Low prices and savvy marketing helped Greggs expand rapidly

After enjoying a Greggs sausage roll in London's financial district this week, sales executive Emily Morgan was quick to explain why she chose the “comfortable” takeaway food retailer as her lunch spot over Countless sandwiches, sushi and supermarket nearby. .

“Because that's a rip-off, that's a rip-off,” she said, pointing to rivals lining the street, adding that now “people are less snobbish” about the Newcastle-based bakery, which is rapidly encroaching on the UK Space. Main streets, service stations and transport hubs.

The FTSE 250 group has expanded rapidly over the past two years, hitting record market share, as value-conscious consumers turn to the brand and its much-hyped vegan options challenge negative perceptions of its food quality and health .

John Gregg opened the first Greggs store in Newcastle's Gosforth High Street in 1951 after taking over the family's humble egg, yeast and bread business. Just over 70 years later, the bakery holds a record 8.2% share of the UK takeaway food market, even knocking McDonald's off the top of the breakfast charts.

The chain's savvy marketing efforts include a clothing partnership with Primark and giving stars Ed Sheeran and Stormzy a “black card” with free food for life, according to research. For every £100 spent in the UK hotel industry, nearly £2 is generated through hotel data insights.

“They've almost created a sub-community,” said Richard Lim, chief executive of consulting firm Retail Economics. “They have built a fantastic brand that people value and enjoy”.

He added that Greggs benefits from keeping prices low “as value becomes a more important driver of consumer choice”.

The company said this week that sales grew by almost 20% last year to £1.8bn and were on track to double within five years to 2026, helped by expanded nighttime trading and “digital channel” offerings such as Uber Eats and Just Eat. of sales.

Following this success, the share price has risen by more than 60% in the past five years.

As its ambitious expansion continues, it is expected to open up to 160 new stores this year and 145 new stores in 2023, taking the total number of stores to 2,473, more than any other UK food retailer.

The company is targeting “more than 3,000 stores in the UK over the long term” and has no plans to slow down, prompting analysts to wonder how long its growth can be sustained.

Although the peak seems to be some distance away, “if they want to continue this aggressive store opening plan, they may be forced to choose stores that cannot 100% meet their requirements,” Lin said.

“They will find it harder to find the right store in the right location at the right price while maintaining that trajectory,” he added.

Peel Hunt retail analyst John Stevenson noted that part of Greggs' physical expansion comes down to increasing the size of existing stores or relocating them to larger premises nearby.

“You can look at the growth and the number of stores, but really the net space has increased and some of the returns from the relocation are huge,” Stevenson said.

Chief executive Roisin Currie, who took over a year and a half ago, noted that sometimes a move might just mean moving next door to a larger space.

“We had a store in Runcorn . . . our sales immediately increased by 30 per cent just by moving to the store next door and we knew that store could continue to grow,” she said.

She added that Greggs would be looking to relocate another 50 stores this year and “that number will be similar as we grow”.

The front-office expansion requires a surge in capital spending over the past two years, driven by an equally ambitious manufacturing surge behind the scenes.

Spending hit a record high of nearly £200m in 2023, up from a high of £110m the previous year and more than double other years, although analysts warned spending will eventually have to come back.

The bakery chain announced two new production facilities on Tuesday: a frozen food production and distribution center in Derby that will employ around 1,000 people to supply sausage rolls and other products to Greggs stores across the country; and another in Kettering and the Kobe area.

Meanwhile, expansion work is underway at the Amesbury and Birmingham sites, which Greggs said will enable it to serve an additional 300 stores, while a fourth production line at Newcastle's Balliol Business Park will Increase the production capacity of “savory rolls and baked goods” by approximately 35%.

Having manufacturing and distribution channels gives Greggs the freedom to experiment and expand its product offerings in an era of rapidly changing consumer preferences, while also making it easier to limit near-term cost pressures.

“I'm sure there are a lot of developments that haven't come out yet, but you can do it because you're running your own production line and you can make a profit,” Stevenson said.

So as hungry shoppers increasingly opt for healthier options and vibrant flavor profiles, its new and improved stores are now stocked with very different products than they were 10 years ago, from salads to wraps .

However, Lam said traditional sausage rolls will still account for the “meat” portion of its sales.

While the company's growth will eventually have to slow, after reaching the top of the UK food chain, its desire to expand is greater than ever – and currently, customers and investors alike can't satisfy it.

“There's no secret sauce. I can talk about marketing, I can talk about financial returns, I can talk about night trade and breakfast market share and all that stuff,” Stevenson said. “But fundamentally, this offer is absolutely certain. . . . They know what the customer wants.”