Greggs gloomy profit warning all due to storms with no tea-cup

By Phil Dorrell

April 29, 2013 | 3 min read

Having issued a profit warning earlier today, high street bakery Greggs fortunes may seem to be on the wane, however Phil Dorrell, director of Retail Remedy considers what has placed the company in this situation and what it means in reality for the pasty selling plc.

Earlier this morning, Greggs issued a profit warning (like-for-like sales, Greggs announced, are down 4.4 per cent over the past 17 weeks). Reporting on this, The Times editorial led with the fact that a 'dwindling taste' for pasties was one major reason why Greggs is struggling right now. Which simply isn't the case at all.

What got Greggs, and what Greggs itself made very clear in its interim management statement, was the weather. Basically, in arguably the most miserable start to a year for decades, it's not that people's tastes have matured beyond what Greggs has to offer but that footfall, in recent months, has gone through the floor.

Sometimes it's too easy for a retailer to blame the weather to mask more fundamental problems but with Greggs, on this occasion anyway, it's a perfectly viable argument. The weather in the first quarter truly did rain on its parade.

And lo and behold - in the past two weeks since the weather has improved slightly, guess what has happened? Greggs has seen an improved trend in like-for-like sales of just -1.5% (as opposed to -4.4% over the past 17 weeks). In short, the moment the sun came out things have started to pick up again. Expect this momentum to continue into the summer months.

What will also ensure Greggs recovers lost ground — although it may take a year or so for that to happen — is the simplicity of its core proposition. It offers pasties and other simple grub to a certain demographic of people who are unlikely to tire of pasties and simple, low cost grub any time soon — whatever the quinoa-eating readers of The Times think.

Once footfall at Greggs starts to pick up, so will its sales. Its new format cafe environments will also help it, as will its new outlets in workplaces, railways stations, motorway services and other high traffic hubs. These new stores have yet to impact its numbers in any material way but their performance will start having an effect soon. And my feeling is that it will be a very positive one.

Ultimately, I see these weak numbers as a blip rather than a sign of terminal decline for a firm that no longer offers what people want. Greggs is well positioned for future growth - but from time to time, when it pees it down for months on end, it will always take a hit.


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