Bakery chain Greggs saw sales jump in the first half of the year as customers turned to value meals amid the cost-of-living squeeze, but warned its cost inflation could hit 9%.
Sales leapt by 27.1% in the 26 weeks to July 2 to a total of £694.5 million, compared with £546.2 million a year earlier.
But half-year profits remained largely flat year on year at £55.8 million compared with £55.5 million last year, due to the reintroduction of business rates, an increase in VAT and higher levels of cost inflation.
With soaring inflation putting a strain on people’s incomes, consumers are more likely to turn to lower-cost food and drink while on the go, Greggs said.
But the chain warned that cost inflation could reach around 9% this year as it is hit with higher prices of food, packing and energy.
In May, the company said customers would see 5p or 10p increases on some items as it was forced to raise prices for the second time this year.
But Greggs has fixed prices with suppliers for around the next five months, meaning the cost of its food and drink should not rise any further in that time, chief executive Roisin Currie told the PA news agency.
“We know the economic environment is challenging and it is tough out there for our customers, so we are doing everything we can to protect our price proposition,” Ms Currie told PA.
“We are not immune to cost inflation but we are trying hard to mitigate against it impacting customers.”
The boss of the chain – which has more than 2,200 shops in the UK – added that it plans to extend its opening hours, shake up its menu options and offer more delivery services in order to gain more evening sales.
The company intends to have 500 shops open until 8pm by the end of the year to target more customers who want hot food in the evening.
She added that menu changes are “critical” and the chain is currently trialling new products including jacket potatoes, and dessert options like hot yum yums with salted caramel sauce and brownies with chocolate dipping sauce.
More than 1,000 of its shops deliver to customers through delivery app Just Eat despite people returning to shops after the pandemic.
The average customer spends around £10 on deliveries, roughly three times higher than they would in the shop, Ms Currie added.
The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits— Charlie Huggins, Wealth Club
But experts warned that the uncertain cost outlook could have a greater impact on the chain than anticipated.
Charlie Huggins, head of equities at Wealth Club, said: “The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits.
“There’s a limit to how far it can raise prices to offset these extra costs.
“If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures.
“But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook.”
Greggs’ financial results coincide with the company announcing the appointment of Matthew Davies as its incoming chairman. He will take over from Ian Durant on November 1.
