When UK sandwich chain Pret A Manger first entered Japan, its interesting and indulgent food was snapped up by Japanese consumers. But just 18 months later the sandwich company admitted defeat, having been forced to close its stores and retreat from the Japanese market altogether. Michael Fitzpatrick takes a look at where Pret A Manger went wrong.

Selling raw fish with sticky rice (a.k.a. sushi) to the British, one might be forgiven for thinking, would be a harder task than getting the bread-loving Japanese to devour gourmet sandwiches. Pret A Manger, Britain’s most popular sandwich shop chain, never found any problems with the former – its sushi packs in the UK are amongst its best sellers in a land where 8.5 billion sandwiches, about 140 per person, are consumed each year. But its failure with the latter in Tokyo offers a cautionary tale about foreign companies’ often fraught ventures into the difficult, but large and potentially lucrative, Japanese market.

Just 18 months after opening the first of 14 shops in the Tokyo district, the London-based privately-owned company closed down its last shop in April citing the departure of its partner and backer McDonald’s Japan as the main cause of the Tokyo retreat.

Tokyo-based publisher and retail analyst Michael Causton of Consuming Japan agrees that the loss of the sandwich maker’s 50/50 partner would make survival very difficult in a country where costs are notoriously high.

“I would say it’s not the Pret proposition that is flawed but that the timing was off, with McDonald’s Japan wanting to cut costs as soon as possible and Pret was at too early a stage to be producing a return,” he says.

McDonald’s jumps ship

McDonald’s Japan announced last November its decision to pull out of the Pret partnership – a decision based largely on its own fastfood woes in Japan where it has been hemorrhaging losses for over a year now. The pullout cost the hamburger chain ¥2.4bn (US$22.1m), small change to the global giant, but it urgently needed to put its own house in order.

“We are putting all of our resources into the hamburger business,” president Yasuyuki Yagi told a news conference late last year. The Pret venture, say insiders, was ill advised considering McDonald’s Japan was also going through its roughest ride ever.

Pret a Manger, now left with 130 shops mostly in the UK, has since reported losses of over £20m (US$35.7m) related to its Tokyo withdrawal. Its owners and creators Clive Schlee and Julian Metcalfe are surprisingly philosophical about the losses, though critical of its stronger partner’s handling of the Tokyo launches and its sudden pullout.

Leaving Pret a Manger in the lurch like that just as the company was gaining a foothold was never going to make it easy for the UK operation, says its CEO Clive Schlee. Last year he and Metcalfe reluctantly agreed to pull back the company’s global ambitions at least from Japan, where the Pret/McDonalds partnership had planned to open 80 shops in Tokyo by the end of 2004.

“Sales were good,” says Schlee. “But with such heavy investment costs it was going to be impossible to continue without the backing of McDonald’s.”

“The larger partner had also rushed ahead too quickly with the rollout of too many Pret a Manger outlets in too short a time. Perhaps given better timing we could have made a success of Japan. There’s no reason why foreign companies shouldn’t be able to thrive there,” he added.

Off to a good start

However, after being so spectacularly burnt, says Metcalfe, they won’t be going back for a least a decade. Initially the team had reason to be optimistic when they opened their first branch in downtown hi-tech Tokyo. Time-starved Japanese consume billions of yen’s worth of Japanese and western-style fastfood, including a vast quantity of sandwiches. Pret should have been a winner. Their target group – young office workers, particularly foreign brand-name obsessed so-called Office Ladies, were soon cooing over the shop’s granary, rye and tortilla wrapped taste carnivals and exotic fillings such as salmon, crayfish and rucola.

Workers, for a short while at least, were shunning their traditional lunch boxes of rice, fish and meat and the city’s fabulously reasonable ¥500 set lunches. The newcomers, it seemed, were doing a better job of catering to changing consumer tastes for more variety, and for more upscale, sometimes healthier, on-the-go sandwiches.

After the initial interest in the shops waned, analysts wondered if the premium-priced sandwiches could retain their appeal in a nation ravaged by serious deflation. In Japan the loss of pricing power has been most keenly felt in the restaurant industry. Even high-quality foods such as sushi are now priced at a level where many can easily afford a lunch that was considered an indulgence a few years ago. At nearly double the price of popular regular convenience store sandwiches, Pret’s offerings would have certainly fallen into the indulgence bracket.

The fine art of succeeding in Japan

Lunchtime food is plentiful and cheap in Japan. Tether this to the fact that you are looking at some of the most expensive rents in the world and it is not surprising that any new takeaway is going to struggle there. And it’s not just caterers that have struggled in Japan. British health and beauty products retailer Boots, US office supply chain Office Max and French cosmetic chain Sephora have been sent packing in recent years.

Selling your goods to Japanese consumers, who are among the world’s most fickle shoppers, is obviously a fine art, as Benjamin Warner, managing director of another English sandwich concept importer, Benugo Japan, can attest:

Caution is key

“The Japanese are particularly picky about taste, cost and ambience – and to capture the Japanese heart is the million dollar quest for all wishing to retail in Japan.”

Unlike Pret, Benugo’s cafés had no major finance behind them so Benugo was unable to expand quickly after opening its first café in Tokyo 18 months ago.

“In retrospect,” says Warner. ‘This gave us time to develop the brand and learn about the market here. We have adapted the brand image to suit the Japanese market – so we are perceived as a European style café rather than a sandwich bar.”

Warner is relatively optimistic about the future and is pleased with Benugo Japan’s success so far: “That is assuming our franchise and in-house business goes well and if we continue to get great sites. Caution is the key to this market!”