Brandwatch: Greggs

For many years it appeared to be an unstoppable force on the high street, but even Greggs cannot shield itself from the effects of the consumer spending squeeze – and bad weather – it seems.

Earlier this week the c1,900-strong bakery chain reported company-managed shop like-for-likes were up only 1.3% in the first weeks of 2018, compared to +3.5% in in the comparable period last year, as the business was hit by weaker market conditions in March and April; particularly in the periods of severe weather when some of its stores couldn’t open.

Although sales in May, to date, had been stronger than the previous two months, Greggs said that “given the uncertainties over market footfall we are cautious in respect of the outlook for sales in the balance of the year”, and estimated that underlying profits for the year were likely to be at a similar level to 2017.

Roger Whiteside, chief executive, Greggs, said it was all about customer transaction numbers. “Those customers who are coming are spending more, but there is just less of them out shopping,” he said.

This news sent its share price down 15%. According to Mark Brumby, chief executive of Langton Capital, the statement on trading has prompted a re-think as to whether the fact Greggs’ shares trade in the high teens in terms of PER, is justified.

Investor wobbles aside, Whiteside said despite the caution, the chain was moving “full steam ahead” with the changes it is making to the business to position itself for long-term growth. In fact, Gareth Nash, director of consumer insights, MCA, said: “There are few signs, in our latest consumer data, of Greggs’ performance tailing off, in comparison to the rest of the market.”

Out of the Top 10 brands, across all channels, Greggs has been the biggest riser in both share of breakfast and snack visits. “At lunch it has also gained share to replace JD Wetherspoon as the second most popular out of home lunch brand,” said Nash. While in MCA’s Food To Go Market Report 2018, Greggs was the fastest growing operator in the Top 10 FTG brands.

“Greggs’ Net Promoter Score (NPS) and revisit intention (RI) scores have increased at breakfast, to the point where it now has the highest score of any of the top 10 breakfast brands,” added Nash. While at lunch its NPS and RI scores have also increased – it now ranks top for RI and second only to Wetherpoon’s for NPS.

The high street stalwart is one of many that have been working to diversify away from traditional retail locations in an effort to become less resilient on footfall in those areas. Greggs has said that new shop openings remain focused on increasing the brand’s reach into new food-to-go locations, as well as the relocation of existing shops.

The business currently operates 34% of its sites in non-high street locations, and it is aiming for 40%. Whiteside said by renting its properties it enables the business “constantly move property to the busiest parts of town”. The shops it closes are on the high street, and the ones it is opening are elsewhere.

Recent openings include sites at Westminster Tube station, Birmingham New Street station, Glasgow Buchanan bus terminal and East Midlands airport, and there looks set to be more of them to come. “These are the types of locations we are opening in nowadays and they are proving to be very successful,” said Whiteside, who added that the chain was talking to Transport for London about other opportunities to open in tube stations, following the success of its Westminster opening.

Whiteside has also made no secret of the fact that Greggs is keen to expand its drive-thru format, following the successful opening of its first in Greater Manchester last August. On top of that it has partnerships with Moto and Euro Garages, and has been trialling home delivery with UberEats in Newcastle.

MCA’s director of insight, Steve Gotham, said Greggs price-led value for money offering has strong mass-market appeal, and “the business has the ability to flex format size to suit different locations”. “It’s growing food-to-go credentials and pan day-part appeal means it can trade from far more locational diversity than in the past,” he added.

“Locational decisions are no longer just about the high street – footfall volumes are the key wherever they are, and successful brands know it and follow the crowd,” commented Gotham.

The chain has also been testing out different menu options. Greggs says that demand for its hot food offering is strong, it is also seeing sales of healthier options continue to grow as it extends its menu choice, with two new salads recently launched for the summer: Feta and Beetroot Dip with Grains & Lemon and Herb Chicken with Roasted Vegetables and Grains.

Gotham said that while Greggs will never become a destination for its healthy credentials, “it is still an important consumer trend that it has to respond to”. MCA’s Food To Go Market Report 2018 found that 40% of consumers want an increasing number of healthier options over the next two to three years.

“It is right to target an expanded healthier offering for two additional reasons,” added Gotham. “Firstly, because lunchtime is the most frequently consumed day-part occasion out of home and consumers do not want to routinely over-indulge, and secondly, because too many of the more overtly healthy-eating brands have a weakness on price,” he explained.

“Greggs is on a journey,” added Gotham. “It has the potential to reinvent itself with genuine contemporary appeal and lose perceptions that it is an outmoded, traditional and unhealthy brand.”