Cost pressures and consumer recession could trigger a reset of sales and expansion aspirations
Thursday 19 May 2022 Author: James Crux

Greggs’ (GRG) former retail and property director Roisin Currie (pictured) has taken over from the retiring Roger Whiteside to become the budget food-on-the-go retailer’s first female chief executive.

Currie has big shoes to fill, since Whiteside transformed Greggs for the better and steered the value sausage rolls-to-coffees seller through the Covid crisis with a strong recovery in 2021 despite various virus-related restrictions.

Greggs has reinstated the normal dividend and recently served up a special dividend to reflect a strong year-end cash position, though the shares are down 35% year-to-date. This share price performance reflects concerns over inflationary cost pressures and faltering consumer confidence.

Whiteside has left Currie with some testing targets under an ambitious five-year strategy outlined in October 2021 to double revenue to £2.4 billion by 2026 by growing the estate to at least 3,000 locations versus the current 2,224 stores, while also improving the size and quality of the locations and the service offered.

The other key growth drivers are to further develop digital channels to help Greggs compete better at all times of the day, extend trading hours with further menu enhancements, and make the Greggs brand relevant to more people with higher customer engagement.

These bold targets look increasingly demanding with sales momentum slowing and the UK potentially plunging into a deep consumer recession. There is a good chance Currie may look to reduce growth expectations and set a lower bar for success.

Shore Capital says it would rather Currie ‘sets her own expectations for the group, ones that we believe are achievable’ with the broker believing the retailer’s current stated ambitions feel ‘a bit of  a millstone’.

On 16 May, Greggs said it faced significant cost pressures as it announced in-line trading. It reported like-for-like sales growth in the first 19 weeks of 2022 at 27.4% but this compared with a period a year ago which saw very stringent Covid restrictions so the comparative figures were easy to beat.

Sales growth slowed to an average of 15.8% in the 10 weeks to 14 May. Greggs expects this figure to moderate further as year-on-year comparative figures become harder to beat given a stronger trading period in the latter parts of 2021.

The retailer said it has made a good start to 2022 and has a strong pipeline of new shop acquisitions ahead, but it also warned ‘market-wide cost pressures have been increasing and consumer incomes will clearly be under pressure in the second half of the year’. This means profitability will be restricted as the company tries to mitigate the impact of cost pressures while protecting its famous value credentials.

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