Greggs: What makes Britain's biggest bakery chain its most recession-resilient business

“Greggs has an incredible knack for responding to change and overcoming obstacles.”

It recently hit the 2,500-store milestone and has become a permanent fixture on nearly every high street in the UK - and a growing number of retail and business parks. Now, after reporting another set of seemingly appetising sales figures, could Greggs have become Britain’s most recession resilient business?

Despite having to push through some inflationary pricing pressures over the past couple of years, the ubiquitous bakery and snack chain remains one of the country’s biggest retail success stories amid the cost-of-living crisis. Its formula of sub-fiver meal deals, steak bakes, sausage rolls, tempting sweet treats and hot drinks that cost less than half the price of rivals such as Costa and Starbucks has found favour with cash-strapped consumers.

There was a time when Greggs was seen as a barometer of the nation’s economic fortunes. When things took a turn for the worse, its sales would suffer as office workers, tradespeople and shoppers tightened their belts. But the chain has become more adept at riding out those storms. It has evolved its food and drink offering, introduced healthier options, added breakfast menus and been quick to adopt the likes of click-and-collect ordering and online deliveries via Just Eat and Uber Eats.

Greggs has some 2,500 branches and is confident of opening up to another 160 shops on a net basis over the full year.

Crucially, the business, which was founded more than 80 years ago in Newcastle upon Tyne, where it remains headquartered, has become fleet of foot with its store portfolio - shutting underperforming branches, relocating others and opening outlets in areas that have enjoyed increased footfall as working and leisure patterns change. And no more so since the pandemic, with an increased focus on bustling out-of-town locations and busy travel hubs.

That came after a particularly tough period for Greggs during the initial phase of Covid, when it was forced to close its stores and furlough most of its employees. Those challenges persisted upon reopening as social distancing and reduced trading hours impacted takings. Since then, trading has got back on track, as illustrated by the return of the lunchtime queues snaking out of the busiest branches.

In its latest trading update, the firm has posted a 7.4 per cent hike in like-for-like sales for the first 19 weeks of 2024. It recently hit that milestone for 2,500 shops trading nationwide, having expanded the chain by 27 on a net basis - those opened less those closed - in the 19 weeks to May 11.

Greggs noted that its new range of iced drinks - another innovation for what until the 1970s was largely a local bakery business on Tyne and Wear - had been “performing well”, with plans to roll it out further from 300 shops now to up to 700 in the coming months. The new range includes coffee, flavoured lemonades and coolers.

Greggs has experimented with introducing new products such as vegan steak bakes.

The FTSE-250 group said it remains on track for full-year expectations after the healthy first-quarter trading, adding that it continues to forecast a 4 per cent to 5 per cent rise in its own costs over the year.

John Moore, senior investment manager at RBC Brewin Dolphin, sees Greggs as a “story of consistency”, with the likelihood of continued progress despite those inflationary and high street spending pressures.

“The business is optimising its retail format through greater capacity, more stores, extended trading hours, and developing its digital proposition, while benefitting from costs normalising and pricing remaining robust,” Moore noted. “All of that should help the bottom line and support its growth plans. The challenges Greggs faces are external and competition is intensifying, with McDonald’s and Domino’s becoming more dynamic. Nevertheless, Greggs has an incredible knack for responding to change and overcoming obstacles - few would bet against the baker continuing on its current roll.”

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, said Greggs has made a “solid start to 2024”. He added: “Greggs' brand continues to resonate strongly with the UK consumer, despite the weak economic backdrop. The roll out of new stores, extended opening hours and new menu items like pizza and pasta should all help to sustain this momentum. That said, Greggs’ shares are not as cheap as its pasties. This means it will need to maintain strong progress in order to keep investors happy.”

In its latest update, the group said it was “building capacity for further growth in the UK” and is confident of opening up to another 160 shops on a net basis over the full year. Demand for its pizza boxes has been strong in the recent 19 weeks following a dedicated campaign, while hot food favourites include its southern fried chicken goujons and southern fried potato wedges. The firm has also been expanding its healthier food ranges, recently launching a vegetarian pesto and mozzarella pasta dish, as well as feta and tomato pasta.

AJ Bell investment director Russ Mould said: “There is plenty of product innovation and that’s more than enough to sate shoppers’ hunger. It also helps Greggs to put up a good fight against the competition.

“With Domino’s pushing hard on the lunch crowd with new wraps and Marks & Spencer continuing to score highly with shoppers with its food on the go, Greggs needs to find new ways to keep people coming through its doors, otherwise they could easily go elsewhere. So far, its menu development team have worked wonders and there are no signs that Greggs is buckling under the weight of stronger competition.

“Beyond hoping for some spectacular weather over the summer which gets people out and about, or pushing its delivery service harder if footfall deteriorates rapidly, there isn’t much that Greggs can do beyond the nuclear option of being more aggressive on pricing.”

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