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August 6, 2013 9:38 am
Roger Whiteside, the new chief executive of Greggs, set out plans to overhaul the bakery retailer, curbing new store openings and revamping existing outlets as first-half pre-tax profit tumbled 29 per cent.
Pre-tax profit fell from £16m to £11.4m in the six months to June 29 as the company was hit by a 2.9 per cent fall in underlying sales.
Shares fell almost 10 per cent in afternoon trading to 398p.
Mr Whiteside said on Tuesday that Greggs planned to focus more on the £6bn food-on-the-go market.
“Whilst over many years Greggs has developed a leading position in the bakery market, there is no question that customer preferences are shifting,” he said.
But increased competition from rivals such as Pret A Manger and better lunchtime offers from supermarkets meant that the company lost market share in the food-on-the-go segment during the period.
Greggs opened 100 stores last year, but Mr Whiteside said it would add 20-30 stores this year, after about 40 closures.
The company will revamp some stores, introducing more seats for the lunchtime crowd, and move some stores to better locations. Greggs overhauled 90 stores in the first half and will complete between 230 and 250 refits in the full year.
Mr Whiteside is also shaking up the product range, improving items such as cakes and pizza.
But he denied he was taking the baker – which last year led a campaign against the so-called “pasty tax” – more upmarket, with higher prices to match.
“We are not taking Greggs more upmarket. One of the features of Greggs is the fact that it offers amazing value [and] it has fantastic quality,” he said. “Prices will only move as commodity inflation moves the market . . . and that normally means movements of 1p-2p on individual products.”
Mr Whiteside has also decided not to extend Greggs’ wholesale bake-at-home business with frozen foods retailer Iceland, nor will it develop its six “Greggs Moment” coffee shops.
In addition, Greggs will not go ahead with plans to build a second frozen savoury plant in the East Midlands, having already spent £500,000 on the scheme.
This will be part of exceptional costs of £6m-£8m in the second half, reflecting the change of direction. Greggs is also spending £25m over the next five years modernising its systems.
Sales rose from £349.7m to £361.7m in the first half, but sales from stores open at least a year fell by 2.9 per cent.
Mr Whiteside said that although Greggs kept costs under control, as it made its own products, it was particularly sensitive to movements in like-for-like sales.
Greggs also suffered as the recent heatwave dented demand for savoury items, which it said would hit profits by £2m.
“What we find is the product mix shifts away from our biggest category, which is savouries, into sandwiches and cold drinks and salads. It never compensates for what you lose in your core category,” said Mr Whiteside.
The interim dividend was maintained at 6p per share.
Additional reporting Duncan Robinson and Chris Tighe
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