In its results last week, Pret a Manger wrote off a third of the value it was handed in 2018, following its acquisition by European investment group JAB. And while it reported a 3% increase in like-for-like sales, it also signalled a renewed focus on value for money going forward.
The non-cash adjustment was a reaction to economic pressures, rising costs and uncertainty in the UK economy, all of which raises the question: if Pret’s golden days are over, where does it go next?
Are volumes really holding up for Pret in its London heartland, compared to its heyday a few years ago? Why are things so challenging for the sandwich chain right now, and what lessons could the grocery sector learn?
Pret’s push for growth
In society and industry, we are driven by a hunger for growth. Growth brings returns for investors and opportunity for staff. Smaller companies can grow fast, adding outlets, driving efficiencies of scale, learning by doing and creating a flywheel effect. And so Pret rose to prominence in London.
It showed us what fresh, exciting, quality food could look like, at fair prices. Well-designed stores, with smart, quick and friendly staff. The odd free item chucked in at random (remember that?). It became the outlet of choice for many.
But growth creates pressures. Society changed. Lockdown arrived and many Pret customers found they could work effectively at home. The economy tightened, and suddenly spending more than £5 for a sandwich seemed too much (especially if shelf prices were inflated, to allow Club Pret members 20% off every food item).
Competitors responded. Gail’s surged, upping the ante on store look and freshness. Greggs and the supermarkets doubled down on value.
Earlier decisions took on a new light. Pret had opened a lot of locations in London, often very close to each other. That works when you’re flying, but could become a millstone when you aren’t.
Not all these dynamics were in Pret’s control, but to investors, they sound like excuses. The golden years of success are in the bank. Investors want growth now and tomorrow.
Worse still, in this situation, the angst felt by leaders in the centre can osmose to the frontline. That can mean stressed staff, which customers notice. Often, the company looks for ways to cut costs.
Credit to Pret, I haven’t seen its quality or freshness diminish – but the temptation must be there. The finance guys are likely asking questions. “Do we really need to freshly prepare in store?” “Why do we leave napkins out, can’t we make customers ask?” “Could we get away with one less staff member over lunchtime?” All fair questions, but too many can accelerate a vicious circle.
I deeply admire what Pret has achieved. But what can we learn? If your company is winning, be modest about your growth ambitions and beware overreach. If your company is struggling, insulate your frontline and the customer from the angst you feel. If you’re an investor, be careful to exit on time. Growth can’t go on forever.
Jeremy Garlick, partner at Insight Traction
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