Greggs warns of rising costs as sales bounce back from pandemic
In an update to shareholders the company said that costs had been increasing across the market.
It also said customers will be feeling the squeeze from the rising cost of living, something that could cause them to tighten their belts.
One analyst said on Monday that this could ultimately help Greggs. As workers look for cheaper alternatives for lunch, the chain might attract new customers away from its rivals.
Ross Hindle, an analyst at Third Bridge, said: “The big unknown is how consumers react to the rising costs and tightening of wallets. It is believed that there is an opportunity for Greggs to gain market share from ‘posh’ coffee shops and more expensive food-to-go operators as Britons cut back on their mealtime and beverage spend.
“However, balancing market share opportunities with margin protection is likely to be a big challenge for Greggs.
“The group will struggle to increase prices while still maintaining its value-for-money proposition in the market. Savoury and breakfast products are the most likely to be priced higher.”
He added: “Eighty per cent of Greggs’ range is manufactured in-house, providing some flexibility in how the Group navigates inflationary pressure. However, Greggs will still face intense cost headwinds.”
In March, the business warned that changes to taxes and higher costs for energy, food and staff would push up its costs between 6% and 7%.
Prices that it charges customers already went up in the early part of 2022, and the firm said in March that it expects more changes this year.
On Monday, Greggs said that like-for-like sales at the shops it manages rose by more than 27% in the first 19 weeks of this year, compared to 2021.
But it also pointed out that this was a flattering comparison due to the Covid restrictions in place a year ago.
In the 10 weeks to May 14, a period when restrictions were easing in 2021, sales were up nearly 16%, Greggs said.
Its shares were trading down 2.8% early on Monday.
“Sales levels in larger cities and in office locations continue to lag the rest of the estate but transport locations have shown a marked increase in activity in recent weeks,” the company said.
“Sales of hot food and snacks are showing particularly strong growth, with chicken goujons and potato wedges proving popular.”
It said that expectations for the financial year are unchanged.