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Greggs profits surge on back of low-calorie sandwiches Greggs a Manger aims for healthier, cheaper food-on-the-go
(about 2 hours later)
Greggs has reported a near 50% increase in half-year profits, following the launch of low-calorie sandwiches and a revamp of its hot drinks. Moves by Greggs, known for its sausage rolls, to turn itself into a healthier, Pret a Manger-style coffee shop chain are starting to pay off with half-year profits up nearly 50%.
The bakery chain, which has 1,660 stores in the UK, said sales rose 3% to £373m, helping pre-tax profits reach £17m. The bakery chain, which has 1,661 stores in the UK, introduced a new "Balanced Choice" range of freshly made sandwiches below 400 calories, with reduced salt and sugar content, and upgraded its coffee blend to make it taste smoother.
Greggs acknowledged its numbers were flattered by weak trading in 2013, a year when it issued two profit warnings and blamed hot weather, cold weather and "promiscuous shoppers" for its problems. Under its new boss Roger Whiteside, the company has also been refitting its stores and adding more seating to tap into the unabated growth in coffee shops in Britain. Opening hours have been extended by half an hour each side (many Greggs shops are now open from 7am until 5.30pm) to catch people on their way into work and on their way back home. Low commodity price inflation (such as lower pork and wheat prices) and the increasing tendency to eat food on the go are also boosting sales.
Sales began to pick up at the end of last year, but a decision to scrap dozens of in-store bakeries and a management cull led to the loss of 400 jobs. The company has abandoned plans increase its total number of stories and create coffee shops to concentrate on its traditional range of baked goods. But it plans to spend £50m to upgrade 200 shops this year. Greggs' finance director, Richard Hutton, said: "We want to make sure we keep pace with changing taste. People have developed a taste for good coffee and healthy food."
Greggs attributed higher sales to improved products and service. It also said it was benefiting from more favourable trading conditions: "The weather has been more settled and the general economic indicators have been positive." Low commodity price inflation and the increasing tendency to eat food on the go are adding to the wind in its sails. At the same time, the company does not want to alienate its loyal customers. "We still sell more sausage rolls than anything else, more than 100m a year," he added. "You will still see the sausage roll as a snack. It has 350 calories. There's nothing to worry about for the sausage roll."
But even the sausage roll is becoming healthier. Greggs has reduced the salt content of its pastry by 30% in the last couple of years. "We do it gradually and over time," Hutton said. "If the product doesn't taste great, people will vote with their feet."
Freshly-prepared food – Greggs plans new fresh soup and hot sandwich ranges come autumn and winter – sets the bakery group apart from the big coffee shop chains, which bring pre-prepared sandwiches in from suppliers, Hutton said.
"Greggs has a similar model to Pret. We have a similar supply chain, although we own our own bakeries, Pret don't. Both are about good food made fresh."
Price is the other big selling point. At Greggs, a cup of coffee costs £1.60, against typically over £2 elsewhere. It has extended its meal deals to include hot drinks, cakes, pastries and a wider range of sandwiches to cement its reputation for "value for money".
The company's sales rose 3% to £373m in the first half of the year, lifting pre-tax profits to £17m. The house brokers, UBS and N+1 Singer, upgraded their full-year forecast by £2m to £48-49m.
Greggs credited its new ranges as well as "more settled" weather than last year and the economic recovery. It acknowledged its numbers were flattered by weak trading in 2013, a year when it issued two profit warnings and blamed hot weather, cold weather and "promiscuous shoppers" for its problems. Last August it unveiled a five-year plan to revamp itself to keep up with the fast-moving food-on-the-go market.
Sales began to pick up at the end of last year, but a decision to scrap dozens of in-store bakeries and a management cull led to the loss of 400 jobs. The company has abandoned plans to increase its total number of stores, but plans to spend £50m to upgrade 200 shops this year.
Sahill Shan at N+1 Singer said: "There is still a long way to go but we do believe that the new strategy offers further growth opportunity."
The company announced it will pay a dividend of 6p a share.The company announced it will pay a dividend of 6p a share.