U.K. bakery chain reports surge in sales

By Louis Goss

Greggs on Tuesday said its sales have increased by more than 20% over the past three months, thanks to cost-conscious customers.

The low-price sausage roll seller said the "exceptional value" it offers had allowed it to grow its market share and successfully capitalize on the U.K.'s cost-of-living crisis. In August, U.K. consumer prices climbed by 6.7% year-over-year, and about double that for food.

The Newcastle-headquartered firm said its sales jumped 20.8% in the 13 weeks ending on Sept. 30 due to an uptick in evening trade and higher sales through its app. Company-managed comparable-store sales rose 14%.

The 8.8% uptick in evening sales, which includes all sales made after 4 p.m., follows Greggs' decision to extend opening hours across 500 of its shops until 8 p.m. or later, earlier this year.

Alex Smith, an analyst at Third Bridge, branded Greggs' decision to extend its opening hours a successful way of generating new revenue.

Greggs, which says it is the U.K.'s biggest bakery chain by sales, said the strong figures will now pave the way for its ongoing expansion, as it pushes to open a record number of new shops in 2023.

The company has already opened 144 stores this year, having closed 62 shops over the same period of time, bringing its total number of outlets to 2,410.

The pastry firm's expansion plans will in turn see Gregg's launch a new manufacturing facility in Balliol Park, Newcastle upon Tyne, close to where the first Greggs shop opened in 1951.

Analysts said easing inflation could now boost Greggs even further by reducing its cost pressures and boosting demand from customers.

Wealth Club analyst Charlie Huggins said: "The cost of raw materials, energy and wages have risen rapidly over the last year, but encouragingly these cost pressures are now beginning to ease."

"This isn't just good news for profit margins but should also help underpin consumer demand by reducing the need for price increases."

Huggins told MarketWatch that Greggs can continue to do well even if inflation eases. But he said the reason would matter -- if inflation falls because the economy deteriorates, then Greggs would suffer.

"If it is because the economy is significantly weakening, and people are fearful of their jobs then you would expect Greggs' sales to suffer. This will be the key thing to watch for 2024," he added.

Third Bridge's Smith said automation solutions in both the kitchen and at the counter could further boost Greggs' profits in the face of rising wages.

Shares in Greggs (UK:GRG) were down 3% in trading Tuesday having risen 39% over the previous year as the firm said it expects full year results will sit in line with previous expectations.

-Louis Goss

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10-03-23 0857ET

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