9:49AM, Tue Aug 7, 2012

Sales Up But Profits Dip at Newcastle Bakery Giant Greggs

By Adrian Hogg Location: Newcastle

Pasty kings Greggs are managing to hold their own despite the recession and the awful summer weather.

Although profits dipped by £0.8m to £16.5m, sales were up overall by 4.5 per cent as the Newcastle-based company continued its ambitious expansion plans.

Greggs' profile was boosted by the successful national campaign against the Government's pasty tax, and while chief executive Ken McMeikan admitted they could not yet gauge the impact on sales, overall he felt the group's performance had been "very resilient".

"There's no question that the profile of Greggs is significantly higher than it was before the pasty tax started.

"But we were not able to see how much that has benefited sales - the Chancellor announced the tax in March but in April it started raining and didn't stop.

"This really is a very resilient performance, given the exceptional weather."

Greggs' margins had been squeezed partly as a result of higher promotional activity, including a 'Lunch For Less' campaign that offers baguettes for as little as £1.

Video: Greggs' chief executive Ken McMeiken on the 'pasty tax' U-turn

The group has opened 33 more shops than it closed this year and is on course to open a record 90 outlets in 2012. The openings helped push total sales up 4.5% to £350m.

Mr McMeikan said the group's London stores have also benefited from the first week of the Olympics, with like-for-like sales up by 10%. Some shops have seen growth of up to 80% and its shop in Westfield has smashed all records for the week.

Greggs has also been trialling new formats in different locations and will open its fifth "Greggs moment" coffee shop, in Gateshead, this week.

It has also trialled a new Greggs the Bakery format, which offers olive breads and herb focaccias, in Newcastle, doors away from where its first store was opened in 1951.

Sales of its products through frozen food retailer Iceland have also proved successful but the group warned that a drought in the USA threatens to push up grain prices which could effect prices in their shops.

But Greggs have already pre-bought 80% of its food for the second half of this year which leaves it in a strong position as it looks to keep prices down.