Greggs year of change withstands price hikes

By Laura Crowley

- Last updated on GMT

Related tags: Greggs, Cost

UK bakery chain Greggs climbed back after a disappointing
performance in 2006 with its three-year plan helping it offset the
impact of rising raw material and energy costs.

Its financial results for 2007 showed an increase of 6.4 per cent for total group sales, up to £586m (€787m) from £551m (€721m) the previous year. Like-for-like sales rose by 5.3 per cent, including volume growth of 0.9 per cent. Operating profit before accounting for property gains and restructuring costs increased 13 per cent to £47.7m (€62.4m). "Like every other business in our sector, we are continuing to face substantial pressure from rises in the cost of energy and in our key ingredients, including flour, vegetable oils, and protein,"​ said Derek Netherton, chairman. We will work hard to mitigate the impact of cost increases through greater efficiency and, in recovering higher costs in the market place, shall take account of consumer confidence and the competitive environment." Rising costs ​Price increases have been felt across the food and beverage industry as a result of rising energy costs (which reached record levels of $107 per barrel last week) and spiralling raw material costs, due to crop competition for biofuels and emerging markets as well as poor weather conditions damaging supplies. Companies across the board have been announcing their strategies for maintaining margins in this challenging climate. Greggs admits it has faced substantial pressure from price increases for its key ingredients, including flour, vegetable oils and protein, as well as for energy costs. Netherton said: "We will work hard to mitigate the impact of cost increases through greater efficiency and, in recovering higher costs in the market place, shall take account of consumer confidence and the competitive environment." ​ Greggs had already set the wheels in motion early for strategic change, following poor performance and slow sales in 2006, which they blamed on weakness of the retail market as a whole. Netherton added: "This was a year of significantchange for Greggs, as we reshaped our way of working in line with the conclusion of the strategic review we completed in late 2006.""We have made good progress in building the organisational structure we require to drive the future growth of the Greggs business as a more customer-focused operation with a unified brand." New strategy ​Sir Michael Darrington, managing director, said: "It is pleasing to report much improved results after the disappointing performance of 2006. "This was not a 'quick fix', but the first phase of our three year plan designed to transform Greggs from a devolved and divisionalised business into a much more unified, centrally driven national operation, with a greatly enhanced capability to understand and meet the needs of its customers." ​The group has initiated a longer term drive to make the business more responsive to customer needs, including an increase in the number of shops trading on Sundays and an extension of opening hours. Greggs has expanded its Bakers Oven business, incorporating a bakery and café, so it now operates in 164 shops following restructuring changes made in 2006. Like for like sales under this brand grew by 4.3 per cent, including core volume of 1.2 per cent. Its Belgian business has also grown, trading from 11 shops following the acquisition of a small chain of shops in Brussels. Netherton concluded: "Having laid firm foundations in 2007 for the growth of Greggs as a national brand, we will implement our plans to improve our products, shops and service during the current year. "Overall, I expect that 2008 will be another year of steady progress for the Group, and will confirm that we have established a strong platform for future growth."

Related topics: Markets

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