Greggs, the 1,591-strong high street bakery and café operator, has reported a 1.8% decline in like-for-like sales for the 19 weeks to 12 May, on the back of “exceptionally wet weather” and relatively weak high street footfall.
The company, which again criticised the government’s plan to change VAT on freshly baked food, said that the trading environment for all retailers had remained extremely challenging and it had experienced six disappointing weeks of trading as a result of the exceptionally wet weather in April and early May.
Total sales for the 19 weeks increased 4.3%, which the group said was driven by new openings and the development of new channels to market.
During the period, the group opened 25 new shops, making a net addition of 20 after five closures. The group said the new shops were performing well, and that it remained on track to meet its target of adding a net 90 new shops by the end of the year.
It also completed 42 shop refurbishments in the period, in line with its plan to refit a total of 100-120 shops during 2012.
Earlier this month, the chain opened its second "Greggs Moment" coffee shop in Middlesbrough, following the successful launch of its first coffee shop in Newcastle upon Tyne. It said it would continue the roll-out of the Moment format with the opening of three more coffee shops by September.
The group said the performance of its first motorway services shop in Cheshire remained encouraging. Its second shop in partnership with Moto Hospitality is due to open at Birch services on the M62 in June.
Following the roll-out of frozen Greggs-branded sausage rolls into Iceland Foods, the range has been extended to include a further seven savoury lines and one sweet line, which are now available in more than 750 Iceland stores. It said that these products, aimed at the 'take home' market, had been “well received” by Iceland customers.
Chairman Derek Netherton said: “We believe consumers’ disposable incomes will remain under pressure from high fuel, energy and food costs, although consumer sentiment could benefit in the months ahead from major national events including the Diamond Jubilee celebrations, the Olympics and the Euro 2012 football championship.”
VAT response
The company said it supported the Government's aim of tax simplification, including clarification of the definition of "hot takeaway food”.
However, it said it could not support the Government's current proposal to extend the standard rate of VAT to freshly baked food where there is no attempt to keep it hot and which is not designed to be kept hot.
The group said: “The proposed changes are in our opinion unworkable and would give rise to many new anomalies and further uncertainties.
“While we understand the Government's need to increase revenue, we fear the current proposal will have a disproportionate impact on the specialist bakery sector, resulting in further unemployment, high street closures and reduced investment. In our submission we will also highlight our concern that the estimate of the extra VAT revenue generated makes insufficient allowance for the Income Tax, NI contributions and Corporate Tax that would be lost, as well as the cost of extra unemployment pay.
“We believe there is an alternative to the Government's proposal which will remove any anomalies and make the tax much simpler for both the Government and the consumer. We believe the solution is to see VAT charged on all food kept hot for sale in a heated environment after cooking, all food re-heated to order and all food supplied in heat-retaining packaging. This will very clearly differentiate between fresh bakery food and food that is being sold intentionally hot.
“Savoury sales are more than a third of our turnover, and the outcome of the consultation process could have a material impact on our sales and profits. This week, we will be responding formally to the consultation on the proposed changes and hope that the Government will listen to the logic of our alternative approach. In addition, we are looking as a matter of urgency at how best we would respond to a number of possible outcomes on behalf of our shareholders, customers and staff.”
