Winter warms Greggs results

Related tags Greggs Retailing

Sales of pastries and baked goods suffered last summer because of
the exceptionally hot weather, but an excellent performance during
the colder winter months helped UK baked goods and sandwich
retailer Greggs to end the year on a high.

In a trading statement issued yesterday, the company said that like-for-like sales in the second half had improved gradually after the adverse impact of the heat wave. Like-for-like sales in the 18 weeks to 18 October 2003 were up 1.7 per cent, according to managing director Sir Michael Darrington, but this increased to 3.0 per cent in the following 10 weeks, giving an increase of 2.2 per cent over the full 28 week period to 27 December 2003.

In addition, strong Christmas trading helped the company post a further 3.5 per cent increase in like-for-like sales.

Greggs is the UK's leading retailer specialising in sandwiches, savouries and other bakery products, operating retail outlets throughout the UK under the Greggs and Bakers Oven brands.

The chain opened a further 68 new shops during the year and closed 39, giving a net addition of 29 shops, making a total of 1,231 outlets at the year end.

"We are continuing to recover increases in raw material prices and are benefiting from our actions to reduce costs across the group,"​ Darrington said. "We therefore continue to expect that we will report a year of satisfactory progress in 2003."​ Full results from Greggs are due on 5 March 2004.

The market for prepared sandwiches in the UK is still incredibly buoyant, as recent results from the likes of Cranswick and Greencore, two of the biggest sandwich manufacturers, clearly show.

But Greggs' situation is somewhat different to that of Cranswick or Greencore, who make their sandwiches for other retail groups. Greggs makes its own products but also has the added challenge of managing its entire store portfolio - and of competing with the likes of Boots, Marks & Spencers and all of the major UK supermarket chains for a share of the sandwich market.

While raw material cost increases can be tackled by the likes of Greencore by increasing prices to customers (i.e. the supermarkets) and squeezing more efficiencies out of suppliers, Greggs has less leeway, because it is in effect its own customer.

To recoup the higher costs of raw materials such as flour (particularly badly hit by poor wheat crops this year due to the heat wave), the company has continued to increase its prices (by an average of 1.7 per cent in the first half alone, for example), a move which is risky in a highly competitive retail market where Greggs' major competitors have perhaps more margin leeway to absorb price rises without passing them on to consumers.

Nonetheless, Greggs appears to be holding up well, although further moves by the major retail groups to move into town centre convenience store locations will bring them into even closer competition in the future.

A move towards more premium products seems to be the right one - if only because it helps improve the company's margins and offset the ingredient price increases - but the manufacturer/retailer combination is a difficult one to manage well (as the performance of confectionery specialist Thorntons over the last few years also clearly shows) and the long-term viability of this business model still remains to be seen.

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