GREGGS CEO: EMPLOYEE BONUS IS 'SACRED', WILL NOT BE CUT TO MAKE UP BUDGET SHORTFALL

Reuters

GREGGS CEO: EMPLOYEE BONUS IS 'SACRED', WILL NOT BE CUT TO MAKE UP BUDGET SHORTFALL

Nov 25, 2024 at 7:00 am GMT

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UK budget will add tens of millions in extra costs, CEO says

Business plan for 2025 and beyond remains intact

Employee bonus 'sacred', will not be cut

By James Davey

NEWCASTLE, England Nov 25 (Reuters) -The boss of Britain's Greggs GRG.L said its rapid expansion would not be derailed by the new Labour government's tax raising budget, with any customer price rises likely to only be "pennies".

The baker and fast food chain, which makes 365 million sausage rolls a year, has become a mainstay on British shopping streets, growing through the cost of living crisis to hit annual revenue of nearly 2 billion pounds ($2.5 billion) as customers snapped up its affordable savoury snacks, sweet treats and hot drinks.

Last week, Tesco TSCO.L, Sainsbury's SBRY.L, Marks & Spencer MKS.L and other major retailers warned finance minister Rachel Reeves that her budget imposing higher taxes on employers, along with an increase to workers' minimum wages, would cost the sector up to 7 billion pounds ($8.8 billion).

Greggs CEO Roisin Currie said that although she supported higher wages, changes to tax thresholds were an unwelcome surprise for a company that employs 32,000 and trades from 2,607 shops. She said the measures would increase its annual costs by tens of millions of pounds.

However, that will not derail its business plan.

"Our shop growth plan, our supply chain investment, none of that changes. We are still absolutely going for growth," Currie said in an interview at Greggs' headquarters in Newcastle, northeast England.

Greggs, which has more stores than McDonald's MCD.N in the UK, will open up to 160 net new shops in 2024, with a focus on outlets at petrol forecourts, retail parks and transport sites.

Investment in two new supply chain sites in central England, due to open in late 2026 and early 2027, will mean Greggs can support a store estate of around 3,500.

"In reality that's not the end of the plan," said Currie.

An analysis of UK locations where Greggs is either not present or is under represented indicated scope for a store estate of over 4,500, she said.

The company is also leaning more on robots to keep costs down. A new production line at its Newcastle site alone will mean it can make up to four million more savoury items, such as steak, chicken and festive bakes each week, from its current 10 million.

PRESSURE ON PRICES

Despite the solid growth, Greggs's share price has fallen 3% since the Oct. 30 budget which raised employers' National Insurance contributions and also lowered the threshold for when firms start paying. It also increased the minimum wage.

Currie, echoing other retailers, said the measures would put upward pressure on prices, but that any increases at Greggs would only lift its average transaction value of 4 pounds ($5) by "pennies".

She ruled out slashing the bonus distributed to employees, which is currently 10% of profits, to make up the budget shortfall as some analysts have suggested, saying it was "absolutely sacred".

Greggs' growth is also being supported by an expansion of its menu, such as iced drinks and new pizza and doughnut options, longer opening hours into the evening, increased delivery sales through Just Eat and Uber Eats and building loyalty with the Greggs App.

Currie reiterated that expansion overseas was being considered, 16 years after an attempt to sell baguettes to the Belgians was abandoned, but there's no rush.

"There's so much growth in the UK, what we're not in the position of having to do is seek growth elsewhere."

($1 = 0.7992 pounds)

Reporting by James Davey. Editing by Kate Holton and Mark Potter

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