Greggs Faces Profit Margin Pressure Amid Rising Wage Costs

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Greggs, the popular high street bakery chain, is grappling with rising wage costs, which are impacting its profit margins despite a notable increase in first-quarter sales.

Roisin Currie, Chief Executive of Britain’s largest bakery chain, highlighted that the “majority of cost inflation pressures that we face this year is wages,” underscoring that labour costs remain the biggest financial burden for the company. Greggs anticipates its overall inflation for the year to be between 4% and 5%, primarily driven by wage increases, which offset easing pressures in other parts of the supply chain.

Currie, 52, stated that Greggs would continue to monitor and review price increases regularly. While the company does not have a fixed plan for pricing, she emphasized the need to remain flexible and responsive to ongoing economic conditions, reviewing their stance on a week-to-week and month-to-month basis.

Founded in 1939 by John Gregg as a small bakery on Tyneside, Greggs recently celebrated the milestone of operating 2,500 shops nationwide. The company plans to expand further, with between 140 and 160 new shop openings expected this year. The expansion includes more outlets in supermarkets, petrol stations, and travel locations, as well as a broadened delivery service through a partnership with Uber Eats, following a successful trial with Just Eat.

Despite the economic challenges, Greggs has managed to attract cash-strapped customers with its affordable products, outperforming many in the hospitality sector. The company even claimed to have overtaken McDonald’s as Britain’s most popular breakfast spot this year.

This momentum has continued into the new financial year, with Greggs reporting a 7.4% rise in like-for-like sales for the first 19 weeks, driven by its aggressive store expansion strategy. Total sales reached £693 million.

Greggs maintained its full-year forecasts, with analysts predicting a rise in pre-tax profit to £185 million, up from £168 million last year. Analysts at Peel Hunt noted that while the past couple of months have been slightly slow in like-for-like sales, this would not affect overall forecasts.

Greggs continues to navigate the challenges posed by rising wages while leveraging its expansion plans and affordable pricing to maintain its market position and drive growth.