Greggs (GRG LN): Value, volume, and a long runway
Muffett Investments view: we like Greggs as a durable UK consumer compounder with self-help growth, disciplined capital allocation, and an improving cash profile from 2026 onward.
The story in one minute
Market position: Greggs is the UK’s #1 food-to-go brand and #1 for value (YouGov BrandIndex). Breakfast leadership is entrenched; evening and digital are climbing fast.
250728-greggs-interim-results-p…Operational momentum (H1’25): Sales +7% to £1,027.7m; company-managed LFL +2.6% (franchise +4.8%). Profit before tax £63.5m (–14.3% YoY) as volumes and non-recurring capacity/refit costs weighed in H1. Interim dividend 19.0p maintained.
250728-greggs-interim-results-p…Capex arc: Peak investment through 2025 (FY capex guide ~£300m). With Derby (logistics go-live H1’26) and Kettering (H1’27) coming onstream, capex reduces beyond the peak, shifting the model toward net cash inflow from 2026/27.
250728-greggs-interim-results-p…Capacity: Shop estate 2,649 (Jun’25); 140–150 net new shops targeted in 2025; infrastructure sized for ~3,500 shops over time.
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Why Muffett likes Greggs
1) A scale brand with everyday value
Independent tracking shows Greggs #1 overall and #1 for value—a powerful moat in a stretched consumer environment. Value scores have improved further into 2025.
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Market share context: industry panels put Greggs at ~25% of UK breakfast-to-go visits in 2024 and ~8% share of total food-to-go in 2023, alongside leadership claims above. That leadership underpins traffic resilience and pricing power over a multiyear view.
2) Multiple self-help growth vectors
Evening trade: fastest-growing daypart; ~9–9.3% of sales and rising as the hot-food range broadens.
250728-greggs-interim-results-p…Digital & loyalty: delivery now ~6.8% of sales (H1’25) with >1,550 shops live on Just Eat/Uber Eats; App engagement keeps climbing (25.7% of company-managed transactions scanned in H1’25, vs c.20% in 2024).
250728-greggs-interim-results-p…Estate expansion: still under-penetrated catchments (roadsides, retail parks, supermarkets, transport). Greggs opened 87 shops in H1 (31 net), is on track for 140–150 net in 2025, and has a line-of-sight to 3,500 UK locations.
250728-greggs-interim-results-p…Format innovation: from drive-thrus to compact formats (including small “bitesize” pilots), widening site availability and lowering payback risk.
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3) Hard infrastructure that scales earnings
New Derby frozen manufacturing & logistics site (with automated shop-level picking) and Kettering national DC materially increase throughput and reduce logistics labour intensity—designed to support ~3,500 shops more efficiently than adding radial DCs. On track and to budget (Derby logistics H1’26; Kettering H1’27).
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4) Returns-minded capital allocation
Shop returns: target 25% cash ROI; mature shops typically >30%. Cannibalisation is actively managed and modest.
250728-greggs-interim-results-p…Dividend policy: progressive ordinary dividend, normally ~2× covered by underlying earnings, with scope for specials/buybacks when surplus cash emerges post-peak capex.
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What’s changed in 2024/25 (quick numbers)
FY 2024 (annual report highlights):
Total sales £2,014m; LFL +5.5%; PBT £189.8m; diluted EPS 137.5p; ordinary dividend 69.0p. Net operating cash after leases £254.2m; ROCE 20.3%; capex £249m; year-end liquidity £225.3m. (From the company’s 2024 report pack shared above.)
H1 2025 (interim):
Sales £1,027.7m; operating profit £70.4m; PBT £63.5m; EPS 45.3p; interim dividend 19.0p. RCF extended to June 2028; small £2.5m net debt post capex timing.
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Channel mix & capability:
Evening ~9.3% of sales (H1’25; fastest-growing daypart). Delivery 6.8% (H1’25; 6.7% H1’24). App scans 25.7% of transactions (H1’25). Tech investments include self-service kiosks pilots and an SAP migration from Aug’25.
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Capex today, cash tomorrow
Greggs is mid-cycle in a “build once, sweat for a decade” infrastructure phase:
2025 capex ~£300m (guidance); heavy spend on Derby/Kettering, shop refits and IT.
Capex reduces after 2025, with management explicitly flagging a lower-capex phase beyond the peak as the big sites go live—supporting net cash generation and optionality for higher ordinary dividends and/or specials.
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This capex cadence—and the capacity to support ~3,500 shops—gives a credible bridge from today’s compressed H1 margins back to structurally higher cash conversion later in the plan.
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Risks (and what we’re watching)
Inflation & cost recovery.
Management still expects ~6% LFL cost inflation in 2025 (H1: 5.4%), with ~8% wage & salary inflation (National Living Wage, NIC changes), mid-single digit food/packaging inflation (incl. ~£4m EPR levy), and modest energy inflation (well-hedged in 2025; ~40% fixed for 2026). We watch the gap between cost pressure and LFL volumes.
250728-greggs-interim-results-p…Top-line sensitivity & volumes.
H1’25 showed softer volumes and non-recurring capacity/refit costs pressuring PBT. If the UK consumer weakens further, value may not fully offset traffic softness.
250728-greggs-interim-results-p…Execution risk on major logistics builds.
Derby/Kettering are multi-year, high-capex projects; delays or ramp inefficiencies could defer the margin uplift. Management says both are on track and to budget; we’ll track commissioning milestones into H1’26/H1’27.
250728-greggs-interim-results-p…Competitive intensity (“meal-deal wars”).
Supermarkets, QSR and coffee chains are aggressive on price and promos. Greggs’ brand and convenience footprint help, but mix (e.g., hot food) must keep improving.Regulatory & environmental costs.
Packaging rules (EPR), HFSS, business rates and employment regulation can add friction and cost—mitigated by scale and automation over time.
250728-greggs-interim-results-p…Estate density & cannibalisation.
Management data show low transfer (% of sales) and strong ROIs even in denser catchments, but we’ll keep testing this as the estate marches toward 3,500.
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What would change our mind?
LFL volumes staying negative into 2026 despite widening estate and evening/digital gains.
Slippage or cost overrun on Derby/Kettering that pushes out the lower-capex, higher-cash phase.
Evidence of sustained share loss in breakfast or deterioration in value perception.
Bottom line (Muffett Take)
Greggs combines category leadership, site-driven growth, evening & digital mix tailwinds, and a visible capex hump that tails off from 2026. While 2025 is a digestion year for costs and investment, the medium-term setup—scale logistics, more shops at attractive ROIs, and excess-cash potential—supports our constructive stance.
For portfolio construction, we see Greggs as a quality, cash-generative UK consumer staple in the making, with self-help to offset macro chop. We’ll monitor LFL volumes, the Derby/Kettering ramp, and the dividend/cash policy as capex normalises.It is trading at attractive valuations and yields a good dividend. It is a great defensive play.
