Pret founder returns in the face of pandemic debt

Coffee chain shakes up its top team after feeling the heat of its customers

Pret a Manger’s new chairman has vowed that the company will reduce its debt. This comes amid a shakeup in the boardroom, which has seen its founder return to “reaffirming” its values.

Konrad Meyer who became chairman of Pret last week said that the coffee and sandwich shop was “implementing plans” to reduce its debt, which has risen from £546m to £744m by 2022.

Since the pandemic , rising interest rates have put pressure on companies that are heavily indebted. This has created a scramble within many boardrooms.

Meyer’s appointment is part of a wider overhaul at Pret, which has seen Sinclair Beecham return. Beecham was the businessman that co-founded Pret with Julian Metcalfe back in 1986. Beecham will be an advisor to Pret chief executive PanoChristou.

Larry Billett has returned to the board as a non executive director. He was chairman of the company from 2003 until 2011.

In a joint press release, Beecham and Billett stated that they wanted to “reaffirm Pret’s mission” of focusing on the customers.

The chain has been facing a tough time after changes were made to their subscription coffee service.

customers have been angry by changes made to the app to close a loophole that allowed users to share free drinks with colleagues and friends.

The caused technical difficulties, which led to complaints and increased pressure on the staff. Metcalfe has stated that he “feels for the staff and customers who are feeling let down”.

Simon Stenning is a hospitality industry analyst, and the founder of Future Foodservice. He says, “It’s a very sensible move to bring back two people who were so deeply involved in Pret and knew it so well.”

Beecham and Metcalfe opened the first Pret shop on London’s Victoria Street, after purchasing the name and assets of a failed coffee shop. The shop offered sandwiches and meals prepared on-site, in contrast to what Metcalfe (who founded Itsu) had previously described as “very grim” takeaway options at the time.

Pret was purchased by JAB, a German private equity firm in 2018, for £1.5bn. Beecham still retained a share in the company.

The sale was made just before the pandemic that shook Pret’s model of business and caused it to lose £255m in 2021. The chain also cut thousands of jobs.

In 2020, the subscription service was launched to keep the chain afloat. For £20 per month, customers could receive up to five coffees free a day. The cost has now risen to £30 per month. Subscribers also get 20pc discount on food.

The offer saved the company, but it was not a smooth ride after the pandemic. Pret was also criticized for its price increases as inflation rose. In response to criticism, it slashed prices on some of its most popular sandwiches.

The high prices may be due to Pret’s ballooning bill from the pandemic.

Debts can affect your trading strategy and wiggle room. Retail analyst Clive Black says that you cannot cut prices as you don’t want to give up your gross margin.

There will be a lot of focus on the cost base, working capital, and pricing. This is not what senior management should be focusing on at a retail store.

The company is also in the middle of an expensive expansion drive. Pret has around 450 shops in the UK as of the start of this year, and plans to have 500 by the end. Pret already has a large presence in London.

The real growth is happening internationally. In the past two years, Pret opened stores outside of Britain in Germany, Luxembourg and India, often signing franchise agreements.

Pret will open more stores in 2024 than it did in the previous year. It plans to open up to 1,500 international stores in the coming years.

Stenning says that the company has grown to be a global brand.

Pret’s board restructuring would aid in the “next stage of international growth”.

Meyer’s remarks about Pret’s debt have led to speculation that JAB is preparing for a sale. Black says that reducing debts can be a sign of a future sale, because high debt can put buyers off and is “a major issue” for groups when they list on the stock exchange.

Pret had been touted by Bridgepoint as a potential IPO candidate. The company hired bankers to investigate a listing in New York. Bridgepoint chose to sell JAB in the end.

JAB is no stranger to selling minority stakes of the businesses it owns via stock market listings. Over the last three years, several companies, such as JDE Peets Keurig Dr Pepper, and Krispy Kreme have been listed.

Stenning: “JAB will want to get a return for the money that they have paid. To get the return, they will have to manage their balance sheet carefully. “It puts a lot of pressure on business. More than ever before.”

Pret’s newly restructured top management team will focus on improving relations with staff and customers, regardless of whether a future sale or IPO is in the works.

Meyer stated that he is “focused on Pret’s essence: happy teams and satisfied customers”.

Beecham and Billett said, “We look forward working with Pret’s strong management team and the board to reaffirm Pret’s mission of doing what’s right for the customer. This was always the foundation under Pret’s growth.”