How Pret A Manger lost the plot

How Pret A Manger lost the plot

PETER EVANS
OCTOBER 8, 2018

THE SUNDAY TIMES

The Real Bread Campaign had fought long and hard for justice – and when it came, the taste was sweet.

In April this year, the British sandwich chain Pret A Manger was found to have breached advertising standards by claiming that some of its bread products were “natural”, when in fact they were stuffed full of E numbers.

Chris Young, the campaign’s co-ordinator, who had spent years pursuing Pret over the claims, hailed the decision as a triumph “for the small, independent bakery and eatery owners who serve genuinely all-natural real bread sandwiches”.

As great a victory as it might have been, the story did not make much of a splash. Pret’s owner, the private equity giant Bridgepoint, was in the late stages of negotiating a £1.5bn sale to JAB Holdings, an investment fund controlled by Germany’s Reimann family.

Complaints about a few sandwiches hardly seemed to matter. However, sometimes the little things reveal a bigger picture.

The Advertising Standards Authority (ASA) ruled that Pret was misleading customers by claiming on its packaging that it avoided “obscure chemicals, additives and preservatives”. The finding suggested that there were deeper problems in the way the company communicated with the 520,000 customers it claims to serve every day. With hindsight, it was a warning sign.

In the past fortnight, Pret has found itself at the centre of a full-blown scandal. The death of 15-year-old Natasha Ednan-Laperouse after a severe allergic reaction to a Pret baguette has raised serious questions about the running of one of the biggest success stories of the past three decades in British business.

Chief among them is the role of private equity owners when they take over businesses still closely connected to their founders – and, separately, how companies respond to crises. 

Less than 10 days ago, a coroner investigating the 2016 death of Ednan-Laperouse said the allergy labelling on the fatal sandwich was inadequate. Her father, Nadim, said Pret was guilty of a “complete dereliction of duty”.

The storm of criticism that has rained down on Pret is unprecedented. The chain was founded in 1986 and has always managed to project a wholesome image of smiling staff serving “handmade natural food”. Branding experts say the message is so strong that the company has never had to advertise.

Yet some observers believe that Pret has lost much of the entrepreneurial spirit of its founders, Julian Metcalfe and Sinclair Beecham, as it has pursued rapid growth under a demanding private equity owner. The tragedy surrounding Ednan-Laperouse is only the most public alarm bell in recent years. 

There have been other warning signs. The coroner’s inquest revealed that another teenager required emergency treatment after suffering an allergic reaction to a Pret product purchased in Cardiff in 2015. The chain also came under fire when it was revealed that only one in 50 job applicants were British.

Then came the ASA verdict. Critics say that adding E numbers to the bread used in some sandwiches – although not life-threatening- suggested the business had started to lose touch with the values that made it successful. 

“The whole saga about bread is an absolute disaster for them,” said Mark Ritson, a marketing professor at Melbourne Business School who has advised companies such as Unilever, Johnson & Johnson and PepsiCo.

“It’s symptomatic of a broader problem. Pret A Manger in 1995 would have said sorry and worked out how to solve the problem. Pret in 2018 basically said it didn’t really care. It’s a very troubling signal.”

Such tremors are easy to ignore when things are going well. Pret made sales of nearly £880m last year. It has 11,700 staff in more than 500 stores – including in America, China and the Middle East. All staff received a £1000 bonus after the JAB deal went through.

When it was founded 32 years ago, there was little to indicate that Pret would be at the forefront of a revolution in the way workers buy lunch. The first store opened in central London, with Metcalfe cooking chicken and ham to fill the sandwiches. Six years later, Pret still had only three shops. By 1997, there were 53.

In 2001, the founders sold a third of the business to McDonald’s for £50m – but the deal was a disaster, as overambitious expansion in America and Japan brought the company to near-bankruptcy.

Pret soon returned to growth, but still managed to retain its image as a plucky challenger in an industry dominated by fast-food giants. Napkins carried the promise that Pret was different from “so much of the ‘prepared’ and ‘fast’ food on the market today”.

The small company vibe is carefully curated. Chief executive Clive Schlee, who is in line for a payout of about £30m from JAB, used the tactic last week when asked about taking advantage of labelling laws intended to help small businesses. The laws allowed it to avoid listing ingredients on fresh food. “Pret looks like a huge company but in fact it’s 500 little kitchens,” he told the BBC.

It is a difficult line to swallow, especially as Bridgepoint bought the business from McDonald’s and the founders for £345m 10 years ago and made a huge profit on that through the sale to JAB.

Last year Bridgepoint, which left the day-to-day running of Pret to an operating board led by Mr Schlee, said it was considering a public listing of the business. Those plans were shelved when JAB – which owns Dr Pepper Snapple – opened talks.

 

Private equity firms have a chequered history running retail and consumer businesses, which rely on rapid store openings to fuel growth. “We buy a business, work out how many restaurants you can get away with in an area until it’s become saturated, then try to convince a new buyer that there is plenty more runway,” said one veteran investor.

 

For chief executives trying to run a company under a private equity owner, the demands can be extreme. Humphrey Cobbold, the boss of Pure Gym – which is backed by the US private equity house Leonard Green – described it as a “Faustian pact”. At his previous company, the bike retailer Wiggle, Mr Cobbold fell foul of the investors – who happened to be Bridgepoint. The disagreement, he said, led to a rapid exit: “They’re the owners, they’ve got the right to choose, so they said, ‘In that case, we’d rather have someone else run it for us.’ ”

 

At Pret, Mr Schlee would talk to Bridgepoint directors weekly and consult them on the biggest issues. It is known that labelling was considered an operational matter for the chief executive and his team. According to one source, a monthly compliance report would be made to the Pret board, which was chaired by William Jackson, Bridgepoint’s managing partner. It did not specifically refer to labelling or allergies, but confirmed that the business was compliant on all legal matters.

 

Company insiders reject the accusation that Pret lost sight of its values under Bridgepoint’s ownership. They point to the company’s commitment to helping the homeless: last year it donated food items to charity worth £3.4m. Pret has also continued to run bonus schemes for shop staff, and still holds Friday night parties in the restaurants – both legacies of the pre-Bridgepoint era.

 

Since the coroner delivered his verdict, Mr Schlee has struggled to keep on top of the crisis. Pret’s boss, who attended Rugby School and read history at Oxford, joined in 2003 after 17 years at the Hong Kong conglomerate Jardines – but those impeccable-sounding credentials have not been much use to him during the recent crisis. It was only when the prime minister called for a review of food labelling laws that Pret said it would start listing all its ingredients, including allergens, on freshly made products. Mr Schlee wrote to the Ednan-Laperouse family to express his condolences only in August.

 

“We want to work with the family well,” Mr Schlee told The Sunday Times this weekend. “If I had to do this all over again, I’d find some way of working with the family earlier.”

 

It will take a lot more to salvage Pret’s reputation. Mr Schlee has the backing of JAB and has stated his desire to use the tragedy to improve standards across his sandwich empire. “You can’t turn back the clock, that’s the first lesson,” he said, “but you can turn a crisis into a way of doing something better.”

 

The Sunday Times