Greggs, the bakery and fast food chain, has warned that profit growth this year will be squeezed by rising cost pressures and refused to rule out customers sharing even more of the pain through higher prices.
The company, best known for its sausage rolls and steak bakes, used the publication of its annual results for 2021 – which showed record profits after the previous year’s COVID-driven loss – to limit investors’ expectations during the current year.
Chief executive Roger Whiteside said that while like-for-like sales growth during the first nine weeks of the year were 3.7% ahead of 2020 levels, the outlook was more challenging.
“We have started 2022 well, helped by the easing of restrictions,” he said.
But Mr Whiteside added: “Cost pressures are currently more significant than our initial expectations and, as ever, we will work to mitigate the impact of this on customers, however given this dynamic we do not currently expect material profit progression in the year ahead.”
Greggs made its remarks as businesses globally adapt to the COVID recovery-led supply chain difficulties and inflation surge.
It raised prices widely by up to 10p in January to reflect its growing bills.
However, there has been no let-up in the mounting costs since, with UK inflation already at a near-30-year high, and the Russian invasion of Ukraine will only intensify the pressure on both retailers and consumer spending power.
President Putin’s war has sent oil prices to their highest level in 14 years and seen natural gas costs hit all-time highs.
Greggs, like many UK firms, has been grappling staff and product shortages which have limited its recovery in sales but it said that plans to open 150 net new stores this year were on track despite the challenges.
It is understood that if Greggs raises prices further, it would seek to maintain its competitive and value position.
Mr Whiteside explained that the company was expecting cost inflation between 6-7% this year – chiefly from the rising cost of raw materials, energy and staff wages.
“All the proteins, all the cereals, all the oils – everything’s going up in price,” he told the Reuters news agency.
On the issue of price, Mr Whiteside said there were no current plans for fresh increases but he added: “We’re going to have to keep it under review in the balance of the year and see how the market develops”.
The company reported pre-tax profits of £145.6m for the year to 1 January.
Greggs said that while total sales were 5.3% higher on their 2019 level at £1.2bn, like-for-like sales in its managed shops were still more than 3% down on the pre-pandemic year.
It revealed a total ordinary dividend of 57p a share plus a special dividend of 40p a share and said that staff would share £16.6m as a bonus.
Shares fell 9%.
Ross Hindle, analyst at Third Bridge, said: “Overall, the UK food-to-go market remains depressed with commuter footfall stubbornly below pre-COVID levels.
“Despite difficult trading conditions, Greggs has been able to punch above its weight thanks to a recipe of competitive pricing, clever location strategy, and their Just Eat delivery partnership.
“Supply chain issues, cost increases, and labour shortages all pose significant and persistent risks for Greggs.
“Greggs has had to trim its range due to ingredient shortages, now labour shortages might stunt Greggs’ growth ambitions.
“Investors will be studying how Greggs manages its cost increases, which could turn out to be double-digit, in order to protect its margins in the months ahead.”