Greggs warns over rising costs and price hikes but dozens more stores open doors
Bakery and snacks chain Greggs has warned of increasing costs raising the likelihood of imminent price hikes as it continues to open dozens of new stores.
In an update to investors, the company said that costs had been increasing across the market. It also said consumers will be feeling the squeeze from the rising cost of living, with incomes under pressure in the second half of the year.
One analyst said that this could ultimately help Greggs. As workers look for cheaper alternatives for lunch, the chain might attract new customers away from its rivals.
Ross Hindle, an analyst at Third Bridge, said: “The big unknown is how consumers react to the rising costs and tightening of wallets. It is believed that there is an opportunity for Greggs to gain market share from ‘posh’ coffee shops and more expensive food-to-go operators as Britons cut back on their mealtime and beverage spend.
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“However, balancing market share opportunities with margin protection is likely to be a big challenge for Greggs. The group will struggle to increase prices while still maintaining its value-for-money proposition in the market. Savoury and breakfast products are the most likely to be priced higher.”
Analysts at brokerage Shore Capital acknowledged the challenges the firm had faced during the pandemic but added: “[Greggs] has emerged a strong business with a rebuilt balance sheet with still robust value credentials as the UK goes into a consumer recession, perhaps a deep and long one.”
In March, Greggs warned that changes to taxes and higher costs for energy, food and staff would push up its costs between 6 per cent and 7 per cent.
Prices that it charges customers went up in the early part of 2022, and further hikes are in the offing.
Outgoing chief executive Roger Whiteside said: “We are now going to have to make some increases again soon. It will be on selected items, but it will be across different areas, so there might be 5p or 10p increases on some products.”
In its latest trading update, the firm said that like-for-like sales at the shops it manages rose by more than 27.4 per cent in the first 19 weeks of this year, compared to 2021. But it also pointed out that this was a flattering comparison due to the Covid restrictions in place a year ago.
In the ten weeks to May 14, a period when restrictions were easing in 2021, sales were up nearly 16 per cent. It expects this figure to continue to normalise as comparisons are made with more robust trading periods in 2021.
In the first 19 weeks of 2022, the business opened 49 shops, including 18 with its franchise partners. Recent shop openings include a number of retail parks and new travel-based units at Birmingham and Liverpool airports.
In the year to date it has closed six stores, giving a total of 2,224 shops trading at May 14 - comprising 1,831 company-managed shops and 393 franchised units.
Greggs added: “Sales levels in larger cities and in office locations continue to lag the rest of the estate but transport locations have shown a marked increase in activity in recent weeks.
“Sales of hot food and snacks are showing particularly strong growth, with chicken goujons and potato wedges proving popular.”