#35 Pret CEO: Inflation From War Starting to Bite

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1:53Hello, welcome to Big Boss Interview. I'm Fliss Hanna and I'm joined by Sean Farrington. You've been speaking to a business that is just synonymous now with the British high street, but it's also one that's been growing overseas, including in the Middle East. So this is a really, really timely interview. Hi, Fliss. Yes, this is Pret-a-Manger, who absolutely do have a presence in the Middle East. And of course, they will be feeling some of those pressures that have been brought about for many businesses because of those higher oil and gas prices. So we'll hear from Pano about what the prospects may well be for supply, for ingredients, for prices further down the line as well.

2:31It's a competitive market, that grabbing a quick coffee, grabbing your lunch, grabbing an evening meal as we hear as well on our high streets. And over the years, I've had some interesting approaches. They had a£30 subscription, a few coffees a day that you could get out of that. Then they changed their mind a bit and went to a smaller level of subscription where you have to pay a bit for each coffee. It's a changing world. We love our coffees in Britain. And so we'll hear about what it is about customer dynamics, what we want from our visits on the high street that has led them to changing those and the products that they have in store as well, whether it's massive salads or small baguettes.

3:07So there's all of that to discuss. Plus, Pano is one of those rare people who's had a CV go viral. His LinkedIn profile does show his background, how he started on the shop floor and with a promotion every few years, has managed to get all the way to being chief executive. So we'll hear a bit more about that story, what it is that works in the world of hospitality and retail, and what has worked for him over the years as well. So here is Panno Christou, formerly assistant manager of Pret-a-Manger, and now chief executive. Panno Christou, chief executive of Pret-a-Manger, thank you very much for your time this morning.

3:46No, thank you. Really great to be here, Sean. So, yeah, we're in the depths of tube strikes around London. Good to be able to get in and have the conversation today. Regular listeners to Big Boss Interview will know that part of the point of this is to be a bit more conversational and delve a little bit deeper into what it's like running some of our biggest higher profile businesses. When there's something like a tube strike, how much impact does that have on your business? It does definitely have a negative impact on our business. And I think we've had a fair few of them over the years. So we are now used to work in how to plan them.

4:24One thing I would say that I think commuters are making more and more effort to come in on these tube strikes. So where it may have been a much bigger impact years ago, it is less so, but it still is a negative impact. So my absolute preference would be no tube strikes. What is that telling you about those commuters if they're making more of an effort on a tube strike day? For those who don't live in London, it's clearly a key way of getting millions of people around the capital quickly. I'm not quite sure on why people are making more of a concerted effort. One thing I have seen in the more recent years, the rise of the e-bike and the line bike.

5:11So you can definitely see those being heavily utilised by folk trying to get into work. So, you know, I think from our perspective, it is, you know, you definitely see that being a means of transport that may have not been the case when there were strikes five to ten years ago. And does how people get into work make a difference to their relationship with Pret? I don't think so. I think there are many different means of, I guess, how people get in, train, tube, bus, walk, bikes, etc. I do think, and I think this is a continued trend and has been for a number of years, you know, you are to see more and more people using bikes, including myself, actually.

5:59That is generally my means of transport is on a bike into the office most of the time. so because i do wonder if if people are starting to change their approach when you are considering the locations that you're maybe thinking about opening more pret-demangers or or seeing which ones do well do you have to think about how those people who you want to be shopping in your store are getting to work um no listen i think prep prep generally operates in city centers and transport locations across the world. So that's really where the sweet spot of where the brand operates. And ahead of deciding on a new location, there'll be many data points that we look at, you know, population, density, office workers, etc, etc, etc.

6:55And I think if there are good public transport amenities to utilise, that generally works well as well. Where are we compared to pre-COVID, those COVID years where the lockdowns were happening, people were then used to working from home, took a while to come out of that? That is something that has impacted PrEP quite a lot over the years, that idea of going to an office to work and not working from home where do we sit now yeah well i think that you're absolutely right i think working patterns have changed uh off the back end of covid what we have seen is slowly more and more folk are coming in more more more days of the week um i think we saw some data that said i think on average people are coming into the office about 3.8 times uh 3.8 days per per week last year which was a slight uptick from the year before.

7:56We do think that might be a slow trend that continues. Will we see people in five days a week? I don't think so. I think we have evolved our own flexible working policies within our offices. And I'm a big believer that the external environment will continue to change and evolve. And I think CEOs have to continue to be nimble and evolve their businesses to serve the needs of the customers, whether they're working in an office or working from home. Does that mean you've had to start thinking, you know what, we won't open some of our stores on a Friday more than we would have done before? No, absolutely not.

8:37Absolutely not. It's definitely quieter on a Friday, but all of our stores operate minimum five days a week. So either Monday to Friday or over the weekends, depending on where you are. But I think that, you know, my sense is that during COVID, a lot of people that work from home, they had existing relationships with folk in the working environment. And there's more and more new people come in to roles and jobs. You know, people want that flexibility, but also understand the importance of human connectivity as well. What has been the biggest shakeup? You became chief executive. We'll get into your career at some point in this chat, no doubt, because it's a fascinating CV that's gone viral at times because of it.

9:24But from your perspective, running Pret, what you'd seen in the years before, but then COVID comes along. What now, when you reflect on what your stores look like, what they're selling, how customers are behaving, has really been the biggest jolt compared to the Pret-a-Manger you would have once known? Well, I would describe it as PrEP was a single channel analog business before COVID. No connectivity with our customers digitally. The only way you could really buy PrEP is walking into a store. And subsequently, of the changes, I would call us now an omni-channel business that has a digital relationship with our customers.

10:05So using delivery, using subscriptions, using loyalty programs. You know, we have a range of products we now sell in supermarkets, as well as, you know, still giving people a great experience when they walk into a prep store. So it's definitely meant that we have to broaden our horizon and look at different sales channels. But I think that's not any different to many other businesses that operate in a similar segment to prep. And the challenges I often find is, you know, utilising different sales channels, but really trying to keep the business as simple as possible. Because I'm a big believer that the simpler we can keep the business, the easier it is for our staff to get great experiences to our customers.

10:52Do you think with, for example, the attempts that you've made with coffee subscriptions one way or another, at times that has overcomplicated things? because you launched a subscription that was£30 a month and you could get five coffees a day. I think barista-made coffees or whatever the small print was that I saw on that, coffees a day for that. But then after a time, you scrapped that. Yes, so we initially launched a subscription in September 2020 when our stores were empty due to COVID. And we really saw a resurgence of customers coming in and utilizing the subscription. I think the first day of launching the subscription, we had about 30 ,000 people that signed up.

11:39What we did see as general commuters and workers and customers started to come back in, the combination of that guise of the subscription and how the business has returned as many did come through COVID, we felt we really needed to evolve the subscription so in July 2024 we made a change so instead of wait what started at 20 pounds a month then it moved to 30 pounds a month and we changed it from 30 pounds a month and free drinks to five pounds a month and get your drinks for half price which we still have today so a a lower barrier to entry i.e. five pounds instead to£30, but a slightly different variation to the subscription.

12:29And actually, we've seen the new variation of the subscription grow close to 25 % in the last 12 months alone. So what is it? The world of subscriptions, we're fascinated with them, it feels like, in the UK. Whenever we talk about them on our shows, we've got lots of people getting in touch about their approach to them one way or another. What is it about that different approach in those to subscriptions, do you think, that reflects how we buy things? Well, I think that, you know, customers really enjoy getting great value, whether it's for a loyalty program or the subscription programs. And we see that within our customers and the behaviors and how they utilize these subscriptions.

13:14Also, as well, it gives us an opportunity to connect with our customers digitally and kind of personalize the way that we can communicate with them and give them offers and promotions. So that's really been how that's evolved. In all honesty, from ideation to launch during COVID, that happened in six weeks. So we didn't really spend much time thinking about how would this look strategically over the future years. It was more about, you know, we just really want to try and drum up customers to come back into our stores. And it really did tick that box. But I think with all loyalty programs, subscription businesses, you know, companies will continue to evolve those.

13:58But I think the focus always has to be, you know, can you give your customers great value? And I think that for five pounds a month to get all of your drinks 50 percent off, you won't find a cheaper coffee or tea on the market than that. There is the pitch. I tell you what, as we broadcast this on our shows, I almost guarantee you there'll be people getting in touch with their rival thoughts. But we completely can see that, you know, that is exactly what you're aiming for there. That's the market. It's a busy one, the coffee market in the UK. It's interesting you said you sort of didn't almost overthink it, getting that out there.

14:39Is that your style particularly? Do you think retail needs to do more of that, like give something a go and see how people react and be nimble? Or can you confuse customers and scare them off? Well, I think that the dynamics of the game changed during COVID. And I think we really had to look at things as an entrepreneur would. and I think that taking risks which I you know I'd probably I'd consider myself you know I do like to take a risk and learn from those things and try to encourage the same within our teams and that's even I think today the the world the industry these dynamics are changing faster and faster so you have to ensure that you are nimble you know I think you have to create an environment within a business that allows people to make mistakes so they can learn from those mistakes.

15:36And I think often in business, especially as businesses grow, you can become quite risk-averse. And then I think that's where you'll stifle innovation and just the adaptation that you may need to take to the changing dynamics of business. Can you be innovative when you're lower down the rungs of an organisation? And I sort of use that analogy particularly because if people caught your LinkedIn profile, the bit that sort of talks about the background of somebody and effectively their CV online, they might have seen that yours went viral. And it looks almost exactly like the rungs of a ladder would without any rungs being missed out.

16:23So I've just got it up in front of me just to give people a bit of an idea. It starts off January 1995, floor manager, world study, assistant manager, store manager. Brief time outside, away from Pret and McDonald's at Blockbuster, then to Pret as assistant manager, assistant general manager. And we go on and on up. It feels like almost every single individual level, head of operations, UK managing director, to chief operating officer and chief executive officer. did you feel along that route were you being innovative to make that what must feel like quite a rare journey yeah it's it's been a wonderful journey and i think i've seen the business from founders to to to the ownership structure it has today and i think that gives me you know a unique insight into the business i understand and i know how it is to work in our stores um actually everyone in our offices twice a year will work a full day in our stores getting in five o 'clock in the morning making sandwiches serving customers including myself and i think i always find that quite a sobering event to do and uh and so much i learn when i spend time on on the shop floor and you know to answer your question around how do you really socialize and capture ideas from the the organization i think you know we have across the world within our network 17 000 employees so there are many individuals that work with us that have great thoughts great ideas and really see the good the bad and the ugly and the cold face uh when they're in in our stores so we do actually innovative in them because to people who've been in more than one they you know they will feel very very similar and will seem like you would know the products that are going to be on those shelves and even where they are.

18:19What innovation could you have running one of your stores? Brands are built on consistency, so I think we do try to ensure that there is a consistent approach to process stores. But what we do do is we have every single store has a big poster with a QR code on and says, if you have any ideas, any thoughts of things that we can do differently, uh please scan the qr code and uh if we take that idea to a test we will give somebody an award in monetary terms if we launch uh the idea they will get an even bigger uh financial reward as well so we do uh we do work on mechanisms and how we get ideas and in all honesty you know i spend a lot of time out and about in our shops and and the biggest question i ask people is you know how can we do to What can we do to help you?

19:11So on a store-to-store basis... What's the biggest answer you've got back in recent times? There are things that people have spoken about around automation. You know, if there are manual processes in our kitchens and front of house, you know, is there more that you can automate? You know, what role does AI play in Pret? So, again, those are things that I think us and many companies are still trying to figure out. There are also the ideas around, you know, why don't you try and make a sandwich with a specific flavor profile? And we've actually run competitions with our baristas and with our kitchen staff around develop a sandwich and we'll, you know, run a competition and the winner will get their products launched within prep.

19:58We've done that on a number of occasions across the years. Right. Has there been something that's surprised you along the way with that? It's something where, you know, for all the money you'd be spending on those that are product development types in the world of food. That actually has been an idea from the shop floor that's made it. So I was in our shops in Paris a couple of months ago and they ran a competition with their baristas and they launched, which was an idea from one of the baristas, a rose flavoured latte. I looked at it and I thought I'm not quite sure about that so tried it and it was fantastic and it was a great and has continued to be one of the top selling drinks within our French market so there are many other examples but that is one and I actually went and visited the barista who's very excited to see obviously his creation up there connecting with customers Do French customers realise Pret -à-Manger is a British business?

21:03They do. They do. Yeah, it's a funny one because I often thought to myself, a British brand with a French name selling good quality food to the French, how would that work? It's been a fantastic success. It really has. We've been there for 13 years now. I think the French consumers really understand great quality food, and we've grown the business to a number of locations in Paris, Lyon, Nice, Toulouse, Marseille. So it is our third largest business now behind the UK and our US business. Just getting back to your background and how you got to where you were, was there a point on that ladder of rungs where you thought, Was it maybe from the beginning you thought, I really want to get to the very top of this business when you were assistant manager in October 2000?

22:04The short answer is no. I only really considered the CEO role a couple of years before I saw the possibility of it coming my way. I always wanted to do well, do a good job. and as you can see it continued to get promoted throughout that time doing 10 different roles within that time. I'm a big believer and when people often ask me around career progression and what words of advice or wisdom I can give them on their journey I often say you know spend time focusing on the job you're doing in hand and that will generally sell you into the next position. I've far too often seen folk that are so passionate about the next stage it takes the emphasis off them doing their day job so so no it's I've you know as I've gone through the ranks you know Pret's given me the opportunity to learn and do things differently and you know I think that you know in some ways I pinch myself every day seeing you know I've got the range of such a wonderful brand.

23:15And the opportunity now to give back, to give back to those people that work with us. And, you know, you talk to my career journey, but there are many others like myself that have worked in Pratt for a number of years and have grown throughout the business. What was the biggest leap between all of those roles? I would say becoming CEO. And I say that because I'd only been CEO for three months when COVID kicked in. So quite a baptism of fire. And whereas, you know, my predecessor was in post for 18 years. So there was a view, you know, continuation of the business, continued moving forward. The business continued to grow.

24:03But then overnight, you go from a great business to no business. but you know I think that from you know 2020 onwards as people started to slowly move out of COVID the business has continued to grow I think in 2023 we surpassed kind of ourselves of 2019 and the business just continued to grow from then in. Were there any nerves around that time particularly as COVID began just months after you started as chief executive? Were there any nerves? Yes, I guess there were nerves. And, you know, I think I'm always when you're new in post or new in a role and looking to earn your stripes and cut your teeth, so to speak, that is a process I think many go through.

24:54And it was exactly the same for myself. But now this October will be seven years. as CEO, and time has flown. But I think that there's lots of loans we've taken along that time. When you reflect now on younger workers who are looking to build their careers, looking to think about what careers might be on their way, do you feel like the same opportunities are there now that were around in the mid 90s, the early 2000s, when you were sort of on those lower rungs of the the organization well the hospitality industry is one of the the largest employees in the country and you know clearly it's been a challenging time for hospitality because of a multitude of things that have happened uh out of the control of the sector but it still remains to be a great career for individuals you know it is tough it's not easy You know, working in kitchens, serving customers, et cetera.

26:00But I think that for any young person, and again, we have many examples of that. We have a high percentage of youngsters, teenagers or early 20s within the prep organization. And I think it's given them the right tools, education, nurturing, and actually the stories within the organization that showcases that. There are folk that were like you a number of years ago that have grown to give them that inspiration. And we spend a lot of time connecting younger employees with folk that have been within the organization for a long time that can really talk to the challenges they had earlier on in their career.

26:45And what are the real watchouts for those individuals as they grow? Are you in an environment where you feel encouraged to develop these younger people, where you feel it's worth your while, business-wise, to actually do this? Absolutely. Absolutely. I think that I often say for any business, growth gives people opportunities. and we are a business that is in growth mode it is growing uh and the more we grow the more opportunities we are able to give uh individuals this september for the first time ever prep will be launching a graduate program uh so when many of many companies are stopping graduate programs reducing the amount of graduates they're bringing on we are going to be bringing in our first cohort of graduates that will be on a two-year grad program in September.

27:45And we now see that as another way of bringing young talent into the organization. How many people are you thinking of bringing in? So we're going to bring in seven to start with. And what's the thinking behind that? So, you know, you've got young, talented individuals coming through, you know, finishing university, looking for the next professional jobs. And we see it, A, as an opportunity to give back to society and bring people into the environment. B, I think that what we are seeing, that there are many things the younger generation are looking at that is very different to other generations.

28:27And I think bringing that young, hungry, dynamic, different way of thought into the organization, we think that's a great thing. Do you have aspirations for that to be very, very big in the years to come? Absolutely. This is year one of a scheme that will happen every single year. And our aspiration is to continue to grow the amount of graduates that we bring into PrEP. And do you feel there's, is there a demand there as well from younger people who are, Have you detected there are more people turning away from that university process that many would have been through for decades? So, you know, we had thousands of people apply for the graduate scheme.

29:12And these were mainly folk that were coming through the university route. But equally, we have brought in many on apprenticeships that have come out of school. and you know we funded apprenticeships bringing folk in 16 17 years old developing them to kind of you know in many instances we have many instances that somebody would come in at 16 years old but the age of 20 years old you're running a pret store as a general manager and these are businesses that will be making two million pounds plus a year you'll be operating in a team of 20 to 30 individuals. We will then spend the time to learn, nurture, educate these individuals.

30:01And I think that I've seen firsthand the impact that has had on people. And I think that upfront investment at younger ages, I think what we also see is loyalty. and the other thing that we have um our charitable arm the prep foundation trust which initially was us giving food at the end of the the day to local grassroots charities over the last 15 years we've been bringing in ex-offenders homeless and asylum seekers into the working environment so we brought on boards almost 700 we brought on board about 120 last year alone uh and again a lot of time and effort investing in these people, especially some people that their life may have gone off tangent and we help and work with them.

30:52But again, what we've seen with this cohort, even more loyalty, because they see that as a business, you're investing in them. And I think that I know it's hard to, as a CEO or as a business leader to think about what to invest in. But I am a big believer, you know, the number one thing for us is the focus on great talent. I think if you have great talent around an organization or a brand, that will be for me the difference between doing something great and doing something average. It's interesting you mentioned in there, you know, those issues of, you know, the levels of homelessness, number of asylum seekers in the UK, something that's things that are often talked about in a political sense.

31:43Could businesses be doing more there across the board for those situations? Yes. So we've been working for the last three years with His Royal Highness Prince William's Homewood Charity. So this charity was set up by the prince to work towards alleviating homelessness across the UK. they reached out to us looking for what they would call incubators and utilizing our experiences, bringing homeless people into the work environment. So Pret, IKEA and Bosch were chosen by them and we have been working with them really with an open source approach to showing what we do to other organizations so they can try and take the learns to integrate that into their into their businesses and for me it's just another form of exploring how to bring talent in so I absolutely think there is much more businesses can do to help with the the situation we have and homelessness and as you know very well Sean it is a problem that it's becoming bigger and bigger so so there is definitely more we need to do to help with that just going back to some of the insights that we can get from you about you know what we see on the shelves in your press stores what's the thinking behind the scenes a very hot topic at the moment is what is going to be the consequences on food prices from the current situation the war in iran are you starting to see that play out in price pressures for you now so we you know have held are pricing pretty tightly since 20, you know, for the last two and a half years or so.

33:30So it has priced way below inflation. And what we are seeing with the recent instance in the Middle East, yes, what we are seeing is volatility when it comes to fuel. We have trucks bringing fresh ingredients into our stores every single day. So we're seeing a negative impact due to that. Looking at the volatility of energy costs, we got burnt quite heavily during the Ukraine war with an increase in energy costs back then. Clearly, they have come down a lot and we have locked our energy costs to the end of 2027. And then really, I think, is waiting and see what happens through the supplies base and our suppliers.