It was inevitable that the price of a sausage roll would have to rise again in the current inflationary environment, but Greggs’ advantage is its low prices compared to many other ‘food to go’ retailers such as Marks & spencer.
The nation has to get used to more expensive products and a company like Greggs has three main options to deal with this situation.
He could bear all the extra raw materials and running costs and keep prices the same, hurting his profit margins. Second, it could go the shrink route and make products smaller while selling them for the same price as older, larger versions. Or it could simply pass the costs on to the customer through higher prices.
“When you’re talking about current prices of a pound or more, raising prices by 10% or 20% isn’t going to break the bank for most customers, and so Greggs may be in a better position than larger retailers to weather the current inflationary environment,” said Russ Mold of AJ Bell.
“This year is proving to be a real challenge for consumer-facing businesses as the cost of living continues to rise.
“There’s been a lot of talk about the concept of pricing power, where a company has such a strong brand that demand won’t be affected if prices go up. But when you have several price increases in short succession, there comes a time when demand can be dampened. It’s fair to say that Greggs has pricing power and could likely drive prices up without hurting demand.
“Yet Greggs is being overly cautious and warning that there will be no meaningful earnings growth this year. That will be the case for many retailers. The latter could prove to be a good outcome for retailers in 2022 given the headwinds on earnings.
“While the cost pressures and demand risks may seem painful now, Greggs has his eye on the longer-term prize of having a much larger business. He is laying the groundwork by strengthening his infrastructure to support more stores, longer opening hours and more delivery orders.
“Weaker retailers could wind down these investments in times of crisis, so the fact that Greggs is making progress speaks volumes about the resilience of its business.”