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Morning Briefing for pub, restaurant and food wervice operators

Wed 30th Jul 2014 - Greggs – we’ve made more progress on strategic plan
Greggs – we’ve made more progress on strategic plan: Greggs, which has 1,700 retail outlets in the UK, has reported like-for-like sales up 3.2% in the 26 weeks ended 28 June (2013: 2.9% decline) and total sales up 3.1% to £373m (2013: £362m). Pre-tax profit was £16.9m (2013: £11.4m) excluding exceptional items. It reported encouraging results from sales initiatives with its new coffee blend well received and an improved sandwich range, including greater choice below 400 calories. A total of 131 refits were completed with 26 new shops opened and 36 closures. It had a total of 1,661 shops trading at 28 June. Chief executive Roger Whiteside said: “Whilst our year-on-year performance has benefited from comparison with a period of weak trading in 2013, sales growth is also being driven by initiatives that have further improved our products, availability, service and value. Our new and improved coffee blend and sandwich range are great examples of this. Although sales comparables strengthen in the second half the risk of input cost inflation appears to be reducing. Overall, we expect to deliver an improved financial result for the year and further progress against our strategic plan. Trading conditions in the first half of 2014 were more favourable than last year; the weather has been more settled and general economic indicators have been positive. In addition low commodity price inflation has been helpful in supporting margin. The food-on-the-go market continues to grow; however we are also seeing ongoing expansion by existing and new operators and so the marketplace remains very competitive. We are making good progress in delivering our plans in line with the revised strategy outlined last year:

1.  Great tasting fresh food: We have continued to see improved sales as a result of the product changes made last year and, in addition, are now starting to see encouraging results from our 2014 initiatives. Our new and improved coffee blend has been well received and sales are continuing to grow strongly. Our reputation for value for money is growing as we extend our popular meal deals to include hot drinks, cakes, pastries and a wider range of sandwiches. Most recently we have successfully launched our new and improved sandwich range including new ‘Balanced Choice’ products offering great tasting options with fewer than 400 calories. The new range presentation emphasises that all of our sandwiches are made fresh in shops every day, setting us apart from many competitors including the supermarkets.

2.  A great shopping experience: As well as improvements to our product offer we have continued to benefit from the changes we have made to service levels in our shops, including improved availability and extended trading hours. Our new customer loyalty scheme, Greggs Rewards, has been launched successfully and we are now planning to build on this as we develop our capability to engage with customers and better meet their needs. Our investment programme to improve the quality of our estate is progressing well. During the first 26 weeks we completed 131 shop refurbishments, in line with our plan to refit around 200 shops during 2014. Our plan to reshape the estate, rebalancing it towards more sustainable long-term locations, is also on track. We opened 26 new shops (including 14 franchise units) and closed 36 shops, giving a total of 1,661 shops (of which 39 are franchise units) trading at 28 June 2014. We expect shop numbers for the year as a whole to be broadly flat. Almost all of our new shops were opened in locations away from high streets.

3.  Simple and efficient operations: Alongside our focus on driving like-for-like sales from our existing estate of shops we continue to concentrate on developing simpler and more efficient operations in our supply chain and support areas. We have completed the restructure of our support areas and are making good progress with our plan to consolidate our in-store bakeries into our regional bakery network. We now anticipate that the majority of these in-store bakery transfers will be completed by the end of this year. The combined financial benefits from these changes remain on track to deliver savings of £2.5 million in 2014 and £6.0 million per year from 2015 onwards.

4.  Improvement through change: In August 2013 we announced a five-year change programme whereby we will invest in process and systems platforms that will enable us to compete more effectively in the fast-moving food-on-the-go market. We are on track to deliver the first two elements of this programme, relating to workforce management and supplier relationship management, in 2014. We have selected SAP as our core ERP software supplier and are moving forward to the next phase of the programme.

Whiteside added: “The scale of change involved in our new strategic plan has inevitably had an impact on our people. It is at times like these that our values as a business are put to the test and I am immensely proud of our teams for the professionalism and fortitude they have displayed as we move forward with our plan. While business pressures have been unrelenting our people have remained committed to making a difference to our local communities. This is evident through their support of the Greggs Foundation which recently celebrated the launch of its 250th Breakfast Club. We are also proud of the public recognition we have received for our ‘work inclusion’ and ‘employee volunteering’ programmes. Our first half performance has been good but has benefited from comparison with a period of weak trading last year and earlier phasing of property profits. Sales growth in July has continued to be strong as we have not experienced the widespread heatwave conditions that depressed sales last year, but this is expected to fall back in the months ahead as we compare with better trading in the remainder of the year. Input cost inflation has been lower than we expected, driven by ingredients and energy and we expect this to continue through the rest of the year. We have a strong pipeline of activity in the second half including further investment in product changes and improved customer service alongside our programme of investment in new systems and processes. Overall, we expect to deliver an improved financial result for the year and further progress against our strategic plan.”

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