Greggs chief executive talks about bakery empire

Nov 18 2010 by John Hill, The Journal

Bakery giant Greggs jumped up to 11th place in our Top 200 league of the biggest companies in the North East this year and is building up to further growth. John Hill talks to chief executive Ken McMeikan about his strategy and Paul Mankin, corporate finance partner at Top 200 sponsor PWC, gives his view of the company's success.

AN old-fashioned rope bell hangs on a wall in the corridor of the Greggs head office in Jesmond. Every now and then, an employee wanders out of their office, past the large pictures of bread and pastry products, and jingles it triumphantly.

“The bell is there because every time someone signs a lease on a new shop, they come out and ring it”, explains Greggs chief executive Ken McMeikan. His predecessor, Sir Michael Darrington, passed the torch to McMeikan after 26 years in 2008, and Ian Gregg spent nearly 20 years at the helm before that. McMeikan took over a company with 1,380 outlets and around £600m in turnover, and is now leading a charge to hit 2,000 outlets nationwide.

Greggs achieved sales of £658m in 2009 and profits of £48.8m, and reported sales growth of 2.6% in the first 39 weeks of the year last month.

He says: “The way we run our business is through very tight financial controls. We reinvest the money we’re generating back into the business. I give a lot of credit to my predecessor and to Richard Hutton’s predecessor as finance director. They really built the foundations, and in effect Richard and I have just maintained that same philosophy of running the company very carefully and living within our means. It’s a very simple model but it takes a huge amount of leadership and discipline to make it work.

“If the right business opportunity came along and we needed to take on some debt, we’d consider it if it was the right thing to do for the shareholders, but we haven’t needed to do that.

“It says something about the values of the company to have had a plc run by the same person for 26 years and before that for another 20 years. People see the decisions you’re making, and know you’re going to be here to see these decisions right the way through. That has a lot of resonance with staff, and we’ve had a lot of loyal staff here.”

The company started the year aiming to accelerate its expansion across the UK, which required investment in both shops and bakeries.

McMeikan said: “We know the biggest barrier to coming to Greggs is the fact that half of the UK population haven’t got a store very close to them. For example, Cambridge is a good-sized city but only has one Greggs. The thing I love is that an average shop creates about 10 to 12 jobs. When we talk about 600 or more shops, that’s more than 6,000 jobs being provided.

“We’ve got no debt and a very healthy balance sheet, and despite our plans for expansion, we still plan to have cash to return to shareholders this year. This is a company that’s strong and has great growth opportunities. We said we’d open 50 to 60 net new stores this year, which is somewhere around 75 to 85 gross. If we were to get to the top end of that pledge, that would be a record in terms of new Greggs outlets opened in a year. Strategically, we’re in year one of an accelerated shop opening programme. If we deliver 50 to 60 new shops this year, we expect that to be 70 or more net next year. We also wanted to double the number of re-fits we’ve historically done, from about 60 a year to somewhere around 120 this year.”

The raft of openings meant the company needed to take a look at its network of 10 bakeries, with £60m to be invested over the next five years in expanding its operation and opening of new, larger replacements for its existing sites.

The start of the year signalled a major change in how the business was run, with more tasks handled centrally in Newcastle rather than in the various regional offices.

McMeikan says: “There were lots of benefits to this regional approach such as knowing the region and understanding what customers want, and we didn’t want to lose that. But we weren’t getting the benefits of a company that was the scale and size that we were.

“Once the supplier knows they’re getting an order for the whole country, we get the benefit of reduced price. It was the same for ingredient purchasing and point of sale.

“That was the really big change for Greggs. We had to put in new structures and some central teams responsible for managing these things and working with regional teams. If you went back four or five years, you’d have probably had about 80 people centrally and now we’ve got 230 people and we’re still adding to that.

“We went from 12 regional businesses to a centrally-run company with seven regions. It’s affected everything from reports to who the shops are reporting to, but it was the right thing to do.

“Rather than a managing director running the bakery and the shops in the region, we’ve got a supply chain director who runs the 10 bakeries, and also a retail director to support the regions. Managers are still responsible for running the shops and the service they provide, and they’re also still in control of local promotions and the work we do with the communities and charities.”