MGM Resorts & Panera Bread Learn that Slashing Headcount, Reducing Quality, and Gouging Customers Is Not a Viable Long-Term Strategy

A corporation can target its loyal customers for revenue mining and temporarily increase its profits.

It can also slash employee headcount and customer service, thereby reducing labor expense to produce a short-term increase in profits.

It can even reduce its product size and cheapen the product’s quality to reduce cost of goods sold, also giving a short-term boost to gross profit.

But in every case, these actions tell customers that rather than being valued, the corporation sees customers as marks to be exploited. A great many customers may get hoodwinked once, providing the short-term profit boost that was being sought, but then never come back, thus destroying the company’s long-term prospects. A downward spiral of alienated customers, declining revenue, deteriorating facilities, and degraded reputation ensues.

There ought to be a business school case study about this phenomenon. The only trouble is that this strategy is what’s being learned at elite business schools. Maybe a business school could do a case study on just how toxic elite business school graduates are to corporations.

MGM Resorts International and Panera Bread are both reeling from employing the destructive strategy I just laid out. To their credit, the CEOs of both companies are acknowledging just how damaging that strategy was. To their discredit, these CEOs are learning on the job after being part of the brain trust that implemented these offensive practices.

First, Panera:

“Panera lost diners by cutting portions and staff; It’s reversing course to win them back” [CNBC – 11/18/2025]

Predictably, Panera executives did the deceptive gimmick of quietly shrinking portions and reducing the quality of its food while increasing prices.

When Panera Bread began shrinking its sandwiches and skimping on salads, it started shedding customers. Now, to win them back, the chain plans to reinvest in the business and undo many of those same cost-cutting measures, it said Tuesday.

Once the No. 1 fast-casual brand in the U.S., Panera has dipped to No. 3, ceding the top spots to Chipotle Mexican Grill and Panda Express. Last year, its sales fell 5% to $6.1 billion, according to Technomic estimates. For years, the chain’s traffic has been shrinking, according to CEO Paul Carbone.

Panera didn’t just reduce portion sizes and the quality of its food, Panera also reduced staffing.

Phase one of Panera’s plan is to improve the quality of its food, reversing cost-cutting measures imposed in the face of high inflation, according to Carbone. “We squeezed food costs. We squeezed labor,” he said.

Some of those changes happened while Carbone was Chief Financial Officer. He now calls himself a “reformed CFO” — albeit one who still listens to earnings conference calls. “It’s really about death by a thousand paper cuts, it truly is,” Carbone said about the chain’s downturn.

This next statement from CEO Carbone is a concise indictment of the practices that so many corporations have embraced since they allowed mercenary executives with no long-term focus to destroy their companies in pursuit of one good quarterly report:

“In some instances, we shrunk portions, so guests would walk into our cafe to buy a sandwich that has gone up significantly in price, with lower-quality ingredients, in a smaller size,” Carbone said.

He also realizes now that staffing actually matters:

To improve the customer experience, Panera is planning to invest more into labor. Like many restaurants, Panera in recent years scheduled fewer workers and relied more on the self-order kiosks it pioneered in the industry. That approach saved money, but customers often walked into a cafe and couldn’t find an employee in sight, according to Carbone.

Panera saved money but loyal customers were lost. Who could have ever predicted that?

MGM Resorts International burned itself badly following that same template of gouging customers and cutting service.

“MGM casino head admits company lost its way with summer prices and regrets ‘infamous’ $26 bottle of water” [The Independent – 10/30/2025]

MGM Resorts President and CEO Bill Hornbuckle had a simple message for his company this week after extortionate prices have kept people away from his hotels in Las Vegas: “Shame on us.”

In an earnings call Wednesday, Hornbuckle said the company has “price-corrected” its resorts following a summer of backlash over steep charges, including the “infamous” $26 bottle of Fiji water at the Aria hotel.
He also mentioned the $12 Starbucks coffee at Excalibur as an example of how the company hadn’t been attentive to customer needs.

Those of us who consider ourselves “business smart” often mock the Congressional Budget Office for assuming that a tax increase will result in a dollar-for-dollar percentage increase in Treasury revenue, because Congress doesn’t understand that trying to take more money out of a person’s pocket will result in that person engaging in tax avoidance behaviors. Yet somehow the highly credentialed business wizards at corporations such as MGM similarly assume that increasing the price of a bottle of water to $26 will simply result in a gusher of revenue, rather than grasping that it repulses customers, causing them to avoid the product and to never return to an MGM property.

“We should have been more sensitive to the overall experience at a place like Excalibur,” he said in the call, according to KLAS. “You can't have a $29 room and a $12 coffee. We lost control of the narrative over the summer,” Hornbuckle continued. “I think we would all agree to that in hindsight.”

Who lost control, Mr. Hornbuckle? Who was the CEO in charge of controlling the narrative?

Jonathan Halkyard, MGM’s Chief Financial Officer and Treasurer, said Wednesday that the company reviewed what customers are actually willing to pay for certain goods and services, and have since implemented about 90 percent of those adjustments.

While gouging customers, MGM was also gutting staff and eliminating customer service:

“Major corporation [MGM Resorts International] cuts concierge, staff at six Las Vegas Strip properties” [Las Vegas Review Journal – 4/26/2025]

To further mistreat customers ”meet evolving customer preferences” MGM eliminated the concierge desk at most of its properties along the Las Vegas Strip, including the MGM Grand, Mandalay Bay, and New York New York. MGM claimed that it was eliminating valet and bell staff at the Excalibur ”to respond to industry trends to better serve guests.” Sure.

At his Points and Figures substack, Jeffrey Carter wrote a few months ago about the new Vegas model:

One thing I have noticed is that with the corporatization of the casino, the economics and the way they are run have changed a lot. When it was mob-run, it was more off the cuff. The MBAs and data crunchers at the corporate casino have installed Disneyland pricing into their models. In economic terms, it is “first degree, second degree, third degree, fourth degree” price discrimination, and it might even go to the seventh degree. They don’t need you to gamble to make money off of you. They make money if you show up.

Unfortunately, once a customer has been exposed to endless fees and revenue mining, he is likely to simply never show up again.

It’s a good thing that the chastened CEOs of MGM and Panera are confessing their mistreatment of customers. I wish them well in their efforts to reform their practices and win back customers. Unfortunately, it’s much easier to chase a customer away than to ever win him back.

I also hope that other corporate executives will learn from MGM and Panera and avoid having to give their own contrite apologies. Treating employees as a pestilence and customers as prey is a destructive business practice that should have never gained favor, and which needs to be repudiated by corporate America.

[buck.throckmorton at protonmail dot com]

posted by Buck Throckmorton at 11:00 AM

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