Brand Health Check: Greggs

The bakery chain must arrest a drop in profits if it is to realise expansion plans.

Some consumers might be surprised to learn that Greggs has more than 1500 bakery shops across the UK. In a few years that number could top 2000, if the chain's ambitions come to fruition.

Founded on Tyneside in the 30s, with John Gregg delivering his wares by bicycle, the company began rapidly expanding during the 70s. By 1984, it had grown to 261 shops.

Greggs' growth has arguably flown in the face of healthy-eating campaigns, with sausage rolls, pasties and cakes at the core of its offer. However, it has adapted to changing tastes. It has added an extended breakfast range, including porridge and fruit smoothies, with coffee machines serving freshly-ground Fairtrade drinks. Its range also includes fresh sandwiches made on-site.

Greggs products may be basic and small-ticket, but sales of those pastries helped clock up a turnover of £662m last year. The past six months, however, have been a touch less palatable for the baker, with year-on-year pre-tax profits falling from £18.6m to £17.3m.

'Trading conditions have proved to be more challenging than we had expected,' said chief executive Ken McMeikan earlier this month. 'We do not anticipate that the second half will bring any alleviation of the tougher consumer spending environment.'

So, how can Greggs keep a handle on its dough? We asked Aaron Shields, head of planning at Fitch, a specialist in retail design, and consultant Peter Lachecki, a former marketing and global category development director for Kraft Foods 'away from home' arm.


AARON SHIELDS, FITCH

When Pret A Manger added porridge to its menu, it added 17% to sales. Yet beloved British chain Greggs is struggling, despite shoring up its morning menu and adding a heap of health cues. In a down market, we expect value food retailers to prosper, so what's cooking?

A 70-year-old high-street staple, Greggs has amassed tremendous favour over the years, but British tastes, and our food options, are continually and quickly changing.

Supermarket convenience formats are squeezing from the bottom; Pret, Eat and other chains are squeezing from above; McDonald's is providing both value and great coffee. More choices for the consumer abound at every price point.

Despite its heritage, Greggs is held back by perceptions that it is outdated. Like McDonald's, the chain needs to modernise its image quickly to retain its place in the British consumer's heart. Greggs needs to hold on to its low-cost menu, but, like McDonald's, must also offer better value perception through the brand, its retail environments and its image with the community.

REMEDY

- Continue to expand the focus on health and wellness ideas for the menu, but don't abandon the sausage-roll heartland.

- Create a localised store design approach to combat the homogenised high-street image.

- With more doors than McDonald's, it will take time to refurbish, but Greggs needs to aggressively speed up its retail renovations and roll them out.

- Align with social causes to connect the brand to a bigger idea and balance heath concerns.

PETER LACHECKI, LACHECKI CONSULTING (AND FORMERLY OF KRAFT FOODS)

Bakers were the original fast-food suppliers, with good quality, freshness and convenience at an affordable price. The pasty was the Walkman of fast food.

In recent decades, Greggs got this right, and was rewarded with successful geographical expansion. Adapting to the recent recession, it has clung on to growth through deal promotions, an expanded product line and offers for take-out eating occasions like breakfast.

It is also ratcheting up store openings to grow top-line and cost efficiencies.

So what's the problem? Greggs is at a crossroads. It could be accused of throwing too many products on shelves, resulting in sales hikes but building confusion for the brand and losing sight of what consumers love about Greggs.

Bigger problems are in store unless it heeds lessons from brands such as Starbucks, which was blinded by store openings and lost sight of what made it famous. Greggs needs to feed its brand roots and strengthen the bond with its consumers.

REMEDY

- Rebuild a bold, uncluttered vision for the brand, focusing on bakery strengths and loyalty.

- Be passionate about in-store presence; ensure communication matches 'corporate-speak' of freshness and bakery heritage. Make it focused and not dominated by cheap deal signage. Put food presentation quality first; products really need to look like they have just been prepared.

- Lead through innovation. Focus on products that are true to the brand's core values through seeking deep consumer behavioural insights.

Stop cluttering its bakery heritage, to prevent the brand getting lost in the fast-food crowd.

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