The UK high street bakery chain’s 5p increase of its popular sausage roll in January was met with fierce criticism. However, Gregg’s CEO Roger Whiteside said it might be forced to repeat the move.
Ukraine is one of the world’s biggest producers of grain and oils, while Putin’s grip on oil and gas markets is also spiking already high energy prices and transport costs. And to make things worse, one of the world's biggest fertiliser producers has warned that a shortage would impact crop yields, worsening ‘a global food crisis’ kickstarted by the pandemic.
The cost of commodities has already seen an extraordinary rise in price over the past year. If new spikes are passed on to consumers, experts believe the price of bread and cereal could rise by up to 87% over the next 12 months. Coffee, sugar, rice, cheese, fruit juice and milk are also expected to spike.
“This has necessitated some price increases, which were made at the start of this year, and further changes are expected to be necessary,” said Greggs in reporting its annual results for 2021.
The announcement saw shares fall 9%, but the company still reported record profits for FY2021 after the previous year’s COVID-driven loss. It posted pre-tax profits of £145.6m for the year to 1 January. While like-for-like sales growth during the first nine weeks of the year were 3.7% ahead of 2020 levels – and 5.3% higher on the 2019 level – Whiteside said the outlook was more challenging.
‘Everything’s going up in price’
“We have started 2022 well, helped by the easing of restrictions, [but] cost pressures are currently more significant than our initial expectations.”
Gregg’s is expecting cost inflation between 6%-7% this year, chiefly from the rising cost of raw materials and energy, along with staff wages.
“All the proteins, all the cereals, all the oils – everything’s going up in price,” Whiteside told Reuters.
“As ever, we will work to mitigate the impact of this on customers, protecting Greggs’ reputation for exceptional value in the freshly-prepared food-to-go market. Given this dynamic, we do not currently expect material profit progression in the year ahead.”
He added there is no immediate plan to increase prices, however, “we're going to have to keep it under review in the balance of the year and see how the market develops”.
Still positive growth
Walid Koudmani, market analyst at financial brokerage XTB, commented, “Greggs annual report showed a significant improvement across the board with total sales up 5.3% vs 2019 to £1,229.7m and pre-tax profit of £145.6m compared to 2020, which saw a £13.7m loss.
“Diluted earnings per share are also up noticeably to 114.3p compared to 2020, which saw a 12.9p loss per share.
“The company continued to expand with 131 new shops opened in 2021 and 28 closures, which led to 103 net openings. While stock price hasn't reacted positively in the short term, today's report could boost investor confidence as it shows the significant effects the pandemic had and how Greggs managed to recover effectively.”
Uncertain future
Dominic Goudie, head of International Trade at the Food & Drink Federation, said it is working to minimise any knock-on effects for consumers.
“We have seen in the past that disruption to Ukraine's exports can impact on global food supplies and prices on a range of key commodities, such as vegetable oils and maize, which are important to UK production. We are working with our UK manufacturers to determine what these impacts could look like and to minimise any knock on effects for shoppers and consumers."