Pret: Hero and villain for London’s food startups

Pret elicits conflicting feelings among London’s food startups. It is arguably London’s most successful modern food business, with a peerless playbook for any aspiring startup. But critics say its power on the property market is stifling the emergence of new challengers.

Over 50,000 portions of Pret a Manger’s macaroni cheese are bought every week. Not bad for a dish only introduced in October last year.

Hardly surprising, you could say, given that Pret stores seem to lurk around every corner of London.But that small £5 box of pasta and cheese epitomises 30-year-old Pret’s ability to stay relevant, even within London’s fast- changing food scene, and why its business practices are admired and studied.

Pret, with its 200 shops in London, continues to be a hit with London’s increasingly discerning eaters (albeit often begrudgingly). Pret’s ubiquity competes directly with the flood of ambitious emerging food businesses attempting to graduate from success on London’s street market and festival scene.

Food startups with momentum and even financial backing talk of being unable to get a foothold in London’s most desirable lunch locations with Pret invariably cited as the company they lose out to when leases become available. It’s also apparent that Pret is the most aggressive in snapping up sites before they hit the open market.

Some landlords say Pret has adopted a property strategy akin to Starbucks in the US, where it swamps busy locations, playing a ‘market share per square mile game’ with outlets on virtually every block.

Despite charges that smaller operators can’t compete, there is a grudging admiration from startups for Pret. It has grown into a slick, private equity-owned company with 374 stores that raked in £600m in sales and £76m in profit last year, and continues to innovate like a nimble stratup.

Chief executive Clive Schlee is eager to maintain the startup spirit, the freshness of its food and crucially, the ruthless discipline around speed of service.

All transactions must be executed in under a minute, with Pret estimated to process double the number of customers per hour than its closest competitor, Eat.

Processing time is critical, so hot food sold from behind the counter has been foregone and new tills at the counter were installed this year, designed to make transactions even faster.

Pret is certainly drifting into bad guy status as a result of its ubiquity, but several of the most ambitious startups dismiss this view as ‘churlish and snobby’; there’s a belief that in Pret lies one of the most advanced startup playbooks around.

How Pret Works

Innovation

Every couple of months, a new product is introduced into stores. The company recognises that tastes and health concerns are changing rapidly, and it is quick to react to new trends, testing them for broad appeal and repurposing them for its customers.

Each innovation has to fulfil Pret’s uncompromising criteria, something which puts considerable constraints on what it can sell.

A new product has to be solidly profitable while fitting within what is considered an acceptable price by the company: under £5. It must be simple enough to be assembled on-site with natural, fresh ingredients, or through a supplier that can work to Pret’s quality standards and survive it’s estimated 70% markup. Finally, customers must be able to pick it up and leave quickly.

People

The perky staff who smile through the morning rush while serving coffee to rushed customers are an object of wonder to anyone who has tried to recruit for retail. The answer lies in a combination of Pret’s training process, its culture and cold, hard cash.

Pret spends more on wages than its competitors, and employs more staff per store. It spent roughly £100m on staff in 2013 — a quarter of its revenue.

But those close to Pret insist it’s misleading to attribute the calibre of staff to its hefty wage bill. They say many of its over-qualified, post-financial-crash itinerant workers are drawn by recommendations from existing staff. (There’s a legendary story of a lawyer, an engineer and a biophysicist working at a single Pret store to improve their English.)

Pret’s rigorous training process is then carried out in a mock-up store, after which new recruits are trialled in a real store, where existing staff vote on whether they want the newbie to join.

Logistics

Pret runs a storage facility in New Covent Garden market, where it stockpiles various ingredients, including a mountain of avocados (it got through 8.5 million of them last year in the UK).

In the very early hours of the morning, Pret’s delivery team enter stores across the city, filling the kitchens and fridges. The stores’ morning teams arrive shortly after, preparing sandwiches and filling the ovens with croissants for the breakfast rush, before moving to the tills. At around 10am, staff migrate back from the counter and into the kitchens to prepare lunch. By midday, many of the same staff re-emerge from the kitchens to man the tills.

Things die down post-lunch, but, since food is prepared on-site, Pret is better-placed than its rivals to flex production, depending on demand.

Sales information for the day is funnelled back to head office, informing the following day’s delivery. Store managers are given the order update each evening, which they have full power to override.

Is Pret crowding out startups?

There are six branches of Pret across the highly lucrative Canary Wharf estate, a small, isolated patch where 105,000 cash-rich, time-poor, belly-rumbling people are up for grabs.

Attaining a unit in Canary Wharf is the dream for many food startups. And for lots of office workers in the towers, something other than crayfish and avocado is desperately craved. It’s a similar picture in the City of London where opportunities for food startups are scant, as are lunchtime options.

So it’s no surprise that Pret’s dominance is a source of frustration for a growing crop of food startups that have proved a demand for their concepts at food markets, residencies and pop-ups, yet struggle to get their hands on a coveted retail unit.

Pret continues to hungrily acquire new sites: 33 opened last year, and more are on their way. Its pursuit of sites with highly prized A3 food licences, which allow for limited hot food preparation without an extraction fan, is a particular sore point for startups.

Several landlords who spoke to Courier said they’d like to introduce less well-known food businesses, but admitted they were predisposed to awarding tenancies to Pret for sites with A3 licences for three critical reasons:

1. The safe choice. There’s almost no risk of Pret going bust and not paying its rents. Nor is there a risk of Pret causing any health, safety or operational problems for the property.

2. One size fits all. Pret caters to most tastes; it functions for breakfast and lunch, and is not going to polarise office tenants in the way a Korean pulled pork concept could.

3. Pre-existing relationships. Landlords already have strong relationships with Pret’s property team, so Pret often has visibility of sites long before the opportunities are made public. Landlords also like doing multi-site deals with the company.

To put this into context, Pret is simply one of many chains looking to grow. It just happens to be an exceptionally good one; office workers like the food, and landlords seem to love dealing with Pret.

Many landlords, however, also privately admit that, in its pursuit of dominating a popular area, Pret frequently pays significantly more than the market price on sites, making it an influential force in rent prices in the most densely populated working areas of London. It presents a problem even for existing — and successful — shops with A3 licences when renegotiating leases.

Pret’s dominance is a concern for some large-scale landlords, who admit
that ‘an addiction to Pret’ is resulting in a homogenisation of the offering to office workers and residents. Canary Wharf has begun to experiment with more independent retailers, particularly with its Crossrail expansion and Wood Wharf site. Westminster Council has identified Soho as a ‘stress zone’, with the expansion of chains like Pret saturating the area and causing several independents to go bust.

Yet Pret shows no sign of slowing. It has been upgrading to bigger sites in central locations, and is understood to be eying inner London areas like Dalston and Peckham, along with overseas growth. Bosses are also looking at how the stores can stay open — and competitive — throughout the day; its Strand outlet has recently been trialling serving dinner.

Q&A: How Pret innovates Nick Candler, Pret COO.

COURIER: Why is innovation often so difficult?

NICK CANDLER: Successful business are naturally resistant to change, especially as they get bigger. We’re very aware of that, so we split the company between ‘Best of Pret’, which keeps the things we do well, and ‘Pioneering Pret’, which looks at innovation.

C: How do you actually innovate then?

NC: We develop some hypotheses and do trials to see what might be relevant. The role of innovation at Pret is to be the younger brother who goes to the big brother with an idea. You have to prove it and show the big brother that it works without disrupting what already works so well.

C: How important is research?

NC: We do a bit of research, but we really believe in more observational research; watching rather than asking.

C: Can you give an example of how a new idea was implemented?

NC: Take smoothies. We looked at what happens to fruit when blended, tried different machines, saw how long it took, what time of day smoothies sold, what temperatures were best, how long they could sit out, and which customers picked them up. It was trialled in a store, tweaked, then trialled in some more places, tweaked again, and eventually absorbed across all our stores.

There’s never a big-bang launch or a complex business case presented to the management team. It’s always a trial that goes on below the radar and grows.

C: How long do ideas stay in trial mode?

NC: It can be six months or two years. The only criteria are that we can engage customers and don’t disrupt our operation. The risk is things getting too complex. Remember, we’re just a simple food company.

C: What advice do you give new food companies trying to compete today?

NC: Look at what customers want, what competitors are doing, and how you can serve it better or fulfil what’s missing. And then once you start it, adapt it. You’re like a safe-breaker; you need to keep tweaking. The original founders of Pret didn’t hang on to things. If they launched something and it didn’t work, they didn’t protect or defend it, they just cut it and moved on.