GREGGS, the high street bakery chain, has signalled its intention to target the £6 billion food on the go market as it warned full-year profits would come in around £3 million lower than expectations.
Chief executive Roger Whiteside unveiled plans to transform Greggs into a leading sandwich, pizza and coffee provider as it followed the profits warning issued with first quarter results in April with a further downgrade on earnings expectations at the interim stage.
Shares dropped by 8.9% as the company warned the heatwave had caused like for like sales to fall by 3.2% in the first five weeks of its second half. It said the change in sales mix from food to lower margin cold drinks had hit profits by a further £2m.
Greggs, which has 242 stores in Scotland, cited a weak first quarter performance that saw sales hit by cold weather as it reported pre-tax profits of £11.4m for the 26 weeks to June 29, down £4.6m on last year.
The profit fall was driven by a 2.9% drop in like-for-like sales, though Greggs said sales improved in the second quarter. Total sales for the first half were up 3.4% to £362m, compared with £350m last year, with Greggs reporting net cash generation of £24.7m from operating activities, up on last year's £14.2m.
It maintained its intention to pay a dividend of 6p per share.
Mr Whiteside, who became chief executive five months ago, said: "Whilst over many years Greggs has developed a leading position in the bakery market, there is no question that customer preferences are shifting towards food on the go.
"Food on the go is a £6bn market and it is growing at an annual rate of 9%, and already some 75% of customer visits to Greggs are about food on to the go.
"So whilst Greggs has defended its position as the leading UK retail bakery business, it has under-performed [in] the food on the go market and new entrants and existing competitors have rapidly expanded shop numbers and better met customer needs in the market."
Mr Whiteside, formerly boss of Punch Taverns, said Greggs has started to revamp its products and services, with traditional categories like cakes overhauled and more contemporary lines phased in, including a new pizza range.
The company is also taking steps to enhance the quality and range of its fillings, including its popular steak bake, and develop recipes. Earlier starts have been introduced for retail staff to prepare sandwiches in time for breakfast, and trading hours have been extended into the afternoon.
A new mobile phoned based loyalty app, currently being trialled by staff, will be introduced to further enhance consumer engagement.
Mr Whiteside said a new store refit strategy had been phased in that will see it focus on improving the quality of the estate, both through refits and by moving to better locations.
The first half saw it refurbish 90 stores as it slowed its expansion rate to a net 19 openings.
Greggs has moved from developing distinct local bakery and food on the go store brands in favour of badging outlets under a single bakery food on the go banner. It has also decided to scrap its Moment standalone coffee shop brand.
Analysts lowered their full-year profits forecasts for Greggs. N+1 Singer cut its forecast by £4.5m or 10%, and Canaccord Genuity from £45m to between £41 and £42m. Shares in Greggs closed down 39.3p at 402.3p.
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