Nationwide bakery chain Greggs plans to spend £36m refitting its shops and purchasing new equipment this year, as it pursues a strategy of repositioning the business in the food-to-go market. FEJ reports.
Its store footprint might be small by conventional fast food or restaurant standards, but with 1,650 sites to its name there are few operators as ubiquitous as Greggs.
This year the company is poised to spend around £6m more on shop upgrades than it did in 2014, with £36m set aside to meet the number of refits it has planned. It continues a trend that has seen Greggs — which made sales of £804m in 2014 — increase its budget over the last three years. Last year its bill for refurbishments and new kit cost £29.6m; the year before it ran to £26.5m.
In addition to the £36m earmarked for refits and shop equipment this year, Greggs is budgeting £10m for new shops and re-sites, which is more than double the amount it spent on the same area last year. It is a sizeable budget, but return on capital is managed carefully and measured against predetermined targets. For investments in new shops and refurbishments, Greggs aims for a cash return on invested capital of 25% over an average investment cycle of seven years.
Roger Whiteside, chief executive of Greggs, says the past 12 months have brought “significant change” for the brand, but just as importantly they have led to a step-up in performance as it has begun implementing a new strategic plan centred on the growing food-on-the-go market. “We have improved both our food offer and the shop experience for customers,” he says. “Market conditions have been more favourable and like-for-like sales have grown throughout the year. This has resulted in record underlying profits for the financial year.”
Greggs’ efforts have largely involved making structural changes to the business in a bid to deliver more effective operations and improving its food offer and shop experience for customers. It has focused on differentiating its offering through the way that it prepares food each day in its shops to deliver its ‘Always Fresh. Always Tasty.’ mantra — “an experience that others find hard to match,” according to Whiteside.
With Greggs continuing to make changes to its product range to drive sales, the company knows it needs to have the right operational infrastructure in place. In the early part of last year it launched its improved coffee blend which led to coffee becoming its fastest-growing product category. Then, come the summer, it completely overhauled its sandwich range with improved recipes and enhanced packaging, including the introduction of a new sub-400 calorie ‘Balanced Choice’ brand. Alongside this activity it has rolled out new products in food-on-the-go categories such as fresh soups and hot sandwiches, which are aimed at creating new reasons to visit Greggs.
“We have a strong pipeline of further product developments planned for 2015,” explains Whiteside. “As an example, we have just launched our new fresh soups including chorizo and fire roast pepper and introduced our new meal deal offering coffee and any savoury snack for just £2. In the coming weeks we will be extending our breakfast offer and launching new options under our Balanced Choice label.”
For investments in new shops and refurbishments, we target a cash return on invested capital of 25% over an average investment cycle of seven years”
Greggs opened 30 new shops in 2014 (including relocations but not including the 20 franchise stores that were launched) and will seek to double that figure in 2015. It expects to complete between 200 and 220 refits this year, which is consistent with the last two years when it carried out 213 and 216 re-fits respectively.
However, the overall store number isn’t likely to change too much given the emphasis is on making sure the outlets are in the right locations to support the grab-and-go strategy. While it opened 50 shops in total last year, it closed 71. This year, meanwhile, it expects to open between 80 and 100 new stores in total, but will close between 60 and 80.
“Our shop opening and closure programme is progressively improving the quality and performance of our estate while rebalancing it towards more sustainable long-term locations by increasing our presence in travel, leisure and work-centred catchments,” explains Whiteside, who said that 85% of its new shop locations are away from high streets, such as in retail and industrial parks, motorway service stations and travel hubs.
“We continue to believe in the opportunity for increased shop numbers, with our longer-term target being more than 2,000 in the UK, and expect to return to growth in net shop numbers in the second half.”
Greggs capital expenditure budget 2015
Refits and equipment 55%
New shops and re-sites 15%
Supply chain 14%
New openings and refits
2015 2014 2013
New shops 70 30 53
Refits 220 213 216