Prices may have to go up, warns Greggs’ chief

The entire industry will come under more pressure to pass on costs, Ken McMeikan said as he arrived in York to open the chain’s 1500th nationwide store, on Coney Street.

He told the Yorkshire Post the impact of food price inflation on Greggs dwarfed that of petrol price rises and said the group could eventually go well beyond its current target of 2,000 stores.

“Food ingredient inflation was more stable last year. We (have) started to see food ingredient costs rising again and this year so far it has been quite substantial, whether it is meat, tuna or flour – every single food ingredient.”

Greggs beat analysts’ expectations earlier this month when it reported a record pre-tax profit of £52.5m for 2010, up eight per cent on last year and driven by breakfast meal deals and increased demand for its hot drinks.

Mr McMeikan said the firm now had to find more effective ways of running its business in order to stay competitive amid the rising price of food ingredients.

“I think the whole food industry will struggle not to pass that on. There is nothing that is reducing in costs.

“Because we already have very low prices there will be some price increases (but we will) still retain our value proposition.”

Mr McMeikan said it was still a “difficult time” in the wider economy but bargain-hunters had bought more Greggs products as the general cost of living increases, citing the Asda income tracker which recently showed families have £9 less to spend each week.

“The consumer is definitely becoming more price conscious. The average family has less disposable income than a year ago.

“It will inevitably continue right across this year and into next year. I think it will be a difficult marketplace but those in the value end can do well.

“We still have positive like-for-like sales growth. We have good quality (products) from a great value perspective.”

Greggs will open about 80 new shops a year, for five or six years, as it moves towards the landmark figure of 2,000 sites but Mr McMeikan said they can go well beyond that eventually – although he declined to specify a figure.

The group, which has more than 150 shops in Yorkshire, employs 1,700 in its stores in the region and a further 250 at its bakery in Leeds.

It plans to open 60 new stores in Yorkshire, including about five this year, creating around 50 new jobs.

The Newcastle-based group, best known for its value-for-money sausage rolls, pasties, cakes and buns, is set to launch new products this year as well as increasing the number of stores selling hot sandwiches from 200 to 700. Sales of tea, cappuccinos and lattes are strong because they are up to 40 per cent cheaper than coffee houses, Mr McMeikan added.

Greggs has also opened one of its new concept shops in Sheffield city centre. The concept stores, which have more space and provide seating, have seen double digit sales growth and will be gradually rolled out as shops are refitted.

Mr McMeikan said rising fuel prices did not have a major effect on the business’ costs but warned it could hit consumers’ spending patterns.

“Fuel is about one per cent of (our) total costs – a significant amount of money but it does not have as big an impact as food ingredients, like 25 per cent.

“If the consumer has less money in their pocket because they are spending more on fuel they potentially have less to buy food.”

Last week’s Budget provided some relief for motorists with duty cut on diesel and petrol which George Osborne said claimed would “put fuel into the tank of the British economy”.

Mr McMeikan said: “The fuel reduction does not offset the significant rises but at least it does not mean more rises... There were some good things such as the reduction in corporation tax which will help businesses continue to invest.”

Britain’s economy shrank in the final three months of last year and, asked if a double-dip recession was likely, Mr McMeikan said: “It is difficult to call. We still think there is the opportunity for growth. It does not look like a second recession but unknown factors are outside anybody’s control.

“If things stay as they are it looks like it we would not go in a second recession. It looks like slow growth.”

Facts and figures

Greggs sold 14 million cups of coffee in 2010.

It has six million customers and the average visits a Greggs store two or three times a week.

Sales increased 2.1 per cent last year to £662m as the firm added a net 68 new shops, with like-for-like sales up 0.2 per cent and operating margin up 0.5 per cent to 7.9 per cent.

Around 20 per cent of its product range is devoted to specialist regional and local favourites, which include custard tarts and Yorkshire Parkin, the region’s large gingerbread cake.

Ninety per cent of its products are made by Greggs, chief executive Ken McMeikan said.