Dismal weather puts dampener on sales and profits at Greggs

The group, which hit the headlines when it successfully beat the Government’s unpopular ‘pasty tax’, said first half profits fell 4.5 per cent to £16.5m in the 26 weeks to June 30.

Greggs was hit by a seven per cent plunge in high street shopper numbers during the wettest April to June period since records began.

Like-for-like sales fell by 2.3 per cent in the first half, which was hit by a 3.5 per cent decline in the second quarter.

Chief executive Ken McMeikan said during the weeks when it rained across the whole country the weather knocked between three to five per cent off like-for-like sales.

“The wet weather was a significant contributor to the like-for-like sales decline,” said Mr McMeikan.

“We’re a weather sensitive business. If the weather stops people coming to the high street that sale is lost forever.”

He said that the rainfall continued in the first two weeks of July but the improvement in the last two weeks resulted in a better like-for-like trend.

Mr McMeikan said the group’s plans for new formats are progressing well as it develop different types of shops for different locations.

It now has four ‘Greggs moment’ coffee shops trading and a fifth shop opening tomorrow.

In June it opened its newest concept shop ‘Greggs the Bakery’ in Newcastle upon Tyne.

This is a more traditional baker’s shop, offering 75 new lines including a wide range of artisan breads, such as walnut loaf, herb focaccia and green olive bread, and ‘made to order’ sandwiches.

Mr McMeikan denied that the new ‘Greggs the Bakery’ brand is taking the chain more upmarket.

“I always say our customers range from barristers to builders. We don’t see these breads as posher products,” he said.

“Artisan bakers have become a lot more common in the UK marketplace. They are just not common in Greggs. It means that our customers don’t have to go to the supermarket for artisan bread, they can get it from Greggs.”

Mr McMeikan said the group’s victorious campaign against the ‘pasty tax’ had provided a boost.

“The ‘pasty tax’ has given us tremendous brand awareness. We’re a better known brand than before the tax. It probably helps us when opening new shops in parts of the country where we’re not so well known.”

Greggs’ profile was boosted by a 300,000-strong petition against plans to charge 20 per cent VAT on its hot pasties and sausage rolls.

The chain played a key part in the campaign to convince Chancellor George Osborne to overturn the tax plans after Mr McMeikan marched on Downing Street to deliver the petition.

He said: “There’s no question that the profile of Greggs is significantly higher than it was before the pasty tax started, but we were not able to see how much that has benefited sales.

“The Chancellor announced the tax change in March but in April it started raining and didn’t stop. This really is a very resilient performance, given the exceptional weather.”

Greggs’ margins were squeezed partly as a result of higher promotional activity, including a Lunch For Less campaign that offers baguettes for £1.

The group has opened 33 more shops than it closed this year and is on course to open a record 90 outlets in 2012.

The new store openings helped push total sales up 4.5 per cent to £350m.

The group warned that a drought in the US threatens to push up grain prices, but it has already pre-bought 80 per cent of its food for the second half of this year, leaving it in a strong position as it looks to keep prices down.

Analyst Darren Shirley at Shore Capital said: “Whilst not immune to the ongoing consumer constraints and the inclement weather, we reiterate our ‘buy’ recommendation post this update, reflecting the medium to long-term store growth potential that remains in the UK, around 100 stores per annum we estimate, the exciting progress in wholesale, the margin expansion potential from the ongoing investment in manufacturing infrastructure, the strong cash generation and balance sheet strength.”

Greggs said the Olympic Games boosted trade in London, with underlying sales in the capital up over 10 per cent last week, but it warned that the lookout for consumers is not likely to improve in the second half.

Greggs, with its relatively low average transaction value of just over £2, has fared better than most in the downturn.

The group trades from 1,604 UK stores, more than McDonald’s, and is targeting more than 2,000.

While the wet weather hit overall sales it boosted hot food and drink sales.

During the wettest weeks coffee sales rose nine per cent, porridge was up 19 per cent and soup up 21 per cent.

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