Greggs: A Recipe for Steady Growth

Greggs is a leading UK food-on-the-go retailer, known for its strong brand, value-focused offering, and vertically integrated business model. From its iconic sausage rolls and expanding store network to its growing presence in evening trade, delivery, and digital channels, Greggs has built a resilient and scalable platform. With continued investment in supply chain capacity and a clear strategy for long-term growth, the company is positioning itself for the next phase of expansion. The question is: Should this everyday favourite have a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Greggs. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of Greggs either. Thus, I have no personal stake in Greggs. If you want to purchase shares (or fractional shares) of Greggs, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.

The Business

Greggs is a leading UK food-on-the-go retailer, known for offering quality, freshly prepared food at accessible prices. Founded in 1939 in Newcastle upon Tyne, the company has evolved from a traditional bakery into a modern quick-service chain with over 2.600 locations across the UK, including franchise partnerships. Its broad menu ranges from iconic sausage rolls and sandwiches to vegan alternatives and healthier options like sweet potato bhaji bowls, catering to a wide range of dietary preferences and consumer needs. The company’s reach extends beyond its physical stores. Through Click + Collect, delivery services, and wholesale channels, Greggs ensures customers can enjoy its products wherever and whenever they choose. Its digital presence, including the Greggs App, personalizes interactions, drives engagement through rewards, and fosters strong customer loyalty. A defining feature of Greggs’ business model is its vertical integration. The company operates its own manufacturing centers and in-house logistics network, maintaining full control over product quality, food safety, and operational efficiency. This structure enables Greggs to offer prices comparable to grocery retailers while undercutting other food-to-go specialists, reinforcing its strong value proposition. Greggs has built a widely trusted and much-loved brand over more than 80 years, and this brand strength forms a central part of its competitive moat. The company holds around 20% of UK breakfast visits, making it the leading food-on-the-go brand in that segment. By 2024, Greggs had become the number one brand for customer consideration in the category, with purchase intent reaching record highs. Brand health metrics—including value perception and customer favorability—have steadily improved over the past three years, even as competitors have struggled with inflation-driven price perception. The company also places strong emphasis on its workforce. With 32.000 employees, Greggs supports its people with fair pay, training, and profit-sharing, cultivating an employee culture that contributes to friendly, efficient service and a consistently positive customer experience. By combining vertical integration, a strong brand, loyal customer base, and efficient operations, Greggs has built a durable moat in the UK food-on-the-go market. Its ability to offer consistent quality at low prices, while continually innovating and expanding, leaves it well positioned to defend and grow its market leadership over time.

Management

​Roisin Currie serves as the CEO of Greggs, a position she assumed in May 2022, becoming the first woman to lead the company in its 85-year history. Born and raised in Glasgow, Roisin Currie graduated from the University of Strathclyde with a Bachelor of Arts in Business Studies and Business Law. She began her career at Asda, joining their Graduate Programme during the era of Archie Norman and Allan Leighton. Over the course of two decades, she held a variety of senior roles, including Head of Reward, Retail People Director, and Distribution People Director. In 2010, Roisin Currie joined Greggs as Group People Director. Her responsibilities expanded steadily over time, becoming Retail Operations and People Director in 2017 and Retail and Property Director in 2021, before being appointed Chief Executive. Roisin Currie’s long tenure at Greggs has given her deep insight into the company’s culture, operations, and strategic goals. Beyond her role at Greggs, Roisin Currie is committed to social impact initiatives. She chairs the Employers Forum for Reducing Re-offending, collaborating with the Ministry of Justice and the New Futures Network to promote employment opportunities for individuals with criminal records. She played a central role in the development of Greggs’ 'Fresh Start' employability programme, which supports people leaving prison in finding work within the company. Roisin Currie also serves as a trustee of the Duke of Edinburgh Award scheme and is an Independent Non-Executive Director at Howdens Joinery. In recognition of her contributions to business and social mobility, Roisin Currie was awarded an honorary degree of Doctor of Civil Law by Northumbria University in April 2024. Her leadership is defined by a strong focus on people and community engagement, reflecting her belief in the importance of nurturing talent and giving back to society. I believe Roisin Currie is the right person to lead Greggs forward. Her more than a decade of experience across key operational and strategic roles within the company, combined with her people-first leadership approach, position her well to guide Greggs through its next phase of growth.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Greggs has consistently delivered a ROIC above 17% over the past decade, with the exception of 2020, which was impacted by the COVID-19 pandemic. This track record suggests that Greggs is a quality compounder. While Greggs doesn’t specifically reference ROIC, management highlights return on capital employed (ROCE) as a key metric for managing the business over the long term, which gives me confidence - as I value companies that focus on either ROIC or ROCE. ROIC has declined over the past four years compared to the pre-pandemic period. However, this is primarily due to a ramp-up in capital expenditures, particularly over the past three years, as Greggs invests in new production sites to expand capacity. Management has acknowledged that these investments will temporarily lower ROCE (and by extension, ROIC) until 2027. After that, as the new capacity is utilized, returns are expected to recover. I therefore expect ROIC to return to pre-pandemic levels of 20% or more by 2028.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. It is encouraging that Greggs has managed to grow its equity in nearly every year, with the only exceptions being 2016, when it was flat, and 2020, which was impacted by the pandemic. Given the company's strong fundamentals and disciplined reinvestment, I expect equity growth to continue in the years ahead..

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Greggs has delivered positive free cash flow in every year except for 2020, which was affected by the COVID-19 pandemic. The company reached its highest free cash flow in 2021, but free cash flow has declined each year since. However, this decline is driven by a sharp increase in capital expenditures, which have risen from £50 million in 2021 to an estimated £230 million in 2024. Management expects capital expenditures to reach around £300 million in both 2026 and 2027. As a result, the recent drop in free cash flow does not concern me. This elevated investment phase has also impacted the levered free cash flow margin, which is currently at its lowest level in a decade, excluding 2020. Greggs typically pays out around 50% of its earnings in dividends funded by free cash flow, so as free cash flow grows again in the future, investors can reasonably expect higher dividends. In addition, management has stated that any surplus cash is typically returned to shareholders via special dividends. Once the current period of elevated capital expenditures comes to an end, I believe there is potential for special dividends to resume. While Greggs’ current free cash flow yield suggests that the stock is not trading at a cheap valuation, this is largely a result of temporarily depressed free cash flow. Therefore, free cash flow yield may not be the most useful valuation indicator at this stage. We will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to evaluate whether a business has a manageable debt level that can be repaid within three years, which is typically assessed by dividing total long-term debt by earnings. An analysis of Greggs’ financials shows that the company has no long-term debt. In fact, Greggs has remained debt-free for the past decade. Management has emphasized that maintaining a strong balance sheet is a core principle of the business. Given this track record and their consistent messaging, I do not expect debt to become a concern for Greggs in the future.

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Risks

The potential impact of a significant food safety incident is a risk when investing in Greggs. As a food-on-the-go retailer with a wide customer base and high daily footfall, Greggs is especially vulnerable to reputational damage in the event of product contamination, allergen mislabeling, or hygiene failures. The consequences of such an event could be severe, affecting not only short-term sales but also long-term brand trust and customer loyalty. Greggs operates a vertically integrated business model, meaning it controls much of its own supply chain - from manufacturing to distribution to retail. While this gives the company greater oversight and consistency, it also concentrates responsibility. Any breakdown in food safety protocols - whether at a production site, during transport, or in stores - could have widespread implications. Given its scale and the speed at which products move through the network, even a localized issue could escalate quickly and attract national attention. The food industry offers several cautionary examples. Chipotle, once a high-flying growth story, experienced multiple foodborne illness outbreaks between 2015 and 2018 that resulted in over 1.100 reported illnesses, a $25 million fine, and a roughly 25% drop in its share price. Sales took years to recover, and the brand’s reputation was deeply affected. Similarly, McDonald’s has dealt with E. coli outbreaks that led to hospitalizations and a public backlash. These examples illustrate how operational lapses—even when relatively rare - can have disproportionate financial and reputational consequences. For Greggs, a similar incident could trigger temporary store closures, regulatory scrutiny, and a sharp decline in sales. Perhaps more critically, it would damage the company’s image as a trustworthy, everyday choice for value-conscious consumers. Since Greggs competes not just on price and convenience but also on consistency and reliability, losing that trust would undermine its competitive position.

Macroeconomic factors represent a risk to Greggs, primarily through their impact on costs, pricing power, and consumer behavior. As a vertically integrated food retailer with fixed pricing ambitions and a value-oriented brand identity, Greggs is particularly exposed to cost pressures that may not be easily passed on to customers without eroding demand. One major area of concern is cost inflation. In recent years, rising prices for raw materials, energy, and packaging have increased Greggs’ input costs. Additionally, wage inflation has become a growing burden. In 2024, management expects around 8% wage inflation - driven in part by a higher national living wage and increased national insurance contributions, which alone represent a 1% rise in overall cost inflation for the business. Because Greggs positions itself as an affordable, everyday option for millions of consumers, its ability to fully pass these costs on through higher prices is constrained. The company’s emphasis on maintaining strong value-for-money perception limits its pricing flexibility, meaning much of the inflationary pressure risks being absorbed into margins rather than offset by revenue growth. Furthermore, macroeconomic headwinds can directly impact consumer demand. During economic downturns or periods of heightened cost-of-living pressure - like the current environment with static volume growth in the Food to Go market and low consumer confidence - customers may cut back on non-essential purchases or trade down to cheaper alternatives. Even though Greggs tends to attract budget-conscious consumers, persistent financial stress across the population could reduce the frequency of visits or shift purchasing patterns toward lower-margin items. This risks softening like-for-like sales growth and eroding profitability, especially if cost pressures remain high. While Greggs benefits from its defensive characteristics - offering low-cost, everyday food that remains relevant in good times and bad - it is not immune to margin compression in inflationary environments or stagnating consumer sentiment.

Changing consumer trends - particularly the increasing emphasis on health and wellness - pose a growing risk for Greggs. As public awareness of obesity, diet-related illnesses, and long-term health outcomes continues to rise, so too does the pressure on food retailers to adapt. This shift is being driven not only by consumers themselves but also by public health campaigns, government regulations, and changing cultural attitudes around nutrition. One challenge for Greggs is that many of its most iconic and best-selling products, such as sausage rolls, pastries, and other baked goods, fall into the category of calorie-dense, indulgent foods. As government policies increasingly promote healthier eating - through measures like restrictions on the promotion and placement of high-fat, salt, and sugar products - there is a risk that consumer preferences will shift away from these traditional staples. In this scenario, Greggs may face declining demand for some of its core offerings or be forced to reformulate products to meet evolving standards, which could impact taste, brand identity, or production costs. Adding to this long-term trend is the recent and rapid rise of GLP-1 receptor agonists, such as Wegovy and Ozempic, which are gaining popularity for their effectiveness in reducing appetite and supporting weight loss. While the full societal impact of these medications is still unfolding, early data suggests they could have a meaningful influence on how much - and what - people eat. For a food-on-the-go chain like Greggs, whose value proposition partly relies on convenience and indulgence, the potential widespread adoption of appetite-suppressing treatments introduces a new, hard-to-quantify demand-side risk. To its credit, Greggs has responded to changing tastes by broadening its menu to include healthier options, such as salads, flatbreads, fruit, and plant-based items. These additions help position the brand for evolving preferences, but it remains to be seen whether they can meaningfully offset any structural decline in higher-margin traditional products.

Reasons to invest

Greggs’ strategy of expanding and relocating its store estate is a key driver of long-term growth and a compelling reason to consider the company as an investment. In both 2023 and 2024, Greggs opened more than 200 new shops annually, averaging four new locations every week - a pace that reflects strong execution and ongoing demand. Net shop growth was 145 in 2024, and the company ended the year with 2.618 locations. Management sees significant white space ahead, targeting more than 3.000 shops across the UK and building capacity to support up to 3.500 in the long term. Crucially, new store openings are not just about expanding footprint—they are generating strong financial returns. Greggs tracks the return on investment (ROI) across store cohorts, with newly opened shops typically starting around 15% ROI and maturing toward or above 25% within two years, which is the company’s investment hurdle rate. Older cohorts (e.g., shops opened in 2021 or earlier) are already delivering 30%+ ROI, and mature stores across the estate average around 38%. This clear, repeatable pattern demonstrates the capital efficiency of Greggs’ growth model and supports the view that store expansion is value-accretive rather than dilutive. In addition to new locations, Greggs is actively relocating legacy high street shops to larger, higher-traffic sites better suited to today’s customer demand. These relocations are typically lower risk because the customer base is already established, and they tend to generate above-average returns. In 2024, Greggs relocated a record 53 shops, and management noted that relocated stores often see a 30% uplift in sales in the first year alone. Perhaps most importantly, Greggs is deliberately targeting underrepresented areas and high-convenience formats such as transport hubs, retail parks, roadside locations, and supermarkets. These formats now make up nearly half of the total estate, a major shift from 2014 when over 80% of shops were on traditional high streets. This diversification makes Greggs less reliant on city centre foot traffic and more accessible to customers throughout their daily routines, enhancing both convenience and revenue resilience.

Greggs’ strategy to broaden its customer appeal is a key pillar of its growth trajectory. Traditionally known for its breakfast and lunchtime offerings, Greggs has made clear progress in expanding its relevance throughout the day and across a wider customer base. One of the most significant developments has been the success of its evening strategy. By extending trading hours and introducing popular hot food items like pizza slices, chicken goujons, and mac & cheese, Greggs is capturing a growing share of consumer spending after 4 p.m. - a period that represents over a third of the UK’s food-to-go market. In 2024, evening trade accounted for 9 percent of sales, making it the fastest-growing daypart in the business. What began with longer opening hours has now evolved into organic growth, supported by an expanded menu, family-friendly sharing options, and simple yet effective marketing focused on awareness ("We are open late"). This push into later trading hours is complemented by Greggs’ increasing strength in digital and delivery channels. With more than 1.500 shops now offering delivery through Uber Eats and Just Eat, delivery sales have grown significantly, accounting for 6,7 percent of sales in 2024. Delivery sales rose 31 percent year-over-year, underscoring the importance of convenience and accessibility. This channel not only helps Greggs reach new customers but also boosts order frequency among existing ones. Taken together, Greggs’ expansion into evening trade, delivery, digital engagement, and ongoing menu innovation reflects a company that is actively evolving with changing consumer behavior. Rather than standing still, Greggs is increasing its relevance across more dayparts - breakfast, lunch, dinner, and beyond. This supports higher average transaction values, greater visit frequency, and long-term growth potential as the company taps into underpenetrated opportunities in both geography and occasion.

Greggs’ investment in its supply chain is a fundamental driver of its ability to scale sustainably. As a vertically integrated business, Greggs controls its entire value chain—from manufacturing and logistics to distribution and retail - which ensures consistent product quality, cost efficiency, and operational flexibility. This structure gives the company a distinct advantage in the competitive food-on-the-go market, where freshness, availability, and speed of service are key. To support its ambition of expanding beyond 3,000 shops across the UK, Greggs is making significant, forward-looking investments in its supply chain infrastructure. At its flagship Balliol Park site in Newcastle, the addition of a fourth production line has increased output of its iconic bakes and sausage rolls by 35 percent. Meanwhile, upgrades to distribution centers in Birmingham and Amesbury have added capacity to support roughly 300 additional shops. Even more transformational are the two new state-of-the-art sites underway in Derby and Kettering. The Derby facility, focused on frozen logistics and production, is scheduled to go live in 2026. Kettering, a national distribution center for chilled and ambient goods, is expected to become fully operational in 2027. While these projects will temporarily raise operating expenses - due to factors like depreciation, utilities, and staffing - management expects these costs to normalize as the sites become fully utilized. From 2027 onward, Greggs will have the supply chain infrastructure in place to support hundreds of new shops without significantly increasing overhead. This proactive capacity build-out allows Greggs to stay ahead of demand, enhance service levels, and support growth areas such as evening trade and delivery. Crucially, the company is funding these investments from a position of financial strength, without relying on debt. By building ahead of the curve, Greggs mitigates future bottlenecks and reinforces its ability to deliver freshly prepared food reliably and efficiently across an expanding national network.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first metric is the Margin of Safety price, calculated using earnings per share (EPS), estimated future EPS growth, and an estimated future price-to-earnings (P/E) ratio. The minimum acceptable rate of return for this calculation is 15%. I have used an EPS of 1,50, based on Greggs' fiscal year 2024 results. For the projected future EPS growth rate, I selected 7,5% as management expects EPS to grow between 5% and 10%. Additionally, I have selected a projected future P/E ratio of 15, which is twice the growth rate. This decision is based on the Greggs' historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be £11,46. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Greggs at a price of £5,73 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 311, and capital expenditures were 230. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 161 in our calculations. The tax provision was 51. We have 101,5 outstanding shares. Hence, the calculation will be as follows: (311 – 161 + 51) / 101,5 x 10 = £19,80 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Greggs' Free Cash Flow Per Share at £0,80 and a growth rate of 7,5%, if you want to recoup your investment in 8 years, the Payback Time price is £8,98.

Conclusion

I believe Greggs is an intriguing company with solid management. It benefits from a moat through its widely trusted and much-loved brand. The company has consistently achieved a high ROIC, excluding the pandemic period. While ROIC has declined in recent years, this is primarily due to elevated capital expenditures, which management expects will normalize after 2027 - at which point ROIC should return to historical levels. These investments have also weighed on free cash flow, which has declined over the past three years but is likewise expected to recover as capital spending moderates. However, there are risks to consider. A significant food safety incident could damage Greggs’ reputation, erode customer trust, and disrupt operations. As a vertically integrated business with high daily footfall, even a localized issue could escalate quickly, leading to regulatory scrutiny, lost sales, and long-term harm to its competitive position. Macroeconomic pressures also pose a risk, as rising costs - such as wages, ingredients, and energy - can squeeze margins in a value-driven model where pricing power is limited. In economic downturns, weaker consumer confidence may further reduce visit frequency. Additionally, changing consumer trends, particularly the shift toward health and wellness, may impact demand for Greggs’ traditional, indulgent products. On the opportunity side, Greggs' strategy of opening new shops and relocating existing ones is a key driver of long-term growth, supported by strong returns on investment and a clear path to scale. The company is also broadening its customer appeal through evening trading, delivery, and digital engagement - enabling it to serve more occasions throughout the day and attract a wider audience. Meanwhile, its investment in a vertically integrated supply chain enhances its ability to scale efficiently while maintaining product quality and cost control. By expanding production and logistics capacity ahead of demand, Greggs is well positioned to support continued growth. In summary, I believe Greggs is a high-quality business that could serve as a steady long-term investment below the Ten Cap price of £19, particularly for dividend-focused investors.

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