Greggs eyes 3,500 sites – but its plans could prove to be flaky
Sausage roll titan Greggs is already a fixture of almost every British high street, but it’s not done yet. Felix Armstrong chews through its latest expansion plans
As Brits jet off to Spain for their summer holidays this year, they will be met with a familiar sight as they touch down at Tenerife airport. Beloved budget bakery Greggs has become the Canary Islands’ newest attraction, in its first expansion beyond the UK.
Here, holidaymakers can get a taste of home comforts with a sausage roll, or – if they’re feeling adventurous – a Spanish omelette breakfast bap. Though this offering is a major development for Greggs, its biggest ambitions lie at home.
The sausage roll purveyor told shareholders on Wednesday that it has plans to operate at least 3,500 sites across the UK, leaving it with hundreds of bakeries left to build from its current total of 2,773.
The bakery chain said it will target areas where it is currently “underrepresented,” like train stations, airports and roadsides, and will relocate existing stores in towns and cities to ensure sites do not “cannibalise” the sales of its siblings.
Though investors had previously raised their eyebrows at chief executive Roisin Currie’s plans to reach 3,000 sites, this raising of the bar was met enthusiastically by the market.
Greggs shares jumped nearly 15 per cent on Wednesday to 1,934p, lifting the stock to its highest level in a year.
Even 3,500 stores may not be enough, Currie told reporters, suggesting that there could be even more room for expansion. “The reason we said just now at least 3,500 is because the supply chain we are building from a logistics perspective gives us the capacity for that number of shops.
“However, we think if you just look at the ‘white space’ review, you can go beyond that,” she said.
Salads and matcha drive heatwave sales
Greggs’s ambition “certainly sets them up for a fall,” said Chris Beauchamp, IG’s chief market analyst. “They talk about being careful around cannibalising existing sales but tastes continue to evolve and there’s no guarantee Greggs can maintain its position indefinitely.
“Sales volumes are not really rising in a material way, and while the shares are in an exuberant mood today, this looks more like a bit of short-covering rather than a vote of confidence in its plans.”
The bakery chain had become the UK’s most shorted company in recent months. Short sellers benefit if a stock falls in price, meaning these investors were betting that British consumers had reached “peak Greggs”. While the firm posted a seven per cent jump in headline sales on Wednesday, analysts pointed out that its like-for-like sales only grew by 2.1 per cent in the last six months.
But Greggs has no plans to abandon its budget appeal, as Currie confirmed that it will not hike prices this year. She said that the company’s costs have only risen by two per cent – below the three per cent it had previously forecast, based on higher energy costs.
Currie stood by the bakery chain’s latest menu offerings, including a chicken roll and chicken tandoori pizza. The firm’s lighter options – including a caesar salad and iced matcha lattes – have helped keep sales up during the summer heatwave, she said.
Greggs expansion ‘is not overambitious’
Greggs admitted that its ambitious expansion could come at the cost of short-term profitability. The firm expects its investment in new locations to push down its second-half profit if consumer confidence fails to rebound, though it expects its overall profit for the year to meet forecasts.
“It’s a reminder that while Greggs is continuing to grow its store footprint and invest for the future, it’s doing so against a backdrop where shoppers are still feeling the pinch,” said Susannah Streeter, chief investment strategist at Wealth Club.
But other analysts were more confident that Greggs is on a roll, pointing out that the firm pared down its store-opening plans for this year, from 120 to between 100 and 110.
The baker’s expansion plans do “not look overambitious at this stage,” said Lale Akoner, an eToro market strategist. “Management is still prioritising returns over expansion for its own sake.”
Greggs struck a mature tone when setting out its plans for new stores, reassuring investors that its new openings are not eating away at the sales of existing sites. While 53 per cent of new locations last year were in areas with no other Greggs for a mile, this has jumped to 62 per cent so far this year.
New bakeries pilfer less than five per cent of the sales of its nearest neighbors, the firm said. Currie said the bakery giant plans to expand its new formats – which include hole-in-the-wall style “bitesize” shops and self-service machines – to mix up the types of Greggs on offer.
“Finally, there’s the opportunity beyond our borders, highlighted by Greggs’s recently opened first overseas location in Tenerife South Airport,” said Duncan Ferris, an analyst at Freetrade. “This looks like a bit of an experiment, but it could be a sign of things to come.”