M&C Report takes a closer look at the half-year results for Greggs, the high street bakery and café operator, and reports from a press briefing with chief executive Ken McMeikan.
Growth and locations
McMeikan said he believed Greggs that the chance to grow to “significantly more” than the current target of 2,000. He expects that milestone to be reached around 2015/2016, depending on the rate of openings each year, although he stressed that there is no set timetable. Greggs currently operates c1,600 sites. McMeikan said the growth opportunity is “across the whole of the UK”. “We’ve still got more than half the UK population that can’t go to Greggs because there’s none near them.” In terms of regions, he highlighted the south west, northern Scotland and parts of East Anglia as being particularly under-represented at present. He said Greggs had looked at sites that were formerly operated by Durham-based Peters Bakery, which ran 58 outlets when it went into administration earlier this year, but the company decided there’s not much benefit as they are generally located near existing Greggs.
Greggs the Bakery: rollout
Greggs the Bakery, the company’s newest concept shop focused on 75 new lines such as artisan breads and made-to-order sandwiches, is set to form the template for sites that it defines as “local bakeries” – roughly 25% of the estate. The first of the new concepts opened in Newcastle upon Tyne in June and McMeikan said there are plans to refurbish a further 10 in the second half of the year. “Our expectation is that all refits we do next year for shops that we classify as local bakers will be Greggs the Bakery,” he stated, adding that suburban sites are more likely to receive a makeover to the format. McMeikan said he was “absolutely delighted” with the performance of Greggs the Bakery so far. He added: “There are going to be three formats: food on the go, the local bakery format and the coffee shop format [Greggs Moment].”
Greggs the Bakery: appeal
“We don’t see this as a posher product,” said McMeikan. “We think artisan bread bought through supermarkets and other butchers has become more common place in the UK, just not in Greggs shops. We see this as being a broader appeal for our customers. That means perhaps they don’t need to go to the supermarket to get artisan bread, they can buy it in Greggs.”
Olympics
“After months of planning I’m delighted to report that last week sales specifically in London were up 10% like-for-like,” said McMeikan. Sales near Olympic venues were between 30% and 80% ahead, he said, while the site at Westfield Stratford saw sales double. Sales in some London suburbs also benefited as people chose to work from home during the Games. However, some central London sites experienced notable declines, with the Tower Bridge outlet at -12% and Holborn at -8/9%. “There are parts of central London that are very quiet. I think that’s probably a combination of people working from home or taking time off for the Olympics. It’s certainly quieter than we expected or anticipated.” McMeikan stressed that the impact “only applied to the London region”.
Weather
Greggs saw like-for-likes fall 2.3% in the half-year, and 3.5% in the second quarter, with weather cited as a key reason. “We are a weather-sensitive business,” said McMeikan. “If the weather prevents people coming to high streets for any reason that sale is lost. We don’t get it back.” He said the business is affected by extremes of weather, which applies to decent weather as well as bad. “It’s largely about footfall on the high street. With extreme hot weather we can find people staying at home and enjoying the sunshine but not coming to the high street so much.” In hot weather, sales of hot food tend to fall while cold drink sales rise. McMeikan said that July trading had been “pretty awful” in the first couple of weeks but improved later.
Growth lines
“There was some good growth in what we would associate with hot food and drinks,” McMeikan stated. Coffee sales grew 9% in the half-year, with porridge sales up 19% and soup up 21%.
Pasty tax impact
Greggs’ high-profile campaign against plans to add VAT on hot foods, which was credited with forcing a u-turn from the Government, has brought some other benefits to the business, McMeikan said. “There’s no question the pasty tax has given us tremendous brand awareness. We are a better known brand today then before the pasty tax.” He said the increased awareness is particularly useful when Greggs opens new sites.
High street regeneration
McMeikan issued a “call to arms” for “more businesses work with their local communities to regenerate high streets”. He said Greggs has been involved in a scheme in the north east that sees firms work together to refit empty shops in high streets and finding entrepreneurs to take them on. In two cases, the entrepreneurs have taken their own shops, he said. “There’s a need to do more. We are going to need more investment and we are going to need more communities to help themselves. The funding for this is not going to come from the Government.” He welcomed the fact the Government has been looking at high streets through the Mary Portas review, and stressed that parking in particular is one issue that needs to be resolved, with the infrastructure “very outdated” in lots of high streets and too expensive.
Iceland
McMeikan said the deal to supply Iceland with branded good has exceeded both Greggs’ expectations and the supermarkets - the deal end next April. Asked whether Greggs is targeting pubs for another retail channel, he said: “We haven’t looked at pubs in terms of selling to them. “Our focus has very much been Iceland.”
