Greggs: Have we finally reached ‘peak sausage roll’?
Greggs share price took a battering this morning as investors shied away from the high street bakery after a disappointing sales update.
While Greggs blamed the slowdown on hot weather reducing demand for steak bakes and sausage rolls, analysts have pointed to more serious underlying issues.
The unexpected announcement was the latest in a string of worse-than-expected updates, with analysts now wary that Greggs’ strategic investments in menu expansions and extended opening hours are not paying off as they’d hoped, and that the bakery’s growth may be approaching a ceiling.
Panmure Liberum analysts said that its strategy has shown “limited traction”, while “rising cannibalisation risks” might eat into volume growth and compound cost headwinds.
Analysts reduced their target price for the bakery to 1560p from 1733p, and dropped their full-year estimate for profit before tax by eight per cent.
Dan Coatsworth, investment analyst at AJ Bell, said there’s some concern that Greggs has used the excuse of hot weather to “mask bigger problems.”
“In general, the past few months have been glorious weather-wise and that should have driven more people out of the house and onto the high street… It might simply be that shoppers are losing their appetite for the brand,” Coatsworth said.
“A dip in demand [growth] raises eyebrows, especially when footfall should be strong,” Mark Crouch, market analyst for eToro, added.
“Investors [will be] wondering if something more serious is cooking”.
Has the Greggs bubble really burst?
Part of the problem is that Greggs has been delivering double-digit sales growth nearly every quarter – a drop in growth to two per cent is a sign of weakness in a way it wouldn’t be at a different firm.
Jefferies analysts Andrew Wade and Grace Gilberg said that while recent results have been “disappointing” they “do not see this as a reflection on the underlying health of the business.”
“It does not change our view on the fundamentals… we expect life-for-life acceleration in [the second half of 2025], and continue to see upside,” they said.
After all, part of the reason Greggs expects lower profit is higher operating expenses due to store openings and refurbishments, which have been biased towards the first half of the year.
“Any [second half] recovery hinges on the company’s cost mitigation efforts and expansion plans,” Third Bridge analysts Alex Duran said, although he cautioned that it was possible Greggs has “surpassed its optimal store count”.
Greggs has over 2,600 shops across the UK, with plans to open 150 more this year.
It hopes to become a “significantly bigger business” in the long term – but £2 out of every £100 spent in the hospitality industry is already being splurged on baked goods at Greggs.
“Investors [are] asking if we’ve reached peak sausage rolls territory… and the latest trading update is only going to add to market fears,” Coatsworth said.