Why Pret’s espresso subscription was a enterprise catastrophe

The world is full of injustices, but none apparently quite so bitter as the decision by sandwich chain Pret A Manger to water down its ‘coffee subscription’ service.

Nearly four years after the scheme was launched, instead of a £30 monthly fee allowing them up to five free drinks a day, subscribers to Club Pret were told last week they will soon have to pay £10 a month in return for just a 50 per cent discount.

Club Pret’s fans are appalled. Ever since the change, which will take effect in September, was announced — in a letter signed off ‘with love’ from UK managing director Clare Clough — social media has been frothing like a cappuccino machine gone haywire.

‘You are making a huge mistake,’ warned one user on X. ‘There is time to rectify it, otherwise I am cancelling my subscription and will never set foot into any of your stores (which will quickly shut down, one by one, from September) ever again.’

Another echoed the thought: ‘Can’t wait to never set foot in Pret again because of this change.’

Others calculated the brutal economics of the new rules. At the moment, any Club Pret member with the caffeine-tolerance to gulp down five coffees per day for a month currently pays £30 to do so. But in future, such a habit will set them back £280, instead of £540 at full price.

So if the Club was hugely popular, and got people through the doors to buy sandwiches and other things, why has Pret dropped it?

Some experts have suggested the offer was simply too generous. They say it has been an enormous own-goal, rather like Hoover’s infamous ‘free flights’ deal in 1992, when the vacuum-cleaner company was nearly brought to its knees after it offered two free return plane tickets to New York for anyone spending more than £100 on a Hoover.

Eagle-eyed travellers noticed that the value of the free tickets was around £600 — six times the cost of the vacuum cleaner. Understairs cupboards filled up with surplus Hoovers while their owners enjoyed a jaunt to the Big Apple. The fiasco ended up costing the company an estimated £48 million.

Like the Hoover deal, Pret’s coffee subscription was born out of desperation to boost business. When it launched on September 8, 2020, with the economy struggling to recover from the first Covid lockdown, the service offered five drinks a day — including teas, hot chocolates, smoothies and frappes — for an initial price of £20 per month.

It was the same week the ‘Rule of Six’ was announced, and Britain began to be carved up into a bewildering number of ‘tiers’, all with their own constantly changing rules on social distancing. Millions of workers had yet to return to the office and Pret’s 450 UK shops — around three-quarters of which are in London — were hurting badly.

‘How Long Can Pret A Manger Hold Out While Brits Still Work From Home?’ asked a headline in the Grocer magazine.

That was in spite of efforts by Rishi Sunak, then the chancellor, to give the hospitality sector a boost by temporarily lowering VAT to 5 per cent, and posting a cheery picture of himself buying lunch with the caption: ‘Making the most of Pret’s price cut in response to the VAT reduction.’

The chain also benefited from Sunak’s ‘Eat Out To Help Out’ wheeze, in which the Treasury (ie the taxpayer) paid half the cost of food and drink consumed on premises (up to £10 per person) on Mondays, Tuesdays and Wednesdays during August 2020.

Pret’s coffee subscription scheme was an immediate success, attracting 16,500 subscribers on its first day, far more than expected. By April 2023, the chain was dishing out over 1.25 million coffees a week under the subscription, to an estimated 180,000 customers. Pret was left with a headache: the scheme was rapidly becoming unaffordable, but how should they handle customers now accustomed to coffee that was apparently free at the point of delivery and who were bound to squeal if the offer was withdrawn?

Pret was having to make many more coffees as customers tried to max out their subscriptions. Non-subscribers, meanwhile, were understandably miffed at having to wait in queues behind ‘freeloaders’ — aka subscribers — who were paying far less for drinks.

In 2023, the chain phased out fruit smoothies and frappes, available via the subscription, because they were expensive and time-consuming to make.

That same year, Pret let slip that the average subscriber was visiting its shops 28 times a month — almost every day. Assuming they were having a coffee on each occasion, that meant they were getting each one for just over £1. Yet for non-subscribers, Pret was charging anything from £3 for an espresso to £4.25 for a ‘Matcha Latte’.

According to insiders, High Street coffee shops typically make a profit margin of 10 per cent, with rent and staff accounting for a far bigger chunk of costs than the raw materials of coffee beans and milk. That means customers need to pay roughly £2.70 for Pret just to break even on an espresso — the company was thus losing £1.70 on every one handed out under the Club Pret rules.

Pret was putting on a brave face. In 2022, it returned to profit for the first time since 2018, and claimed that subscribers were spending almost 30 per cent more per transaction than non-subscribers.

But, it’s difficult to see how it can be making anything other than a thumping loss on every cup of coffee it serves under the scheme. What’s more, didn’t the need for the Club arguably disappear as more workers returned to the office?

Retail analyst Natalie Berg says: ‘You can’t fault Pret for experimenting. They had to find a way to lure customers back into their stores post-lockdown.

‘But for any subscription model to work, both the customer and the business need to be getting value from it. Pret’s problem has been that some customers were arguably getting too much value.’

When it raised the price of the monthly subscription from £25 to £30 in 2023, Pret threw in a 20 per cent discount on food.

But there was no hiding the fact that while appearing to lose money from its more active subscribers, Pret was marking up the cost of other products.

Even allowing for a cost-of-living crisis, for non-coffee drinkers like me, a visit to Pret looks anything like good value for money. A bottle of still water, which cost £1.10 in August 2020, now costs an astonishing £2.20. A tuna baguette, £3.15 in 2020, has risen to £5.25.

Pret says it will now bring down many of its prices. And yes, there are signs of that happening. A butter croissant is available for £1.99 (down from £2.30) and Arabica filter coffee for 99p (from £1.80).

Pret is in good company when it comes to making over-generous offers. As well as the Hoover fiasco, McDonald’s made a blunder with its ‘When the US wins, you win’ promotion during the 1984 Los Angeles Olympics.

Scratchcards offered customers free food and drink if the U.S. won a medal in particular events. A gold was worth a Big Mac, a silver a portion of fries and a bronze Coca-Cola.

McDonald’s had based its sums on the 1976 Montreal Olympics, when the U.S. won 94 medals, 34 of them gold. But the boycott of the 1984 Olympics by the Soviet Union and Eastern European communist nations paved the way for a gargantuan American haul of 174 medals, 83 of them gold. The fast food giant took a hit.

Then there was the promotion by the US frozen food chain Healthy Choice in 1999 offering $1 worth of air miles for every eligible product. David Phillips, a California civil engineer, discovered a chocolate pudding on sale for just 25 cents and went on a buying spree. Cutting out the barcodes from 12,150 puddings yielded him 1.2 million air miles.

It’s a tale that embodies the consumer dream of using a flawed promotion to get one over on a company. For Club Pret’s subscribers, that dream will now seem even more elusive.