Greggs thrives on image change

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Related tags: Greggs, Sandwich

Takeaway sandwich and pastry ranges for on-the-go consumers drove
up profits and sales for UK bakery retailer Greggs, but the company
is working hard to compete in this increasingly crowded sector by
developing both healthier products and a premium image, reports
Chris Mercer.

Greggs' strength still lies in its trademark selection of savoury pastries, yet improvements to its Bakers Oven chain and a greater focus on the group's Lifestyle Choice range of 'healthier' sandwiches and wraps were also at the forefront of a 10.3 per cent sales rise to £504 million during 2004.

The company, which also announced a 13 per cent rise in net profits to £20 million, has benefited from consumers' increasing desire for ready-made convenience foods. On average, workers in Britain take the shortest lunch breaks in the EU, often picking up a quick sandwich to eat on the move or in the office.

The UK's eating out market has grown by around seven per cent in the last decade to £36 billion, and a steady rise in disposable incomes and busier lifestyles mean that 30 per cent of what Britons spend on food now goes on eating out, according to market analysts Mintel​.

The sandwich market alone is worth about £3.3 billion and still growing at around five per cent per year, according to the British Sandwich Association, which nevertheless says that 80 per cent of sandwiches are still made in the home - leaving plenty of room for retail growth.

Greggs has around a four per cent share of this market and is increasing its stake, according to group financial director Malcolm Simpson.

The problem for Greggs is how to tackle growing competition in this value-added sector. Multiple retailers such as Marks & Spencer and Tesco have increased their presence on the high-street convenience food sector over the last couple of years, while trendy outlets like Pret A Manger and the coffee chain Costa have also staked their claims.

In response, Greggs' has completely re-branded itself to emphasise its long heritage and humble beginnings as a wholesome family baker. The move has involved a major national advertising campaign with the slogan: "It's the way we bake it that makes it."

Simpson said the company also pushed the convenience angle of the business hard in recent years and wants to use its new image to stem a long-term fall in demand for its traditional bakery staples of bread and rolls.

In a similar vein, the group's new premium image may enable it tackle its slightly troublesome cakes and confectionery sector, which saw modest sales growth last year but has been impacted by a general slow-down across the UK cake market.

RHM recently announced the re-launch of its Mr. Kipling brand as a premium product in recognition of a market that has seen little movement in volume but a 3.8 per cent rise in value since 2003.

The other aspect of Greggs' new strategy is its attempt to bridge the gap between growing consumer health trends and the consumer perception of pastries as fatty, and therefore unhealthy, products; though this has yet to impact Greggs' sales.

Accordingly, the company says it has food technologists and chefs at its Technical Centre in Newcastle working on reducing salt and fat across the group's product portfolio, in-line with government guidelines.

And the centre is also currently trialling lower fat versions of key Greggs products, including two new sandwich ranges; one containing three grams of fat and the other between three and six grams.

Sir Michael Darrington, Greggs managing director, wants the improved focus on heritage, convenience and health to drive the company's ambitious expansion plan over the next few years. The company is set to open 45 shops in 2005, including another two in Belgium, and is aiming for 1,700 outlets by 2010 with £1 billion in sales.

Darrington said he saw "scope for at least 2,000 shops under our existing brands in the UK and additional opportunities on the continent"​. The group had 1,263 stores at the beginning of 2005.

Greggs is already plotting to double capital expenditure from last year to £50 million in 2005 to help pay for a second central savouries factory to be built in the company's heartland of Newcastle upon Tyne.

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