Greggs PLC (LSE:GRG) is on track to reach 100 net shop openings this year, but with the current labour shortages it seems fair to wonder who’s going to work in those new stores.
The baker admitted it has suffered some disruption in terms of availability of staff as well as supply of ingredients and products in recent months, so it’s expecting costs to increase.
READ: UK to see many more restaurant chains as companies plan aggressive expansion
However, it’s been managing its operational costs and, helped by a solid sales performance, it managed to upgrade its full-year profit forecasts.
“The overall UK food-to-go market remains depressed by around 15%-20% as the UK’s newfound appetite for working at home keeps commuter volumes in check. Greggs has been able to punch above its weight in this climate because of its low pricing, wide-appeal marketing, and shops outside city centres,” said Ross Hindle, analyst at Third Bridge.
“From a pricing point of view, Greggs chose to pass on the Chancellor’s VAT discount to their customers. They now face the tricky challenge of putting their prices back up when VAT increases to 12.5% at the end of September, and 20% in 2022. This may mean short-term margin pressure for the group especially in the face of rising inflation.”
The FTSE 250 firm also plans to make the most out of its existing sites by keeping some of them open until 8pm, after noticing evening sales were performing well. The goal is to have 500 out of the current 2,146 closing late by the end of 2022.
Many UK restaurant chains are exploiting the demise of their independent rivals to power through with their expansion plans.
Large companies have benefitted from the end of lockdown, as they had deep enough pockets or in many cases raised extra cash, so they could enjoy the eventual pent-up demand from consumers and reduced competition.
Extra cash made during the summer reopening rush has further supported acquisition pipelines which are expected to fuel growth.
Pizza Express, Wagamama owner The Restaurant Group plc, Tortilla Mexican Grill and Franco Manca and The Real Greek owner Fulham Shore PLC (AIM:FUL) have all jumped on the trend.
“Sometimes you have to take risks in business to get ahead and Greggs has looked at a somewhat hollowed out central London and spied a big opportunity, with plans to take advantage of depressed property costs by expanding its footprint in the capital,” commented AJ Bell investment director Russ Mould.
“It is possible the commercial landlords’ woes with regards to rents and voids provide the cream of the retail crop to expand. If nothing else the voids create space and any rental misses may make landlords more willing to drop their prices,” he told Proactive.
“Equally, any retailer will be aware of the need to pick the spots which best suit their demographic, price points and product offering so any expansion will need to be carefully controlled.”
Investors seemed happy with Greggs’ proposition, with shares surging by a tenth to 3,159p on Tuesday afternoon.
