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Pret A Manger Will Try Anything to Survive

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LONDON — If you stand outside the Bank underground station, in the heart of the financial center of Britain, and want to pick up a quick lunch, within about 10 minutes you can reach 25 Pret A Manger stores.

Pret, a 37-year-old British sandwich and coffee chain, became ubiquitous in central London with the mantra “follow the skyscrapers,” serving up London’s harried office workers Posh Cheddar & Pickle baguettes and Classic Super Club sandwiches to eat at their keyboards.

This “is the basis of how we built Pret,” said Pano Christou, chief executive of the chain, which was acquired by the food conglomerate JAB two years ago. It stretches to New York and Hong Kong, but its roots still run deep in London, home to more than 300 of its 533 stores worldwide. Over the years Pret (no one uses its full name, French for “ready to eat”) has seeped into Britain’s cultural life with traditions like its Christmas sandwich, part of an annual informal competition among the country’s lunch counters and supermarkets.

But in March, when the coronavirus emptied office buildings, Pret’s customers vanished. Seven months later, they have barely returned. And what was Pret’s greatest advantage — its central London stronghold — has suddenly become its biggest weakness.

The pandemic has turned back the clock on Pret’s accounts by a decade. In August, weekly sales in Britain were about 5.5 million pounds ($7.1 million), barely more than in August 2010, when it had about 150 fewer stores. It has laid off 2,890 people, a third of its staff. Thousands of those who remain have gone from 35-hour contracts to 28 hours a week.

Pret has become a symbol of the needy city center struggling without commuters, and its troubles spawned a flurry of newspaper articles about whether people should or shouldn’tSave Pret.” Photos of high-ranking government officials popping in and out of a Pret near Parliament in July sent a clear message about which side of the argument the government was on before it instructed workers to return to their offices, albeit temporarily.

For some companies, the only response to the pandemic has been to hunker down and try to avoid running out of cash before their customers can return (consider the airline industry), but others cannot wait for a return to normalcy because it may never come. Pret is among the companies forced to reconsider their business as everyone reconsiders personal day-to-day routines. The predicament has forced a successful company to go into survival mode, to figure out what the office lunch is without the office.

And it is now clearly willing to try anything.

It wants to sell Pret food in supermarkets, and has already begun selling coffee beans on Amazon; it has signed up to all the major food delivery platforms to take its sandwiches, soups and salads to its work-from-home customers, and opened a so-called dark kitchen in North London to prepare its food strictly for delivery, modeled on the success of Sweetgreen and Shake Shack, and hopes to open another dark kitchen in either New York or New Jersey soon; and it is devising a special menu of hot evening meals for delivery, such as a Chipotle Chicken Burrito Bowl​.

Then there is the coffee subscription, an effort to drive people back to the stores: Five drinks a day made by a barista (coffees, teas and smoothies) for £20 a month. On the face of it, it could be an extraordinarily good deal. With two lattes a week, a subscriber will break even. And the first month is free. (Small print: You can’t order five drinks at once — there must be 30 minutes between each drink order.)

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Pret’s whole business model hasn’t collapsed, just one crucial part of it, said Jessica Spungin, who teaches strategy and entrepreneurship at London Business School. Many people are still working, and they still need to eat a quick lunch. “How they can sell it to them is different because these people are no longer where they used to be,” she said.

The only way through this, if there is a way through this, is for Pret to experiment with lots of “small, low risk” ideas at once, Ms. Spungin said.

Mr. Christou, 42, sees this as an opportunity for Pret to become a different type of company. Rather than worry about whether workers will return to their offices and what the government’s advice will be, Pret needs to transform.

“I don’t think customers should help Pret. I think it’s down to Pret to figure out what it does and how it evolves,” Mr. Christou said at the company’s headquarters last month, on his first anniversary of becoming chief executive.

He joined Pret 20 years ago as an assistant manager, after a stint at McDonald’s. Since then, he has risen up the ranks through operational roles overseeing stores in London, Edinburgh and Leeds. When he took over the helm, he was supposed to be overseeing an expansion. His predecessor had just bought a rival chain to accelerate the growth of the company’s vegetarian and vegan spinoff, Veggie Pret.

Now, the goal is survival, and the new mantra, he said, is “bring Pret to the people.”

Mr. Christou said he had gotten the idea for the coffee subscription from Panera Bread, the U.S. chain that is also owned JAB Holding. (The chief executives of the companies owned by JAB chat and discuss new ideas in a WhatsApp group, he said.)

ImagePret’s chief executive, Pano Christou, entered this year overseeing an expansion. Now, he said, the company is in “survival mode.”
Credit…Tom Jamieson for The New York Times

The other benefit of the subscription plan is the chance to gather more data about its customers, who will scan a QR code each time they use it.

“Pret have been very, very late adapters to this,” Mr. Christou said. Panera, he said, has a database of more than 40 million customers across the United States. “Pret’s been run over the last 30 years with gut feel and intuition, and we haven’t done that badly, but I think the richness of data today gives you an opportunity to learn much more about your customers.”

Ms. Spungin said that data could prove “invaluable” to Pret in identifying its loyal fans, those who “care enough and miss Pret enough that they’ll sign up.” With that information, she said, the company should consider a food delivery subscription, where people can pick their lunches for the week and have them delivered each morning.

Regardless of what Pret does to diversify its business, “doing nothing was definitely not going to work,” Ms. Spungin said. “This has a higher chance of success.”

Mr. Christou’s optimism about Pret’s future comes with a dose of realism. “It’s still very much a turbulent time,” he said. “We are not out of the woods.”

The British government’s furlough program, which is set to end on Oct. 31, is still helping to pay some of Pret’s store staff, along with about three million other people in Britain.

Credit…Tom Jamieson for The New York Times

And paying rent remains an issue for Pret, as it is for many hospitality businesses in Britain, especially those in the center of London. The government put in place a moratorium on evictions, effectively allowing businesses to delay their rent payments, which has twice been extended, now to the end of the year.

“The extension of the moratorium is huge for us,” Mr. Christou said.

The problem with rent goes beyond the stores, of which 26 have been permanently closed in Britain. Pret has also put the lease for its headquarters, in the Victoria area of London, near the location of the first Pret, on the market. It’s a large industrial expanse of glass and concrete, with plenty of spots for staff to congregate, which are now needless.

Pret, a victim of office downsizing and companies allowing employees to work from home indefinitely, finds it must make the same calculations for its own staff. Mr. Christou said the head office would probably stay in London but would be less central, and accommodate about 60 percent of its newly depleted office staff (90 people were laid off in August).

Mr. Christou also hopes a smaller, less grand office will give the company more of a start-up culture, and recall the earlier, “quirky” days when the company’s founders, Sinclair Beecham and Julian Metcalfe, were constantly experimenting with new sandwich formulas, including a crayfish and arugula sandwich that became a menu staple for years.

“When you’re in survival mode, you’ve got to try things,” Mr. Christou said.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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