Second-half sales down, but Greggs bites back with innovative formats

By DOMINIC JEFF
Published on 07/08/2012 19:20

BAKERY chain Greggs will accelerate its expansion programme in the second half of the year after new initiatives proved successful even as sales slowed due to bad weather.

The company said plans to roll out a franchised version of its stores at motorway service stations would create 500 jobs, while it is pushing ahead with plans to refurbish more than 100 high street shops.

Scots-born chief executive Ken McMeikan said a number of new formats being tested by the chain were progressing well as it developed “different types of shops for different locations and occasions”.

In June, the group opened its latest concept shop – “Greggs the Bakery” – in Newcastle, offering customers a more traditional baker’s shop experience and 75 new lines including a range of artisan breads and made-to-order sandwiches.

This week Greggs, which has around 1,600 high street stores, is opening a fifth “Greggs moment” coffee shop.

McMeikan said: “We are encouraged by the early performance of Greggs moment and Greggs the bakery.”

The firm has also been trialing new channels to market by making a range of frozen products available in more than 750 Iceland stores, its first venture into the “bake at home” market.

McMeikan said sales at Iceland had performed “very strongly” and are already making a contribution to profits.

The group also opened two franchised Greggs shops in partnership with motorway services company Moto Hospitality during the first half of 2012. Yesterday it said that, following the successful test, it was ready to start rolling out franchised shops to a further 28 Moto service stations across the UK.

It added that plans to refurbish between 100 and 120 existing shops during the year were on track, with 64 completed and “performing well” in the first half.

Greggs gained significant publicity earlier this year when it led the fight against the UK government’s “pasty tax”.

But – despite its profile being boosted by a 300,000-strong petition against plans to charge 20 per cent VAT on its hot pasties and sausage rolls – the group’s underlying sales were down 3.5 per cent in the second quarter of 2012.

It blamed the deterioration on the weather, with the wettest April to June period on record keeping shoppers away from the high street.

Profits were down 4.6 per cent to £16.5 million in the 26 weeks to 30 June, despite the firm’s efforts to keep a lid on costs.

Capital expenditure during the first half was £19.2m, down from £31.4m the year before, reflecting a lower level of supply chain investment.

The company’s main focus of investment in 2012 is the opening and refurbishment of shops.

Darren Shirley, an analyst at Shore Capital, said Greggs

remained the broker’s only positive recommendation in UK food retail.

He said that, while profits had been slightly disappointing, first-half revenue growth was a little ahead of expectations at

4.5 per cent, as a 2.3 per cent

decline in like-for-like sales was more than offset by a strong

6.8 per cent contribution

from the various new income streams.

“Whilst Greggs is not immune from the ongoing

consumer constraints and the inclement weather, we reiterate our ‘buy’ recommendation,” Shirley added.