Pret and McDonald’s

So Pret a Manger, the star of British fast food, lies prostrate before the golden arches of America. A company taking a minority stake in another is rarely headline-grabbing stuff, but when McDonald’s took a 33 per cent bite out of Pret a Manger last week, it was the acquiescence of a successful privately owned company to sell out so readily to a giant competitor which was so striking about this deal.

The deal appeared at first sight to be rich in well-worn corporate themes. It was the triumph of bland mass production over fresh, hand-prepared food. Then there was the British fascination with supporting the underdog against faceless corporate monoliths hell-bent on standardisation and reduction of choice.

But beneath the newsworthy surface of the differences between these two organisations there are a startling number of similarities. Strip away the market positioning and a rose-tinted perspective on the small-is-beautiful theme and you find two organisations that have grown by successfully pursuing very similar paths.

For a start, they both stick religiously to tried and tested retail formats. You know you are in a Pret with that jazzy chrome minimalism just as you know you’ve walked through the doors of McDonald’s, with its dour and clinical decor.

Both companies are well-versed in the science of efficient catering processes with limited-range menus and highly specified approaches to sourcing. In Pret’s case, this consists of free range chicken from Spain, and in McDonald’s, the legendary attention to detail for the upstream sourcing of buns and beef.

They both even appear to have mastered the age-old retail trick of reducing customer “dwell times” in expensive floorspace by making the seating adequate for a quick snack, but not quite comfortable enough for anyone to outstay their welcome. Above all, though, both organisations are exemplars of masterbranding and its consistent communication with the target consumer. For 15 years Pret has espoused its passion for hand-prepared food with the same single-minded focus as McDonald’s marketed the value meal.

But the ultimate similarity between the two organisations is their common desire for corporate growth.

In McDonald’s case this desire is easy to understand because it is a publicly listed company, with all the attendant requirements to deliver above average shareholder returns.

McDonald’s faces a number of challenges in trying to deliver topline growth. The prospect of a maturing burger sector and saturated outlet distribution could mean that further expansion will only lead to volume cannibalisation. McDonald’s other alternative is to experiment with other food-on-the-go concepts – such as sandwiches. The real prize is a low-cost, centralised food service supply infrastructure, serving a variety of fast food formats.

But there may be other, softer benefits to McDonald’s buying a stake in Pret. For example, Pret’s cultural skills and entrepreneurial verve would be valuable to the McDonald’s business model. It could also benefit from a transfer of the hand-made-on-the premises skills, if for example it were to open a premium sector burger outlet. The idea of a succulent hand-prepared burger, made from humanely outdoor-reared beef, chargrilled on the premises and served with chopped organic shallots and roquette in a freshly baked ciabatta wrap sounds not only appetising but also an opportunity to trade up.

The potential in the merger for Pret seems less clear-cut. As a private company, expansion is not a prerequisite for survival, and as Pret is finding, the accusations of “sell-out” are particularly shrill when a company does not have to grow, but chooses to. It’s ample justification for the small-is-beautiful lobby to cry that private companies are no less suspect than the big bad corporates captivated by a macho desire for growth.

Let’s be charitable and assume this is an unfair portrayal of Pret’s corporate intentions. That, really, the desire to grow is purely a continuation of the admirable founding zeal that has propelled its growth to date; that the crusade for freshness, exemplary food integrity and the creation of a culture in which the employees are happy worker bees is an enlightened work ethic. It is an organisation brave enough to speak out against the unspeakable standards of large corporations whose regard for customer welfare seems as scant as their regard for the welfare of the animals they turn into food.

If Pret has decided to sell-out to a growth agenda, McDonald’s represents a sensible option. The road to international expansion is littered with casualties, from the Sock Shop, The Body Shop and Marks & Spencer. Pret has been smart by finding a streetwise partner which lives and breathes the game of cross-border extension and knows the ropes when it comes to planning consent, local employee legislation and zoning issues.

Maybe, against all the precedents, the McDonald’s partnership is a marriage made in heaven. Perhaps both parties will remain happy with the 33 per cent stake arrangement, both expanding and benefiting from the exchange of knowledge, expertise, and McDonald’s investment.

And even if it all does end in tears, we needn’t cry into our McCuppinos, because just as the UK and US brewing industry has shown, industry concentration combined with low entry barriers almost by definition spawns a conveyor belt of quality niche start-ups determined to challenge the status quo.

James Farnham is an independent marketing consultant; jaffacake@aol.com

see also “MW200102080088”