What's Brewing at Pret?

Pret a Manger has decided to shake things up with its subscription model, causing a stir among coffee lovers. Previously, the subscription allowed members to enjoy five free drinks a day and a 20% discount on food for £30 a month. Now, Pret is switching gears. Starting in September, the new subscription will cost £10 a month (initially £5 until March 2025) and will offer half-price drinks instead of free ones.

Why the Change?

This change aims to simplify pricing and eliminate dual price tags on shelves. Pret wants to offer better value to all its customers, not just subscribers. This move also aligns with Pret’s efforts to keep their drinks competitively priced on the high street.

Economic Impact and Recovery

Interestingly, Pret's subscription service played a significant role in the company's bounce back after the pandemic. After suffering during lockdowns, Pret returned to profitability for the first time since 2018. The subscription model, with 57.9 million redemptions globally in 2022, contributed significantly to this recovery. Sales jumped 20% to £430 million in the first half of 2023, highlighting the model's success in driving customer engagement and sales.

Importance from an Economics Perspective

1. Pricing Strategies: The shift in Pret's subscription model highlights how businesses use pricing strategies to attract and retain customers, balancing affordability with profitability.
2. Consumer Behaviour: Understanding customer preferences and reactions to pricing changes is crucial. This move reflects how businesses must adapt to changing consumer behaviors and economic conditions.
3. Market Competition: By offering competitively priced drinks, Pret aims to maintain a strong position in the highly competitive coffee market.
4. Recovery and Profitability: Pret’s ability to bounce back post-pandemic underscores the importance of innovative business models in driving recovery and growth in challenging economic climates.

Economists Linked to the Content

1. Adam Smith: Known for his work on free markets and consumer behavior.
2. Joseph Schumpeter: His theories on innovation and entrepreneurship can relate to Pret's innovative subscription model.
3. Richard Thaler: As a behavioral economist, his insights on consumer decision-making are relevant to understanding how customers might react to Pret's changes.

Discussion Questions

1. How do subscription models like Pret's influence consumer behavior and brand loyalty?
2. What are the potential risks and rewards of Pret’s new subscription pricing strategy?
3. How can businesses balance the need for profitability with the desire to offer value to customers?
4. In what ways do innovative business models contribute to economic recovery and growth, especially post-pandemic?

Glossary of Key Economic Terms

1. Dual Pricing: A strategy where the same product is sold at different prices in different markets or customer segments.
2. Innovation: The process of translating ideas into useful products or services, driving economic growth.
3. Market Competition: The rivalry between companies selling similar products or services with the goal of achieving revenue, profit, and market share growth.
4. Pricing Strategy: The method companies use to price their products or services to maximize profitability while considering consumer demand and market conditions.
5. Profitability: The degree to which a business or activity yields profit or financial gain.
6. Subscription Model: A business model where customers pay a recurring price at regular intervals to access a product or service.

Competitive landscape

In the UK market, Pret a Manger faces competition from several prominent chains and independent coffee shops. Here are some of the main competitors:

1. Costa Coffee: One of the largest coffee chains in the UK, known for its extensive range of coffee and food offerings.
2. Starbucks: A global coffee giant, Starbucks competes with Pret in terms of both coffee quality and the in-store experience.
3. Caffè Nero: Another major coffee chain in the UK, Caffè Nero is known for its Italian-style coffee and cozy ambiance.
4. Greggs: Primarily known for its bakery items, Greggs has expanded its coffee and lunch offerings, becoming a significant competitor.
5. Independent Coffee Shops: Numerous independent coffee shops offer artisanal coffee and unique experiences, posing a diverse and localized form of competition.
6. McDonald's: Particularly its McCafé line, McDonald's offers competitive pricing and wide availability, attracting a large customer base.
7. Leon: Known for its focus on natural fast food, Leon offers coffee and quick meals, appealing to health-conscious consumers.
8. Eat.: Although Pret acquired Eat., it’s worth noting that Eat. was a direct competitor before the acquisition, and similar business models can still be found in other brands.

These competitors challenge Pret a Manger across various dimensions such as pricing, quality, variety, customer experience, and convenience.

What's Brewing Financially at Pret?

Pret a Manger has made a remarkable financial turnaround, recording an operating profit of £50.6 million in 2022, its first profitable year since 2018. This recovery is attributed largely to the success of its innovative subscription service, Club Pret, and its international expansion efforts. The first half of 2023 saw Pret's sales surge by 20% year-over-year, reaching £429.9 million​ (Pret)​​ (Marketing Week)​.

Key Drivers of Success:

1. Subscription Service: The Club Pret subscription model has been a game-changer. Initially launched in 2020, it offered members up to five barista-made drinks a day for a monthly fee. The service, which evolved to include discounts on food, generated 57.9 million redemptions globally in 2022, significantly boosting customer engagement and sales​ (Marketing Week)​.
2. International Expansion: Pret has expanded into new markets, opening stores in seven new countries since 2021. This international growth now accounts for nearly 19% of Pret’s revenue. New locations outside London, such as Bishop’s Stortford and Worthing, also contributed to this growth, reflecting a strategic shift to diversify its geographic presence​ (Pret)​.
3. Digital Transactions: Digital sales have become increasingly important, with transactions through the Pret app accounting for 42% of all sales in the first half of 2023. This shift highlights Pret's adaptation to modern consumer behavior, leveraging technology to enhance customer convenience​ (Marketing Week)​.
4. Employee Investment: Pret has also focused on its workforce, implementing multiple pay raises over the past year to support employees amid the cost-of-living crisis. This commitment to staff welfare has likely contributed to improved service quality and customer satisfaction​ (Pret)​.