Special Report: The Business of Greggs
A deep dive into the nation's favourite bakery
Summary
Greggs (GRG.L) has been around since 1939 and listed on the London Stock Exchange since 1984. In the past ten years it has seen enormous growth and all signs suggest that this will continue as it navigates several different macro and consumer trends. Long live the sausage roll!
Performance
Greggs is two years into a five-year plan to double sales, from £1.2bn in 2021 to £2.4bn in 2026. It is tracking well against this target, achieving £1.8bn in revenue in 2023.
Profits have been growing steadily, aside from 2020, when they suffered from Covid. They have weathered the cost-of-living crisis well as they offer an affordable alternative for people wanting to treat themselves but not splash out for a fancy lunch.
A respectable Return On Capital Employed (ROCE) for the retail sector (21.1% in 2023) demonstrates an effective approach to expanding their footprint across the UK.
Sales have slowed slightly recently, which indicates they will require ongoing creativity to find growth.
Strategy
Four key growth drivers
Growing the Greggs estate - they recently celebrated opening their 2500th store, one of which is at the arrivals hall in Gatwick, an absolute master stroke. There’s few moments more perfect to inwardly (or outwardly) say “oh fuck it, I’ll have a sausage roll” than stepping off a flight with the prospect of a delayed train and an empty fridge ahead of you.
Extending trade into the evening - let’s be honest, the evening options at the moment are a bit of a Domino’s imitation act with bits of pizza, potato wedges and mozzarella balls. If you’re after a snack on your way home, sure, but I’d like to see the numbers on people ordering in a Greggs of an evening. Hot chicken wraps are positive sign, if they can muscle in on the Leon healthy takeaway vibe they’ll be absolutely laughing
Digital channels - People are using the Greggs app, 12.5% of their customers in 2023 in fact, which suggests it’s a regular spot for brekkie and coffee rather than just the odd treat. Developing a loyal fan base has been a key strategy of a number of coffee chains, we all remember the great Pret A Manger rush of ‘22.
Broadening customer appeal and driving loyalty - Greggs has been using its status as a national institution to great effect. The collaborations they’ve done recently are prime fodder for social media as they scream British irreverence. There’s nothing that will get LADbible more hot and bothered than an American actor trying a sausage roll. Some of their recent highlights include:
Overtaking McDonalds as the country’s most popular brekkie spot, possibly because the trusty old bacon sandwich seems happier and more wholesome than a pile of McMuffin.
It is the top food-to-go company, according to YouGov’s brand index.
The Greggs x Primark collaboration does feel a bit like capitalism collapsing in on itself but again, great social media fodder.
They’ve absolutely smashed it with the vegan sausage rolls, navigating what has weirdly become a political issue with grace and decorum. I know more than one committed meat eater who has converted.
Bistro Greggs - what more could you want to satisfy both ends of your palette than a Greggs Benedict or Steak Bake with truffled dauphinoise potatoes?
They are attempting to embrace healthy eating, but I would query how many people are buying the rice bowls, happy to be told otherwise.
Leadership
Roisin Currie (CEO) arrived at the helm via the People function and then leading Retail & Property. A road less travelled but an invaluable one when running a business with the footprint of Greggs, both in terms of stores and employees. Roisin began her career at Asda so is F&B through and through.
Matt Davies (Chair) has previously been CEO of Tesco UK & ROI, very much the retail veteran, he became Chair in 2022 and is a key player in the current 5 year strategy.
Operations
Store footprint - by my count, Greggs is the largest food-on-the-go retailer by store footprint in the UK with c.2500 stores. Subway is second at c.2300. There’s got to be a maximum Greggs per capita that's sustainable, yet more openings are planned this year.
Supply chain - to service their expanding footprint, two new sites are being brought online in the Midlands as well as increasing capacity at their mammoth Balliol park facility.
People - you do genuinely get the sense in a lot of Greggs shops that the people behind the till are pretty enthusiastic about the whole operation. Yes there are the usual complaints about rotas and management on Glassdoor, but 76% of employees recommending it as a good place to work is pretty good going.
Summary
There will be an upper limit to the growth Greggs can achieve whilst remaining in the UK, and let’s face it, it’s hard to see steak bakes working in Spain. It does seem plausible, however, that they’ll hit their growth targets in the medium term by continuing to develop their offering and increasing the circumstances someone might pop in for a snack/coffee/spot of dinner.