Greggs (LSE: GRG), the popular high-street baker, posted strong results in January and is set for further expansion this year. After a turbulent 12 months, could this FTSE 250 stock be back on track?
Greggs saw sales rise substantially in the final quarter of 2022 to 18.2%, with festive specials such as mince pies and caramel lattes proving popular. Like-for-like sales were up on the previous year and the chain is set for expansion, with the ambition for another 150 stores to open during 2023.
Nonetheless, Greggs has faced some significant challenges over the past year. In the aftermath of the pandemic, issues have remained with supply shortages, energy price rises, and a change of management. And this may well continue in the near term.
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Focus on value
Chief executive officer Roisin Currie, who took over the helm in May 2022, acknowledged cost inflation at 9% as the driver behind price rises on much-loved favourites such as sausage rolls. Currie cited value for money as key for customers during the cost-of-living crisis. In the first update of 2023 strong growth was attributed to a number of factors, including longer trading hours, greater availability of digital channels and more choice.
It seems there is a lot of potential for Greggs even while the cost-of-living crisis continues to bite. As a cheaper alternative to high-street regulars, such as Costa or Pret, Greggs could pick up customers who are looking to save money. Newly introduced ‘double up deals’ encourage customers to trade up and buy two items.
Greggs could also steal a march on competitors with its diverse range. Who can forget the impact of the vegan sausage roll on profits as it flew off the shelves in 2019? The Vegan Sausage, Bean & cheeZe Melt, reintroduced in February, is a strong contender to drive sales as well.
High-street stalwart
With the introduction of 11 new lines and a strong plant-based offering, Greggs certainly appeals to a wide customer base. Add in the ability to order through an app to earn rewards, or even have a takeaway delivered through the Just Eat partnership, Greggs could be seen as a low-cost easy treat.
Interestingly, a less-reported development could make a fundamental change to Greggs’ bottom line. A judge rejected Zurich’s limitation of Covid-19 interruption to business losses at one instance with a corresponding limit of £2.5m. The ruling stated that there were multiple interruption losses, each with a limit of £2.5m. Owing to the ruling, Greggs is likely to receive a significant payout in due course.
In spite of substantial recent rises in the share price, I still think that Greggs has a lot of potential to grow and is one of several high-street chains that will do well in the current economic environment. Whilst I am not invested at the current time, I am strongly considering adding this stock to my retail portfolio.
