SUMMARY • In the 1930s John Gregg opened his family business of one bakery with
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SUMMARY • In the 1930s John Gregg opened his family business of one bakery with a shop front in the North East of England. Following his death in the 1960s, his son Ian took over the business and set about expanding it into a regional and then national UK chain over subsequent decades. • Greggs operates from its corporate headquarters in the North East of England in Newcastle at a different location to its divisional headquarters for that region. The corporate headquarters reflects the company’s geographic spread from Scotland in the North, down in to South East England and westwards into Wales. • In March 2008, the BBC reported that Greggs was having to ‘work hard’ to protect pre-tax profits even though its revenues had increased by 6.4%, reaching £49 million for the financial year 2007 and slightly ahead of expectations. Higher energy and ingredient costs were cited as key reasons. • Greggs is now bouncing back well during economic recession, while consumers look to save money. The consistent corporate strategy of stable growth through acquisition-led growth and regional divisions that are geared to everyday low pricing, is proving popular with frugal consumers. CASE STUDIES Greggs case study Undertaking a corporate strategy of everyday low pricing to achieve stable growth Reference Code: CSCM0239 Publication Date: March 2009 Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 2 ANALYSIS Introduction Greggs bakery is a chain of take-away bakery stores located throughout the UK, selling a variety of savory and sweet food and drink items including sandwiches which are made in store, as well as bottled and canned soft drinks. The stores bake hot, freshly-prepared food as the main part of their offering. According to its corporate website Greggs is the “leading UK specialist retailer of sandwiches, savories and other bakery products for the takeaway food market.” The ovens in which the food is baked are visible from within the store, confirming to customers the freshness of the products. Products available are largely consistent across all stores but with regional delicacies available to recognize and cater for regional tastes. The chain operates 1,400 stores in the UK under the Greggs and Baker’s Oven retail fascias which it acquired from Allied Bakeries in 1994. The Baker’s Oven fascia includes 220 stores, most of which have seating provision for eating and drinking on-site, unlike the Greggs fascia, which concentrates on high volume of sales. Greggs stores are located in more inexpensive retail locations in shopping malls and high street units, unlike more premium quick service foodservice operators providing a similar (but not entirely comparable) market offering such as Pret a Manger. This means Greggs stores are not found as frequently at premium locations such as transport hubs in the UK where premium coffee shops and casual fast-service restaurants dominate. The products sold by Greggs are priced modestly, commensurate with the chain’s locations and commercial approach. Greggs stores, especially those not located in tourist locations, are predominantly open during standard business hours so they can serve consumers’ breakfast, lunch and snacking occasions. At present, stores operated under the Greggs retail fascia do not cater for evening eating or eat-in occasions at any time of day. Greggs estimates it serves five million consumers through its stores each week, with bakery products and sandwiches accounting for approximately two thirds of the group’s total sales. Greggs' regional division structure keeps it relevant to regional differences Greggs plc operates from its corporate headquarters in the North East of England in Newcastle at a different location to its divisional headquarters for that region. The corporate headquarters reflects the company’s roots and subsequent geographic spread from Scotland in the North, down in to South East England and westwards into Wales. The regional divisions amount to eight in total and cover the following designated geographies: • Cumbria [based in Penrith in the extreme north-west of England] • North West [based in Manchester, England]; • South East [based in Twickenham, London]; • North East [based in Newcastle, England]; • Midlands [based in Birmingham, England]; • Treforest [based in Pontypridd, Wales]; Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 3 • Yorkshire [based in Leeds, England]; • Scotland [based in Glasgow]. Greggs' products are created in divisional units which support the individual stores. While Greggs touts the notion that all products are freshly cooked in stores, it might be more accurate to state they are processed in bulk elsewhere for later partial-cooking in stores. This differs from the company’s Baker’s Oven brand which is supplied exclusively by in-store bakeries. Greggs has a history of expansion and acquisition John Gregg, the father of the current chairman Ian Gregg, founded the family bakery business in Tyneside in the North East of England in the 1930s. At this time it amounted to one store with a small bakery to the rear. In 1964, following the sudden death of the company’s founder, Ian Gregg took over the family business, overseeing its expansion within the North East region of England. A key part of this expansion was to devise the system of a regional bakery supplying local shops within the chain to achieve economies of scale in sourcing and production. This allowed the chain to pass on cost savings to customers in the form of everyday value pricing which could undercut competing bakeries. Greggs also started producing a flat round loaf of bread known locally as a ‘stottie cake’ thereby saving the local loaf from sliding into obsolescence and supporting a sense of local identity with a regionalist approach; this is something which survives throughout the different regional divisions of the company to this day. During the 1970s the company expanded further, beyond its North East England heartland by acquiring regional bakeries in: • Glasgow in 1972; • Leeds in 1974; • Manchester in 1976. Due to the success of the previous expansion moves, Greggs became a publicly-listed company on the London Stock Exchange (LSE) in 1984. The Initial Public Offering (IPO) of shares proved popular, with it being over-subscribed by more than 100 times at time of issue. At that time the chain was spread across four regional divisions encompassing a total of 261 stores. The history of Greggs has been one of expansion often characterized by acquisition, complemented by organic growth. More was to follow during the 1980s, with its UK geographical coverage extended further to the south with the establishment of three new regional divisions: • Birmingham (1984); • South Wales (1985); • London (1986). Moving into the 1990s, by 1994 the chain covered seven regional divisions encompassing 502 stores (less than one third of the chain’s store number in 2009). This number was soon bolstered by the acquisition of Allied Bakeries’ retail interests of Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 4 424 stores under the Baker’s Oven retail fascia. The acquisition of the Baker’s Oven brand presented Greggs with a positive commercial challenge and opportunity. The acquired brand operated in a different manner to the core Greggs stores by offering seating and products cooked entirely freshly on-site. The difference in operating profiles could have entailed commercial planning challenges if the Greggs fascia and approach had been adopted across the board, the like of which could have included: • removing the seating provision in Baker’s Oven stores and finding a suitable replacement use for the space created; • low density of nearby target consumers making the regional division approach less viable; • modifying the facilities at each site. The newly-expanded chain decided to adopt a hybrid approach instead of slavishly imposing the Greggs brand and approach across all of its locations. In locations where population density was low and the stores already had full on-site bakeries, the Baker’s Oven stores were retained as the Greggs regional approach of supply would not have proved efficient. This thereby allowed the company to expand effectively until such time as a newly-built regional production and administration hub would prove profitable. The Baker’s Oven brand was retained to provide a foodservice type offering only in locations where it had low competition. In other areas, where Baker’s Oven competed against leading foodservice brands, the stores were converted into Greggs stores. This principally occurred in the South East of England around London. The most recent phase of acquisition-led expansion was realized in 1996 with the purchase of a family-owned bakery in Cumbria called Birkett’s. This acquisition effectively completes a continuous sweep of geographical coverage for the firm form Scotland in the North to London in the South. However, the Greggs corporate website acknowledges scope for further expansion “both within existing trading areas and in those parts of the country where the Group is currently unrepresented.” Progress at Greggs has not been uniformly smooth The progress of Greggs has been impressive over the decades, especially considering the humble beginnings of the company as a small family business. However, progress has not always been smooth due to competitive pressures in retail/foodservice sectors from a variety of competitors. This competition reflects the variety of similar operations from which consumers in the UK can choose, even if Greggs occupies a fairly unique niche as a corporate chain baker of products for immediate consumption. In March 2007, Greggs reported difficult trading conditions due to competition from take-away outlets and the then continuing expansion of supermarkets moving into smaller convenience-oriented urban stores. Trading conditions in 2006 compelled Greggs plc to refurbish many Greggs stores, as well as sell off some of its under-performing Baker’s Oven stores in the North of England. Like all publicly listed companies, Greggs has a duty of care to shareholders and investors to mention any causes for concern over its current and future financial surety. Due to this burden of reporting, in recent years in the first decade of the 21st century Greggs has reported a number of other competitive pressures that have negatively affected its performance. Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 5 Figure 1: Greggs share price has been volatile in the first decade of the 21st century The share price for Gregg’s plc has fluctuated in recent years with peaks in 2002, 2005 and most notably in 2007. Since 2007 the price has fallen markedly but the first quarter of 2009 has shown a strong rebound. Source: Greggs plc D A T A M O N I T O R Competitive pressures have negatively affected Greggs in recent years In March 2008, it was reported by the BBC that Greggs was having to ‘work hard’ to protect pre-tax profits even though its revenues had increased by 6.4%, reaching £49 million for the financial year 2007 and slightly ahead of expectations. Higher energy and ingredient costs were cited as key reasons. At that time the full effects of the ‘credit crunch’ or global economic downturn had yet to filter through, and many business sectors in the UK (and in other countries) were experiencing higher cost bases due to the two principal reasons cited by Greggs. High energy prices were affecting all businesses and consumers in terms of transportation costs and the cost of running appliances. For a baker like Greggs running industrial ovens, the effect of high energy prices would have had an obvious effect on raising costs and eating into profit margins. The method of producing centrally in regional production centers before transporting products to local stores would also mean increases in transportation would hit Greggs particularly hard. For food retailers and producers, the rising costs of raw ingredients was also a concern in the UK at that time as commodity prices rose and the era of cheap food appeared to be coming to an end (according to the prediction of many food industry analysts). Contemporary scenario planning at that time certainly did not include any predictions of deflation within the shortterm as may be the case in 2009. Greggs responded to the threats by revamping its menus (possibly to reduce costs although this is not reported anywhere) and by implementing longer opening hours for some stores. Greggs' chairman Derek Netherton said at the time that despite these pressures he remained confident of sustained profitability by stating, “We will work hard to mitigate the impact of cost increases through greater efficiency and, in recovering higher costs in the market place, shall take account of consumer confidence and the competitive environment," BBC, March 2008. Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 6 Figure 2: Greggs has many competitors but few direct rivals of similar scale Gregg’s has few direct competitors of comparable size. In South East London a Percy Ingle branch stands next to Gregg’s. The smaller Percy Ingle chain posts its relative positioning to Gregg’s mentioning its products are baked fresh on-site. Gregg’s has few direct competitors of comparable size. In South East London a Percy Ingle branch stands next to Gregg’s. The smaller Percy Ingle chain posts its relative positioning to Gregg’s mentioning its products are baked fresh on-site. Source: Datamonitor analysis D A T A M O N I T O R The weather plays an important role in Greggs fortunes The UK’s weather is known for being changeable and is often cited by general retailers as a reason for a fall in sales regardless of the prevailing economic climate. It is true that shopping in the UK can suffer from changes in weather at either end of the spectrum. Bad weather can cause UK consumers to stay at home to avoid getting cold or wet from frequent downpours, but it is not unexpected in the UK with its maritime climate at the edge of the Atlantic Ocean. However, many Greggs stores are located in open high street locations exposed to the elements rather than in enclosed out-of-town shopping malls. Good weather can also prove less conducive to shopping in the UK and also changes people’s eating habits. In 2006 Greggs reported the warm summer had limited sales because consumers were less interested in freshlybaked hot savory products, which are the core of the Greggs range. The brand has since addressed this shortcoming by revamping its menu (as discussed below). Greggs is succeeding despite economic downturn While Greggs has experienced trying trading conditions during the first decade of the 21st century, the final quarter of 2008 and the first quarter of 2009 have proved more promising. Paradoxically, the fact that the economy has been good for many years until 2007/08 has proved something of an obstacle for Greggs, given its low priced basic offering. Nevertheless, economic downturn in 2008 and beyond could prove commercially beneficial for Greggs. Economic recession could prove beneficial for Greggs and other similar companies if commodity costs are deflated and energy prices remain consistent. The combination of the two would reduce input prices and make planning easier due to a more stable economy. Economic downturn will also inevitably reduce consumer demand for premium products and services, directing consumers away from Greggs' higher-end rivals, due to economic uncertainty making them more likely to favor Greggs' everyday value pricing. Some consumer analysts have predicted that consumers will in fact eat out less and reduce their consumption of takeaways in favor of cooking at home from affordable ingredients. However, consumer behavior can be confusing and difficult to predict, especially during a downturn when behavior can be more counter-intuitive. Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 7 Figure 3: Recession means fewer consumers feel they can afford to eat out at upscale venues Consumers saving money RECESSION Consumers uncertain Consumers limiting visits to premium restaurants Everyday foodservice operators expanding Source: Datamonitor analysis D A T A M O N I T O R In the UK, foodservice brands such as Kentucky Fried Chicken (KFC) and Domino’s Pizza have both reported positive news in the last quarter of 2008 and the first quarter of 2009. In February 2009, the BBC reported that KFC plans to spend £150m to create 9,000 more UK jobs, with the opening of 300 new outlets. The chief executive of KFC UK and Ireland Martin Shuker attributed its growing sales to taking market share from rivals such as McDonald’s. The take-away pizza delivery firm Dominos also announced in February 2009 that it would be creating 1,500 new jobs in response to a 10% increase in orders. This trend in foodservice operations shows that while consumers may rein in spending on eating out, they still want occasional treats of comfort foods. In this instance comfort foods can include some or all of the following attributes: • sensory benefits with great taste and texture for small indulgence; • traditional and nostalgic flavors as a reminder of better times; • affordable, so not out-of-reach for consumers saving money; Greggs products could be said to score well on all of the above attributes that consumers are seeking at the beginning of 2009 and will continue to seek for some time to come. It could be considered that Greggs has been lucky that consumer needs and wants have come back to its way of operating, as the operations of Greggs have long been aligned with everyday low pricing and this alignment is proving more in line with present market dynamics. Even if the economy had not slowed in 2008 and beyond, Greggs may still have been able to carve out a defined market niche with an approach well suited to its chosen positioning. Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 8 Figure 4: Greggs is well placed to benefit from economic downturn Source: Datamonitor analysis D A T A M O N I T O R Greggs now includes healthier options on its menu In 2006, a hot summer was blamed for Greggs experiencing a stalling of sales, as consumers were, at that time, seeking out lighter foods to cope with the searing temperatures. Since then Greggs has responded by tweaking its menu to include a range of sandwiches in addition to its baked savories and sweet treats. It is envisaged this will allow Greggs to offer a more adaptable menu to cater for a wider variety of occasion need states depending on weather, among other factors. A move to include more sandwiches should also help to make Greggs appear more in touch with the prevailing awareness of diet and health issues among many UK consumers. Beyond the addition of sandwiches to its menu, Greggs has also introduced a healthy eating range of products that are hand-made instore at over 1,100 locations in the UK. Products within the range are said to have the following nutritional attributes as part of Recommended Daily Allowances (RDA): • fewer than 400 kcals (RDA male 2500kcals; female 2000kcals); • less than 4g saturated fats (RDA male 30g; female 20g); • less than 10g overall fat (RDA male 95g; female 70g); • under 2g salt (RDA male 6g; female 6g). Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 9 Figure 5: Greggs has addressed the previous lack of variety in its menus Gregg’s has expanded its menu to include lighter fresher options. Source: Datamonitor analysis D A T A M O N I T O R Societal initiatives are also part of Greggs commercial approach Beyond its core remit of retail foodservice with everyday value pricing, Greggs also seeks to have a positive impact upon the regional communities it serves. Its regional division structure is a key element in Greggs seeking a connection with local communities. Greggs has shown commitment to regional diversity since the 1960s with its preserving of the Stottie cake loaf in the North East of England, as mentioned above. The commitment to regionalism in its menu extends to the present day, with menu variations driven by localized demand. In addition to preserving regional traditions Greggs has also run breakfast clubs for children in primary schools in underprivileged areas, to make a positive contribution to their nutrition. This is in line with the findings of numerous pieces of scientific research that suggest a good breakfast is beneficial for academic performance and general health for children. Greggs reinforces it value-for-money with everyman humor In 1999, Greggs changed the retail fascia names of any of its stores that still showed regional division brand name to the new and uniform UK-wide Greggs fascia. This was undertaken just before it embarked upon television advertising for the first time, in order to maximize the effect with a unified brand name and fascia. A focus on low prices and value-for-money has been an ever-present theme of its advertisements since then. Since 2007, the low-price theme has been accompanied by some everyman style humor, with the recruitment of the television and stand-up comedian from Bolton, Patrick (or Paddy) McGuinness, who is understood to be a long time fan of Greggs bakers. Natalie Hopper, marketing manager at Greggs, explained the new humorous approach of the £3m television campaign: "Paddy McGuinness is very personable and is known to consumers across various age ranges. We felt he was perfect for injecting humor, while getting our key messages across”, The Bolton News, April 2007. Greggs case study Greggs case study CSCM0239 / Published 03/2009 © Datamonitor. This brief is a licensed product and is not to be photocopied Page 10 Figure 6: Everyman humor is used to reinforce Greggs value pricing Paddy McGuinness is the face of Gregg’s bringing everyman humor to the message of low pricing and value-for-money. Source: www.theboltonnews.com / www.absolutely.net D A T A M O N I T O R
Conclusions Greggs is an example of a retail foodservice operation that is currently doing well with an upturn in sales, despite the global economic downturn having a negative impact on so many consumer related sectors of the UK economy. Greggs probably will not translate its business model well overseas in the manner of chains such as McDonald’s or KFC, but should continue to thrive in the UK because it understands its market. Since its expansion from a family business in the 1960s, at all times in its history Greggs has had one unifying theme to its approach – everyday value pricing. All of its operations are geared to this strategy. Its branches are located in areas of reasonably high pedestrian traffic or ‘footfall’ but are not situated in areas where retail rents would be high. This allows the chain to keep rent costs low while targeting consumers interested in hearty, traditional fare at an affordable price. The main manufacture of its products is done at several regional centers instead of at each store (where products are essentially heated or partially cooked) in order to rationalize production and keep costs low. The regional division structure is the result of Greggs incremental growth through both acquisition and organic growth of stores when the opportunities to expand arise. It allows Greggs to maintain a corporate identity so customers know what universal level of quality to expect regardless of the branch they visit (a theme common to all corporate chains). However, this also allows branches to respond more locally to changes in demand and to stock regional specialties. At present Greggs has presence throughout Scotland, Wales and most of England, with the exception of the South West region. This may be its next target for acquisition-led expansion. Greggs has greater potential for expansion even during economic downturn than many of its rivals because of its low-cost and low-price approach. Due to the fact Greggs has eschewed a premiumization strategy, its future looks more stable than many similar companies and recession may in fact ‘bring the market back’ to Greggs as consumers seek small economizing measures to make their money go further. This could see Greggs expanding its market share while rivals suffer. Maintaining this low cost strategy is vital to Greggs' future success .
Give a summary of the case study. What is it about?
Explanation / Answer
According to the case Greggs was Undertaking a corporate strategy of everyday low pricing to achieve stable growth in the marketplace. The success behind its operations and growth was the leadership of Mr. Greggs and his strategic intentions to separate his business from other players in the bakery industry. It has root of business in England where almost 1400 stores were operated during the standard business hours. It has focused to sell only premium quality breakfasts, lunch, tea and snacks which attract more customers day by day. It has divisional organizational structure which provides its value advantage in business operations.
Greggs has opted store location in those areas where cost effective store operations can be achieved. He was propagator of a pricing strategy which attracts more number of customers to its bakery business. It has established itself as UK specialist retailer of sandwiches, savouries and bakery products for the takeaway food market. It has expanded its size much bigger by acquiring many regional bakeries across the UK. It has segmenting the market based on store specific requirements, and targeting many more customer groups. It has positioned itself as premium bakers with quality and freshness as key ingredients.
The brand has addressed its shortcoming by revamping its menu so as to meet the challenges posed by weather and other uncontrollable factors. It is succeeding despite economic slowdown with its unique products and awesome taste. It has adopted both organic as well as growth by acquiring the other firms in the bakery market.
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