Has Greggs’ relentless focus on store growth left it in a hole?

After issuing an unexpected profit warning earlier in July, Greggs has clearly been laying the groundwork to let investors and analysts alike down gently for its interim half-year results.

While the fiscal news wasn’t all doom and gloom this morning – total sales jumped 7% to more than £1bn, while like-for-likes were also up – the dips in both operating and pre-tax profit has once again spooked the market.

At the time of writing, Greggs’ share price has fallen nearly 5 percentage points this morning, and investors have begun to be even more vocal in questioning the retailer and its chief executive, Roisin Currie’s, relentless focus on store growth, even as footfall has softened and costs are increasing.

The question now coming from shareholders is one that certain City analysts have been asking for a while now: has the UK reached peak Greggs?

Half baked

It’s certainly not the first time that questions around a market saturation of Greggs have been asked.

Most recently, it was being asked in 2019, off the back of its hugely viral and successful vegan sausage roll launch and correspondingly record profits, and the food-to-go specialist only went on to grow more in the intervening years.

However, under Currie’s stewardship, the brand is now focused on opening “significantly more” than 3,000 locations across the UK, adding between 140 and 160 new stores a year. With profits in reverse, and the high street convenience food market more competitive now than it ever has been, is Currie considering abandoning her ambitious store openings target?

“We’re very confident in terms of our current shop growth plan and the reason we are so confident in that number is because we cut the numbers we see in a variety of different ways. We cut it by underrepresented catchments – areas like transport locations, roadsides, supermarkets, retail parks, where we can see significant opportunity and where we still penetrate very lowly.

“The second reason we’re confident is because, when you look geographically across the UK, we see that actually there are still many areas in the UK where you cannot access Greggs.”

No, in other words.

However, Currie insists that she’s not looking to add stores just to make up numbers. She says that Greggs “forensically analyse every shop opening, and make sure that it is driving strong profitable growth for us”.

Currie says that, rather than backing down on new stores, it is actually looking to develop new formats. She says that Greggs is currently working on a ‘bite-sized’ store format, the first of which will be up and running in September.

While she wouldn’t be drawn too much on the details of the new store format, she said it wouldn’t be a kiosk or concession-type format, but rather “a viable full-service shop”, which represents a “plan to trial some smaller store options and see what does and doesn’t work”.

All the Greggs in one basket

Much was made about Greggs’ trading warning earlier in July, and the fact that the food-to-go operator insisted much of the damage was down to the hot weather which in turn softened footfall to many of its stores.

While corresponding BRC footfall figures for the same period indicated that searing temperatures did affect footfall more widely, historically struggling retailers have used unseasonable weather patterns to mask deeper, structural issues.

Is the humble high street baker from the northeast starting to lose its reputation for unbeatable value with its cash-conscious consumer base?

“The value space is absolutely critical to us,” Currie insists. “We’ve actually just put out some information on our value credentials this morning. We remain number one in the market for value, and actually the trend shows that we’ve increased our gap to value against our competitors.”

While Currie says that Greggs will “never take that for granted” and continues to invest in price for customers, it may well be that for all the food-to-go specialist claims, customers aren’t seeing it.

The price of Greggs’ hero product, the humble sausage roll, has risen to £1.30 in the UK this year – 16p more expensive than if it had risen in line with inflation and 45p more than it was in 2016.

There’s been a lot of stormy weather and murky water under the bridge since 2016, but facts are facts. While Currie is right that looking at products in isolation doesn’t always “tell you the full story”, and that Greggs constantly “benchmarks [price] against the competition”, it’s not a great look when your hero product is going up in price faster than inflation.

None of these things in isolation spells disaster for Greggs. But, as Peel Hunt notes, it still faces “higher competition in food-to-go and store densities nearing capacity” alongside the other multitude of headwinds affecting the wider food market.

As the summer ends, and the weather cools, Currie and co will be hoping that Greggs gets back onto a roll. If not, the voices of disgruntled investors and questions around her long-term strategy will only grow louder.