Greggs on a roll, or should that be a coffee and a sandwich?

Things were looking bad for the high street staple. Squeezed between supermarkets and coffee houses, it was losing direction. But catering to the breakfast and lunch crowds has worked wonders

Greggs is making more use of centralised bakeries, letting stores get on with selling meal deals, healthier sandwiches and coffee (Mark Pinder)

When Greggs spearheaded a victorious crusade against the Government’s planned VAT charge on freshly baked goods – the so-called “pasty tax” – it won plaudits for standing up for the man and woman on the street.

But in reality, the campaign was more about digging the bakery business out of a mire that had seen Greggs lose its identity, and customers, to supermarkets on one side of the high street and coffee shops on the other.

The VAT announcement sent its shares plummeting 13 per cent and threats of job losses and store closures rang out loudly. And despite the Government’s U-turn, profits fell and the boss was eventually shown the door.

But today, shares in the 75-year-old Newcastle-based baker closed at an all-time high at 963p after it revealed record breaking pre-tax profits, up 49 per cent at £49.7m on sales up 5.5 per cent at £804m.

So what changed for the company? Have we become a nation of sausage roll and pasty lovers? Or is this the ultimate sign that the economy is recovering? Current Greggs chief executive Roger Whiteside believes the problem was a company trying to be all things to all people.

He explained: “It’s hard to leave the past behind. If you remember in the old days you used to sell tons and tons of bread and cakes for people to take home. You sort of want that to carry on, but the reality is there comes a point when you have to stop.

“Until recently we had a schizophrenic personality by trying to compete on two fronts – in the take-home bakery market at the same time as competing in the food-on-the-go market.

“We were confused about what we were trying to win with and we made the strategic decision that we were going to focus all our efforts on the food-on-the-go market.”

Customers shunned Greggs for their take-home needs, opting for the supermarket convenience stores which flooded the high street, and wanted their coffee and snacks on the soft, comfy sofas and minimalist design offered by the likes of Costa and Starbucks.

Mr Whiteside realised the only way to win back customers was to tap into the time-poor, desk-eating work crowd and the growing breakfast market.

He started last year by removing 79 in-store bakeries and closing 70 high street stores – with 350 job losses. In their place came centralised bakeries and 50 new sites – mainly in travel and work hubs.

Gone were the luminous pink doughnuts and muddy cups of coffee, and in their place were put healthy sandwiches and coffee comparable with high street favourites but at a fraction of the price.

There was still work to do on shifting the public’s perception that Greggs was a high-fat heart-attack waiting to happen, but Mr Whiteside believes attitudes are changing.

He said: “The product we’re most known for from our heritage is cakes and pasties, which are seen as unhealthy. In reality we’ve actually got a range of sandwich products which are of significant scale and are healthy.

“There are very few businesses that offer value-for-money, healthy food on the go. There is a lot of expensive healthy food on the go, but there is very little in really good value, freshly prepared healthy food and, after coffee, it’s the fastest growing area for Greggs.”

Also on his to-do list is Greggs in hospitals, along with more train stations, airports and universities. He wants click and collect, where customers can order and pay for their £2 morning coffee and Danish en route and have it waiting, and also wants a McDonald’s-style drive-thru.

Food-wise, he is eyeing Mexican wraps, new fillings for rolls, and hot pots but there will be no time for quinoa, sushi or artisan bread because the customers “won’t let us get away with it”.

The low inflation levels will help keep prices down for now, and the future appears to be in meal deals – sandwiches, crisps and a drink for £3 – and while he will not say what percentage of sales are meal deal purchases, Mr Whiteside clearly thinks creating a “menu” for customers is now key.

There will still be a place for the humble sausage roll, but in perhaps the most unprecedented statement to the pasty-loving masses, he believes that within five years Greggs will be selling more sandwiches than sausage rolls. It currently turns over 2.5 million sausage rolls and a million cups of coffee a week across its 1,650 sites, which it wants to grow to 2,000.

Now all the debt-free Greggs has to decide is what to do with all its spare cash. Two options are: a share buyback programme, which could force the share price even higher, or a special dividend.

Either option is likely to please shareholders and, bar the usual excuses of hot/cold weather hitting sales, Greggs the Baker’s future looks far from taxing.

Bakery benchmark: The economic diet

With 1,650 stores, Greggs outnumbers Starbucks and McDonald’s, and has more shops than Tesco Express and Sainsbury’s Local combined.

As a result, it has been suggested Greggs could be a better economic indicator than some more established measures such as the hemline index (based on the observation hemlines get shorter in boom times).

Greggs’ chief executive, Roger Whiteside, said: “We’ve got stores up and down the land and we are in a lot of people’s lives, so I guess to some extent we must be an economic indicator.”

And if that is the case, it would appear the economy is improving – low petrol prices and low inflation are leaving people with more cash to spend on a savoury treat. Fewer workers are making sandwiches for work. And with more lunchtime customers in office locations, the Pasty Index would suggest there are more people in work.