Greggs sees opportunity for continuing growth

Aug 12 2009 by Karen Dent, The Journal

BAKER Greggs is pushing ahead with ambitious expansion plans despite the recession and reckons the downturn will help it to secure better high street sites as it rolls out 600 new shops.

The Newcastle company, which yesterday announced a 7.3% rise in pre-tax profits to £16.5m for the six months to June 28 and a 4.4% increase in sales to £312m, is benefiting as more prime sites become vacant.

Chief executive Ken McMeikan said: “There will more units becoming available on the high streets – the British Retail Consortium says there has been a threefold increase.

“Rentals and leases are coming down but we are always going to hold out and negotiate for the best terms.”

But there will be no surge of new Greggs openings this year, with only a net increase of 10 stores being added to its 1,392 shops, which stretch from Aberdeen to the south coast of England and employ 19,000 people.

Mr McMeikan said: “We set out going into the recession on a year of consolidation. We’ll open more from 2010 onwards. We’ve tended to historically open 30-40 new shops every year; the most in one year was 55-58. It needs to be more than 30 to 40 a year if we simplify and find the right sites.”

But he refused to set a timescale for the new stores, earmarked mainly for the South West, East Anglia and northern Scotland.

“We can see plenty of growth opportunities across the whole of the UK. We try to make sure they are in cities that are under-represented,” said Mr McMeikan.

The company, which has almost 200 shops inside the M25, has also opened a ‘concept’ store in the South East to show off what Britain’s biggest bakery retailer is all about. More are planned, but not in the North East.

“We love the North East but we’re less known in the South, therefore with the concept shops we thought ‘is there more we can do to get known in the South?” said Mr McMeikan.

“We started national advertising, that’s been a big help particularly further south. People do now know us. People have only just started to understand the scale of Greggs.”

Greggs is simplifying so 80% of products are the same at each store. It has also converted 40% of its 164 Bakers Oven shops to the Greggs brand and two are being converted weekly.

New products and meal deals helped drive sales in the first half and although not recession-proof, the business has benefited from customers looking to make their money go further, Mr McMeikan said.

Nor is it weather-proof; rain contributed to flat like-for-like sales in the last six weeks.

“The second half will remain challenging. We think like-for-like will be marginally positive in the second half.”

Greggs increased its interim dividend by 6.1% to a record 5.2p.

Analysts Brewin Dolphin said: “Cost pressures are showing some signs of easing and the business is starting to see benefits from the initiatives being taken to simplify the business.”

And Ed Woolfitt from analysts Galvan said: “Greggs is a great success story for investors and traders, taking into account 24 consecutive years of dividend growth, and a 14% increase in the shares over the past three months.”