Record profits as consumer finds comfort food at Greggs

CONSUMERS are eating their way through the downturn, boosting profits at the UK’s biggest bakery chain Greggs.

The group reported record profits and record new store openings in 2010 as consumers cheered themselves up with value-for-money sausage rolls, pasties, cakes and buns in a tough economic climate.

The company, which also sells sandwiches and bread to over six million customers a week from over 1,480 shops, said it is well positioned to make further progress in 2011 despite consumers’ declining disposable income and rising global commodity prices.

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Chief executive Ken McMeikan said: “It looks like 2011 will be a challenging year, but because of our value position we’re well set up for the year.

People still want to enjoy their lives as much as they can and still need to eat, but they are going to seek out even greater value.”

The group’s breakfast meal deal offering coffee or tea combined with bacon or sausage in a roll for £1.99 has proved a big success. Some 12 million breakfast rolls have been sold since the launch in February 2010.

Greggs plans to open about 80 new shops in 2011 and is planning for “marginally positive” like-for-like sales growth as it continues an attack on the breakfast, coffee and hot sandwiches markets.

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The group, which has 154 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 around five new stores in Yorkshire this year, creating around 50 new jobs.

The group has opened one of its new concept shops in Sheffield city centre.

The concept stores, which have more space and offer seating, have seen double digit sales growth and will be gradually rolled out as shops are refitted.

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Greggs has unveiled plans to open 60 new stores in Yorkshire.

The group is to open at least 600 stores across the country, creating 6,000 jobs, over the coming years.

Of these around 600 staff will be based in Yorkshire in an estimated £8m investment in the region.

“My belief is we can go substantially above 2,000 shops,” said Mr McMeikan.

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Following the success of the new breakfast meal deals, the group has extended the offer to include porridge, croissants, pain au chocolat, fruit smoothies and cheese and bacon wraps.

Mr McMeikan said another feature of the year was the strong growth in hot drinks as it rolled out more coffee machines serving freshly ground Fairtrade coffee.

“We sold 14 million cups of coffee in 2010,” he said. “There is more opportunity in the value end of the coffee market. We’re 40 per cent cheaper than other coffee operators.”

Shares in Greggs rose closed up 0.40p at 466.30p.

Brewin Dolphin analyst John Dickinson said: “With potential for at least another 600 stores there is plenty of scope for well above average growth going forward.”

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The firm reported a record pre-tax profit of £52.5m in 2010, up eight per cent on last year and ahead of analysts’ forecasts.

Sales increased 2.1 per cent 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.

Greggs said performance in the new year to date was in line with internal expectations with total sales up 3.8 per cent, including like-for-like sales growth of 0.4 per cent.

Greggs, which ended the year with net cash of £23.8m, is paying a dividend of 18.2p, a 26th consecutive year of dividend growth.

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Asked about consumer sentiment, Mr McMeikan said the Asda income tracker was a very good measure.

“The latest data shows families have £9 less to spend a week,” he said.

“My view is that people will want value this year even more than last year and the year before.

“Customers want retailers to help them make their money go as far as possible.”

Providing a regional flavour

Greggs is seeing good growth from its Yorkshire stores.

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Around 20 per cent of its product range is devoted to specialist regional and local favourites.

In Yorkshire these include custard tarts and Yorkshire Parkin, the region’s large gingerbread cake.

Greggs is the biggest bakery retailer in the UK, with over 1,480 retail outlets throughout the country.

It serves around six million customers a week.

Greggs says that one of its unique points of difference is that it makes the majority of the food it sells.

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The group says it uses its bakery skills and expertise to offer its customers good value.

It said the flexibility and controls that result from having its own supply chain are significant strengths that it is continuing to build on.

In 2009 it outlined a five-year plan to reduce the cost of supply to its shops by £10m.

Through consolidation of manufacturing into centres of excellence and investment in more efficient processes, it has delivered savings of £1.4m in 2010, ahead of its original plan.

It said construction of its new bakery in Newcastle upon Tyne is progressing well.