Greggs facing inflationary headache but prices unlikely to rise, for now: reaction
Greggs saw sales leap in the first half as cash-strapped consumers turned to value meals, but the bakery chain warned that its cost inflation could hit 9 per cent, which it will try to absorb.
Sales jumped by 27.1 per cent in the 26 weeks to July 2 to £694.5 million, compared with £546.2m a year earlier. However, profits remained largely flat year at £55.8m compared with £55.5m last year, due to the reintroduction of business rates, an increase in VAT and higher levels of cost inflation.
With inflation putting a strain on people’s incomes, consumers are more likely to turn to lower-cost food and drink while on the go, the firm said.
But it warned that cost inflation could reach around 9 per cent this year as it is hit with higher prices of food, packing and energy.
In May, the company, which has more than 2,200 outlets across the UK, said customers would see 5p or 10p increases on some items as it was forced to raise prices for the second time this year.
But Greggs has fixed prices with suppliers for around the next five months, meaning the cost of its food and drink should not rise any further in that time.
Chief executive Roisin Currie said: “We know the economic environment is challenging and it is tough out there for our customers, so we are doing everything we can to protect our price proposition. We are not immune to cost inflation but we are trying hard to mitigate against it impacting customers.”
The Greggs boss added that the firm plans to extend its opening hours, shake up its menu options and offer more delivery services in order to gain more evening sales.
More than 1,000 of its stores deliver to customers through delivery app Just Eat despite people returning to shops post-lockdown.
The average customer spends around £10 on deliveries, roughly three times higher than they would in the shop, Currie noted.
John Moore, senior investment manager at wealth firm Brewin Dolphin, said: “The main challenge for Greggs is the combination of rising energy prices, the increasing costs of ingredients, higher wages, and an uncertain retail environment heavily influenced by the macroeconomic backdrop.
“However, the baker has proven its ability to work through these issues in the past and meets today’s challenges in a strong financial and strategic position.”
Sophie Lund-Yates, equity analyst at investment platform Hargreaves Lansdown, noted: “The group’s throwing money at a strategy shift, which includes opening new stores and extending opening hours.
“The idea to shift away from core shopping locations and into travel hubs, like train stations, is a strategy that’s served the likes of WH Smith well, and holds real merit as a hedge against declining town-centre footfall.
“Ultimately, Greggs has a sturdy balance sheet and room to stomach disruption, but an abrupt change in consumer spending habits could see the much-needed strategy rejuvenation taken off the boil, which would have far reaching implications.”
Greggs also announced the appointment of Matthew Davies as its incoming chairman. He will take over from Ian Durant on November 1.