Newcastle-based bakery chain Greggs is to slow shop expansion plans and focus on the buoyant “food on the go” market in a significant overhaul to shore up sales, after the recent summer heatwave left it nursing a £2m hit to profits.
The company, which has 1,690 shops around the UK, warned over profits for the second time this year after summer’s heatwave saw like-for-like sales fall by 3.2% in the five weeks to August 3.
Its interim results also showed shop sales were down 29% for the first six months to June 29, resulting in a drop in pre-tax profits of £4.6m to £11.4m for the six months – down from the £16m for the same time period posted last year.
Greggs said tough trading during the hot weather reversed an improvement seen in its second quarter, when sales declines narrowed to 1.3% from 4.4% in the first three months, prompting an earlier profit warning in April.
Chief executive Roger Whiteside, the former boss of Punch Taverns who took over five months ago, said he had now carried out a comprehensive group review that will see the firm shift away from traditional bakery towards the “food on the go” market, a £6bn market growing at an annual rate of 9%, after losing out to rivals in recent years.
It will also put the brakes on new shop openings and close between 40 and 50 shops this year as it looks to give the existing chain a makeover, with aims to refurbish another 130 to 150 shops by the end of the year, adding customer seating and serving coffee where possible.
Around 70 new shops will open, some of which will be relocated shops from failing catchment areas.
New shop openings will be focused on workplace locations together with franchise operations, predominantly in travel locations.
Whiteside said he still believes there is the potential for more than 2,000 shops in the long term, but confirmed the priority is to halt sales slides and concentrate on transforming the existing estate under the new format.
He said: “Our focus for the future will be on winning in the growing food-on-the-go market.
“As a consequence we will spend the next two to three years reshaping the business as we build the platform for long term sustainable profit growth.
“It’s going to take two to three years to reshape the business, but I’m confident we can.”
The growth strategy includes meeting customers needs, which the firm intends to do by making changes to its sweet and savoury range to make them better suited to snacking, and ensuring popular ranges were available throughout the day.
The group has extended its opening hours, bringing in teams earlier to make fresh sandwiches earlier and staying open later to cater to the growing trend for afternoon snacking.
To make progress in the fast-moving food-on-the-go market, Whiteside said the company plans to invest £25m over the next five years in process improvement and replacing current systems, a move it expects to deliver £38m of business benefits over the same period.
While Greggs remained upbeat about the performance and its determination to shore up sales, Wayne Brown, analyst at Canaccord Genuity, said the half-year results were worse than expected and raised concerns over the management team’s expertise as Greggs switches away from its traditional baking roots.
He said: “We question the depth and breadth of the management skill set to manage a very different retail operation.”