Greggs has this morning reported that company-managed shop like-for-like sales grew by 4.7% in the year to 2 January 2016 and said that its franchised shops continued to “perform well”.
Total sales grew to £835.7m in 2015, up 5.2% on a comparable 52 week basis and up 3.7% when compared to the 53 week financial year in 2014. Operating profit (before exceptional items in 2014) grew by 25.9% to £73.1m and pre-tax profit (before exceptional items in 2014) grew by 25.4% to £73m.
Chief executive Roger Whiteside said: “The food-on-the-go market continues to grow, offering exciting opportunities to increase our estate to substantially more than 2,000 shops, particularly in new locations away from high streets. 2015 saw us return to net shop growth, opening 122 new shops (including 61 franchised units and our first in Northern Ireland) in the year and closing 74, resulting in 1,698 shops trading at 2 January 2016.”
The company, which announced it was to commence a £100 m investment programme in its manufacturing and distribution operations, said that this year has started well with like-for-like sales in the eight weeks to 27 February up 4.2%, with total sales up 6.8%. It said that the consumer outlook remains positive with disposable incomes expected to grow further in 2016.
It said that in order to protect its reputation as an attractive employer it has agreed a wage increase of 5% for its shop team members, lifting its hourly rate to £7.47 and retaining a premium over the statutory minimum.
Whiteside said: “Overall 2016 will be another year of significant change as we advance with our strategic plan and propose major investment in our supply chain. Alongside this we are confident of delivering a further year of underlying growth. The Board’s expectations for the year ahead remain unchanged.”
90% of the company’s new shop locations were away from high streets in areas such as retail and industrial parks, motorway service stations and travel hubs. At the end of 2015 it had 105 franchised shops operating in travel and other convenience locations, with a particular focus on motorway services and petrol forecourts.
The company completed 202 shop refurbishments during the year and converted a further 20 existing bakery cafés to its bakery food-on-the-go format.
Whiteside said: “These investments are transformational and allow our shops to really focus on the food-on-the-go customer. By the end of 2015 82% of our shops had been converted to the food-on-the-go format and in the year ahead we anticipate progressing with this refurbishment programme at a similar rate.
“In 2016 we again expect to open 100-120 shops, including further development of our franchise partnerships, and to close 50-60 shops. With our leasehold property structure we have the flexibility to relocate as customer trends move and our new shop opening programme is steadily shifting the balance of the estate, increasing our presence in travel, leisure and work-centred catchments. In 2013 only 20 per cent of our estate was located in these location types and by the end of 2015 this proportion had risen to 27 per cent. This, coupled with our refit investment programme, is progressively improving the quality and performance of our shop estate.”
The group said it would build on its loyalty programme with the launch of a new improved mobile app and more flexible payment options.
In September 2015, in order to provide additional distribution capacity for shop growth, the company acquired a freehold distribution depot adjacent to its existing bakery in Enfield. The total investment, including conversion works, is likely to be around £13m and the facility will be brought into use in the second half of 2016.
Whiteside said: “This marks a first step towards a major new programme of investment in our supply chain which will have far-reaching implications and major benefits for our business.
“As part of our strategic plan to grow Greggs and transform it from a decentralised traditional bakery business into a centrally-run modern food-on-the-go brand we have been reviewing our manufacturing and distribution operations. Greggs is unusual in this sector in that it is vertically-integrated, owning and operating manufacturing facilities and its logistics network.
“Following a lengthy and detailed review we have concluded that this integrated business model gives us competitive advantage, lying at the heart of our ability to offer outstanding quality and value. We intend to invest substantially to support growth and reshape the supply chain in order to compete more effectively in the food-on-the-go market. This requires an investment of around £100 million in a major programme over the next five years to create additional manufacturing centres of excellence and increase capacity to support shop expansion substantially beyond 2,000 outlets in the UK.
“Greggs currently operates from 12 bakeries; unfortunately not all are suitable for long-term investment due to their location and size. As a result we are proposing to close three bakeries and use the disposal proceeds to contribute to the investment in our remaining bakeries over the course of the five-year programme.
“The bakeries proposed for closure are Twickenham, Edinburgh and Sleaford, and we aim to agree a programme to transfer production and distribution operations from these sites to other bakeries in our network over the next year. Alongside these proposed changes in our bakeries we have further steps to take in the centralisation of support services which we believe will require some restructuring amongst our teams deployed in the regions. We will be entering into consultation shortly to work with trade unions and employee representatives of those affected to refine and develop these proposals.
“This may result in a total of 355 roles becoming redundant. These are difficult changes that we believe are needed to support the long-term growth of the business; however our immediate priority is to work to minimise the negative impact on our people, many of whom have worked in these roles for a significant number of years. Wherever possible we would look to offer alternative employment to affected employees but, due to the location of our sites, we anticipate that unfortunately many will leave the business.
“Our recently-acquired distribution facility in London will enable us to invest in our Enfield bakery to create a manufacturing centre of excellence in the south east region and we now propose to invest in the extension of our Clydesmill bakery in Glasgow to create a centre of excellence in Scotland. These investments will mark the first phase of our five-year programme to transform our supply chain.”
