When she went on maternity leave from her job in London three months ago, Jade Voice missed the coffee culture of the city.
(Bloomberg) — When she went on maternity leave from her job in London three months ago, Jade Voice missed the coffee culture of the city.
Luckily for Voice, a Pret A Manger store popped up on her doorstep in Braintree, Essex, earlier this summer and she already visits three or four times a week. “It allows me to get out the house,” said Voice, 31. “And my son can have a nap while I sit outside.”
Stories such as these are music to the ears of Pret’s Chief Executive Officer Pano Christou.
In a post-pandemic landscape where people are working more from home, Pret is rethinking a business model that once relied on aggressively opening stores in London, New York and Hong Kong to flog baguettes and salads to thousands of office workers passing by. Now, it is expanding hard into market towns, airports and motorway service stations.
The chain, which launched in 1986 from a single shop in London, became such a barometer for the health of financial districts that two years ago Bloomberg launched the Pret Index, tracking weekly transactions against pre-Covid levels to show just how many bankers, corporate lawyers and asset managers were returning to the office.
The real-time gage of cities’ recovery often made for grim reading. Even now, more than two years after Britain’s last Covid lockdown, the index shows that while shops in UK airports are buzzing with holidaymakers, the West End, London’s entertainment district, is still below pre-Covid levels. In the City of London last week, transactions were 79% of pre-pandemic levels.
Today, Pret’s fastest-growing stores are in Yorkshire, the suburbs, and at London airports. Only seven of the 78 stores Pret has opened since April 2021 are in central London. It has 621 sites globally and Christou said there was no reason Pret couldn’t reach as many as 1,500 in its UK home market alone in time.
“We have huge opportunity for Pret to grow over the next five to 10 years,” Christou said, in an interview at Pret’s shop in the London financial district of Canary Wharf.
The strategic shift to opening stores out of city centers is a gamble. After initially embracing remote working, many large companies are now forcing staff to return to the office. This week, Goldman Sachs Group Inc. renewed efforts to enforce its policy of working from the office five days a week. Tech giants such as Meta Platforms Inc., which once optimistically claimed its staff could work from home forever, are also now insisting workers regularly commute into work.
But having put his back into this new strategy early on in the pandemic, Christou insists the working from home trend is here to stay, adding that most people are only in the office three days a week. “I don’t see that changing,” he said. “We need to adjust to that.”
The shift in working habits is not unique to Britain. The Index shows the Pret shops in Washington DC — one a 10 minute walk from the White House — are less than half as busy as they were before Covid. “Government workers are not going back,” said Christou.
Pret, which is owned by consumer goods conglomerate JAB Holdings, is encouraging customers to visit more by offering a loyalty plan dubbed Club Pret. For £30 ($38) a month, customers can have up to five coffees a day and 10% off food. Bloomberg can reveal that from September 5, that discount is increasing to 20% off food. Club Pret will launch in the US next month, in France in November, and in other markets from 2024.
The Club Pret discount may not entirely take the edge off soaring prices at the chain though. Pret’s bestseller, a tuna and cucumber baguette, has risen from £2.99 in December 2021 to £4.25 today — an increase of 42%. The price of a chicken Caesar and bacon baguette has jumped about 32% from £3.99 to £5.25. Christou insisted Pret remained competitive.
According to Christou, the above-inflation price rises are due to mounting energy costs — up 300% this year — higher wages, and the increased cost of raw materials. Pret’s salmon supplier lifted prices by about 50% while a crisp supplier hiked them by 100%. Staff, whose annual pay is already up 20%, are likely to receive another increase this year.
So far, customers appear to be swallowing the higher prices. In July, Pret reported an operating profit of £50.6 million in 2022 – its first in five years – compared with a loss of £226 million the year before. However, Christou predicted 2024 would be challenging as homeowners move out of fixed mortgages onto higher interest rates.
Under JAB, which bought Pret from the private equity firm Bridgepoint for £1.5 billion in 2018, the chain has expanded further internationally. Earlier this month, it opened a new store in New York’s Hudson Yards district. Indians got their first taste of Pret with a store in Mumbai and up to 13 will open by the year-end. Much of this growth is being driven by franchisees, which pay royalties to Pret, depending on performance.
Among Pret’s biggest franchisees is SSP Group Plc., which is rolling out shops in transport hubs in four European markets, not including the UK. It plans to have about 30 Pret stores by the end of this year. Passengers stock up in Pret before their flight as the “food proposition in low-cost carriers in particular is not brilliant,” said SSP CEO Patrick Coveney. Christou said SSP will soon begin rolling Pret out in Asia, making it one of its global brands.
Attention is now turning toward JAB’s future plans for the chain — and whether that may include a stock market listing. JAB also owns Panera Brands, which is preparing for an eventual initial public offering.
Potential investors will be attracted to long-term predictable revenues of the subscription businesses, said Erin Brookes, head of retail and consumer goods at the consultancy Alvarez and Marsal, which advised the chain during the pandemic.
Christou won’t be drawn on Pret’s public market ambitions, except to say: “Sometimes you don’t get a choice if a market is in a great place.”
In Braintree, things are looking good for Pret. Customers spend an average of £6.50 each visit, more than in London. A key question for Pret is whether the demand in the suburbs and customers’ ability to stomach rising prices will continue.
Trying out Pret for the first time in Braintree, Mike Walker, 53, and his wife Sue forked out £13 for two lattes and two pastries. “I wouldn’t say I’d rush back,” he said.
–With assistance from Jody Megson.
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