we trust only when trust is warranted, if we love only when love is returned, if we only do something when there's a clear benefit, then we give up a part of something very central to being a human," Dr. Rerup says. With the exception of Radiohead, most honour system success stories happen on a small, local scale: the bakery in Kitchener, a restaurant in Melbourne, a wine bar in Berlin. Experiments that lack the personal touch of a café or restaurant have met with failure: Various efforts over the years to lend out free bicycles in Portland, Ore., Salt Lake City, Charleston, S.C., and other cities resulted in the bikes being stolen or trashed within weeks.

Dr. Rerup wondered aloud what the results would be if business schools allowed students to pay for their education after the fact, based on what they decided it was worth. Returning to earth, he noted that honour systems probably make good business sense.

"They're cheap to operate," Dr. Rerup says. "You can save money on having to control people."

Mr. Bergen and Mr. Dorner wholeheartedly agree.

"Tim Hortons actually has to pour your coffee and hand it to you. We're not infants," Mr. Dorner says scornfully. "We take every impediment away that keeps the customer from paying us."

Employees also work on the honour system: They call in their hours to the bakery's accountant, negating the need for timecards and all the associated paperwork. Even the "oh, just pay us next time" refrain saves money.

"I guarantee you the next 10 parties that person goes to, they'll talk about us," Mr. Bergen says. "This is a cynical marketing strategy."

So far, it's working: The City Café Bakery recently opened a second location, and the owners hope to

Coffee, cookies but no cashiers When a business leaves payment up to the customer(2)

expand to four stores. But their belief in people's honesty is not limitless.

"It will work as a cult," Mr. Bergen says. "I don't think you could franchise it."