Pret a Manger founders sitting pretty (from TELEGRAPH.CO.UK)The founders of Pret a Manger have sold their biggest sandwich: a £350m deal with a private equity firm and a bulge bracket Wall Street bank. Ben Harrington looks at the genesis of the chain and how the new owners want to expand 'pretability' in the US.
It's the sandwich chain that brought us crayfish and avocado, chrome interiors and a charity that distributes unsold food to the homeless. It has revolutionised the lunchtime eating habits of millions of office workers with freshly made food and witty apologies for having to charge VAT.
Now the founders of Pret a Manger, Julian Metcalfe and Sinclair Beecham, have sold the business for £350m, making themselves a fortune of at least £50m each and handing over ownership of the now iconic chain to private equity.
Having carefully built the impression of an anti-corporate ethos over more than two decades, the pair have sold to Bridgepoint, a UK private equity fund, and Goldman Sachs, the most powerful investment bank in the world. Butties have become big business, and fancy ones at that.
Pret sold 30m sandwiches last year, washed down with 20m coffees. It's branched out into sushi and sold 1.4m packs of raw fish as a result. Customers get through 12,000 cups of miso soup a week.
Having conquered a British palate more used to cheese and tomato on white than falafel, spinach, tomato and spicy yoghurt on wholegrain, the company wants to expand abroad having already started in New York.
"A key market for us is Manhattan," says Clive Schlee, Pret chief executive. "Zagat, the influential US food magazine, has called us the best British invasion since the Beatles."
The bankers now in control, who probably previously sent out for the chain's smoked salmon, wild crayfish & Dijon dressing salad, will need to get to grips with a chain that, rather quaintly, still has kitchens in all of its stores. The idea is that staff can create freshly made pastries, sandwiches and sushi everyday while other mass food retailers tend to centralise production to reduce costs.
The bankers now in control, who probably previously sent out for the chain's smoked salmon, wild crayfish & Dijon dressing salad, will need to get to grips with a chain that, rather quaintly, still has kitchens in all of its stores. The idea is that staff can create freshly made pastries, sandwiches and sushi everyday while other mass food retailers tend to centralise production to reduce costs.
Will that be the fate for the Pret sandwich? Will the new shareholders demand factory production to reduce costs, and maybe reduce fillings? "Absolutely not," says Schlee. "For Pret, such an idea is like putting garlic to a vampire. Freshly made food gives us an enormous competitive advantage. During the process we got some of the Bridgepoint executives into the kitchen so that they could understand that".
Metcalfe and Beecham's first store near London's Victoria station opened 22 years ago, latching on to the new consumer boom of the mid-eighties and the demand for specialist retail outlets that catered for a more sophisticated and demanding public. Sick and tired of the grey, drab consumer experience of the 1970s, Pret a Manger caught the new consumerist spirit of Margaret Thatcher's more affluent decade. By night the new breed of yuppies had acquired a taste for Bollinger and by day they certainly wanted something more than a limp ham sandwich for their lunch.
Just as Anita Roddick brought cosmetics with attitude to the high street in a retail revolution aimed at women demanding emancipation from drab department stores, Metcalfe and Beecham gave lunchtime a makeover while making sure people felt good about what they were eating. Just as Body Shop inspired a host of specialist retail outlets, such as Sock Shop and Tie Rack, Pret a Manger has spawned countless copycats specialising in everything from soup to sushi.
Back in 1986, the two men had no idea that Pret would end up as a global retail brand stretching across three continents which would earn them millions.
Back in 1986, the two men had no idea that Pret would end up as a global retail brand stretching across three continents which would earn them millions.
While in their twenties, they stumbled across the idea as they hunted for a decent place in central London to buy a quality sandwich during their lunch break. To legions of fellow workers, the British high street offered only a depressing collection of greasy spoons and shabby sandwich shops. Pret, however, could have been killed off at birth.
Having decided to fill what they saw as the gap in the lunchtime market by launching a delicatessen, the young entrepreneurs nearly went bust when the venture lost £80,000 in its first year. Needing to learn quickly, they quit their day jobs as surveyors to take control of the first Pret which they subsequently launched with a £25,000 bank loan, finding a property nestling next to the dilapidated Victoria train station.
It took them five years to get the formula right, but today Pret is one of Britain's most popular sandwich retailers: it has nearly 175 shops in the UK, and outlets in New York and Hong Kong, which together generated earnings of about £30m from sales of £223m last year.
That success has led to the Bridgepoint and Goldmans investment. But the two financial investors are not the first to try and profit from the Pret recipe. Back in 2001, Metcalfe and Beecham sold a 33 per cent stake in their business to fast food giant McDonald's for £50m, a controversial move for a company that had styled itself as anti-big business.
Having done the deal, the pair took a step back from Pret and went their separate ways. Beecham stepped down, although he remained a non-executive director, and pursued a new venture, an affordable but smart hotel based in the heart of Cool Britannia, Hoxton.
Meanwhile, Metcalfe - who is divorced with four children - set off to launch a hip new sushi chain Itsu along with Schlee before he became Pret's chief executive.
Meanwhile, Metcalfe - who is divorced with four children - set off to launch a hip new sushi chain Itsu along with Schlee before he became Pret's chief executive.
Metcalfe's life has never been short of the sort of drama beloved of gossip columns, no more so than when Camilla Tobias, wife of the actor Oliver Tobias, revealed that her 19-year-old daughter, Celeste Tobias, was in fact Metcalfe's daughter.
But while the founders were off pursuing new careers, the Pret management installed to look after the shop, including then chief executive Andrew Rolfe and his deputy Harvey Smyth, had set off with some grand expansion plans of their own with Japan and the US in their sights.
However, with the founders' sure touch lacking, things started to turn stale and the expansion plans ran into trouble. Pret was forced to drop plans to open 80 stores in Japan, after reaching just 14, and had to tone down its original US growth plans.
However, with the founders' sure touch lacking, things started to turn stale and the expansion plans ran into trouble. Pret was forced to drop plans to open 80 stores in Japan, after reaching just 14, and had to tone down its original US growth plans.
Rolfe and Smyth left the company in acrimonious circumstances. They were replaced by Schlee as chief executive, chairman Larry Billett, a former Salomons banker, and Metcalfe, who returned full-time as creative director to focus on developing innovative food ideas. Beecham, though, never returned to a full-time role.
"Bridgepoint was persuaded to buy the business on the back of the existing management's three-year plan," says Schlee. Since Metcalfe's return Pret appears to have rediscovered its focus. And now they have the backing of Bridgepoint and Goldmans, Schlee believes it is the right time to re-ignite plans for international expansion. There is now a plan to press ahead abroad by doubling its number of shops in New York to 14.
"Manhattan is a key market for us and we are looking at opening up in Washington this year," says Schlee, who used to work for Jardine Mathieson in Hong Kong.
The recent auction of Pret, which has lasted almost nine months, has been as colourful as some the company's history. Initially, Metcalfe created a huge fuss a year ago when he blurted out that the company was examining a float on the London stock market while attending a book launch - but later, investment bank NM Rothschild was instructed to carry out a private sale of the business.
There then followed numerous bidding rounds with a number of different firms, including Icelandic investment house FL group, dropping in and out of the auction process. Eventually, Billett, as Pret chairman, sidelined NM Rothschild to take control of the auction process himself, with bid proposals submitted directly to him instead of the company's investment bankers.
One thing the new owners will have to get used to is the company's quirky culture, including a promise by top management to speak directly with unhappy customers. Metcalfe is on the record promising that "if you were to ring up today saying I've just bought an avocado wrap and there's too much salt and I want to speak to Julian Metcalfe, I guarantee you'll be put through to me without a quibble".
One thing the new owners will have to get used to is the company's quirky culture, including a promise by top management to speak directly with unhappy customers. Metcalfe is on the record promising that "if you were to ring up today saying I've just bought an avocado wrap and there's too much salt and I want to speak to Julian Metcalfe, I guarantee you'll be put through to me without a quibble".
One of its most noticeable successes is the advantage it's taken of the huge influx of young foreigners looking for work in the UK. Even in a sandwich shop in the UK, you can earn a lot more money than a town square cafe in central Europe.
Potential recruits are assessed for the quality of their English, their "warmth" and what is referred to as their "Pretability".
They then carry out a day's paid work and other staff are asked what they think of them. If their colleagues like them, they get a job offer.
So, are the all important Pret staff happy with the change of ownership?
On Friday, staff at Pret's Victoria store weren't giving much away, but what is clear is they are happy with the status quo and don't want the company to change.
"Julian and Clive have e-mailed me this afternoon to tell us about the deal and to say there are not going to be any major changes - and I hope there aren't," said the manager of the Victoria store.
However, with private equity investors now on board, the staff may find some new ingredients introduced to try to improve Pret's successful recipe for business.
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