New vegan offerings are a hit with consumers but 2020 looks to bring a slew of increased costs to the group
Greggs tops off an impressive year in the on-the-go food market
- Total sales for the year were 13.5%, up 6.3% on 2018 and like for like sales increased by 9.2%
- Group raises profit forecasts and after a strong 2019, including the launch of its Vegan sausage roll, remains in a strong financial position
- Despite strong year results, group must remain aware of headwinds in 2020 and ensure they can navigate them
- Important to remember Greggs has exhibited strong momentum and should its improved product mix push sales in 2020, impacts on margin may be less of a worry than originally expected
- Recommendation: We currently do not have a view on the stock but would consider this as a ‘Hold’ in light of its relatively high valuation to its peers
The on-the-go food market is driven by convenience and trends and its clear Greggs has adapted to both of these themes with great effect. It’s no coincidence the release of their vegan sausage roll back in January 2018 has reflected in the group’s performance throughout 2019. So much so that, heading into the New Year, the group has expanded this niche offering with a Vegan steak bake and doughnut, and it’s this flexibility and awareness of dietary demands which resonates well with consumers.
However, as we cast our outlook into 2020, the group does face headwinds. A rise in the National Living Wage and pork shortages pushing up prices will contribute to some cost inflation. With Gregg’s committing to keeping prices at ‘great value’, these impacts are likely to pressure margins which is probably why investors are mixed on the stock this morning.
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