Greggs laments the bad weather as profits drop

The group, the UK’s biggest food-on-the-go retailer, blamed dismal weather and the economic downturn for a 2.7 per cent fall in like-for-like sales in the year to December 29.

New chief executive Roger Whiteside said: “Last year we had the worst weather in 100 years. It rained so much. If you don’t pop out and buy a sandwich on Monday, you won’t buy two on Tuesday. Once we’ve lost a sale, we’ve lost a sale.

“We’re confident with the plans in place we’ll see an improving trend this year... The drop in profits is not the new normal.”

Greggs reported a 2.2 per cent fall in annual pre-tax profits to £51.9m.

Snow in January resulted in a 4.0 per cent fall in like-for-like sales in the 11 weeks to March 16

Greggs announced plans to increase investment in its core estate, with stores refitted as ‘food on the go’ outlets or given the new upmarket ‘Greggs the Bakery’ format.

Mr Whiteside, who took over as chief executive last month, said the addition of new shops increased overall sales by 4.8 per cent to £735m.

The group opened 121 new shops last year and completed 118 shop refurbishments, while closing 21 stores.

It said it will return to a more normal level of between 50 to 60 new openings, net of closures.

Following the drop in high street footfall, Greggs is shifting its sites to retail and industrial parks, motorway service stations and travel hubs.

“We are opening stores where people live, work or travel,” said Mr Whiteside, a former chief executive of pubs group Punch Taverns.

“Over half of new stores were in these locations last year, not the high street. This year 75 per cent of new stores will be in these sort of places.”

He added that the group is not turning its back on the high street.

“There will be net expansion on the high street. Most of our shops – most of our best shops – are on the high street.”

N+1 retail analyst Sahill Shan said the company is moving in the right direction.

“Greggs’ management has done a good job in a difficult and challenging market. The problem is that the market doesn’t look like getting any less challenging in the near term.”

Wayne Brown, retail analyst at Canaccord, said: “A refurbished estate should provide the group with greater pricing power and the opportunity to improve the quality, and depth and breadth of their range.”

He said the short term cost of the refurbishment will cut three per cent off 2013 fore- casts.

The refurbishment will give customers more space for browsing, make more products available for self selection and provide more seats.

The group will make a decision on the potential expansion of its ‘Greggs Moment’ cafes later this year.

Mr Shan said: “The jury is still out on rolling out a chain of coffee shops branded ‘Greggs Moment’, but the results from five units opened to date have been encouraging and a further three are to be trialled in the Midlands.

“By all accounts the new managing director is having a positive impact on the operational aspects of the business and a firm decision on the future plans for the concept are likely to be shared with the market in the next two to three months.”

Greggs, which has 1,671 stores, sees scope for over 2,000.

It will more than double shop refurbishments to 250, investing £55m to £65m depending on the timing of the construction of a new £30m frozen manufacturing facility in the Midlands.

Prices to rise... but in pennies

Greggs, which has over 660,000 Facebook fans following its victory against the ‘pasty tax’ last year, made an underlying pre-tax profit of £51.9m in the year to December 29, in line with analysts’ average forecast but down from £53.1m in 2011.

Total sales rose to £735m, reflecting the store openings as well as growth in wholesale sales to Iceland supermarkets and a franchise deal with Moto motorway service stations.

Even with its relatively low average transaction value of just over £2, Greggs has not been immune to the economic downturn.

Chief executive Roger Whiteside said that although the firm will find cost savings to help mitigate the impact of commodity cost inflation, some price rises for consumers are inevitable in 2013.

“There will be some but given the sort of brand we are, it will be literally pennies,” he said.