Greggs: A Recipe for Steady Growth

Greggs is the United Kingdom’s leading food-on-the-go retailer and one of the country’s most recognizable consumer brands. Best known for its iconic sausage rolls, freshly prepared food, and strong value proposition, the company combines a trusted brand with a vertically integrated business model that spans manufacturing, logistics, and retail operations. With more than 2.700 locations, growing digital and delivery channels, continuous product innovation, and significant opportunities to expand into new locations and customer occasions, Greggs aims to strengthen its position as the UK's most convenient food-to-go destination while driving long term growth. The question remains: Does this food-to-go leader deserve a spot 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 mention that I do not own any shares in Greggs at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. 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 on investing with as little as $50.

The Business

Greggs was founded in 1939 in Newcastle upon Tyne and has grown into the United Kingdom’s leading food-on-the-go retailer. What began as a traditional bakery has evolved into a modern quick-service food chain with more than 2.700 locations across the UK, including both company-operated stores and franchise partnerships. The company operates a vertically integrated business model that spans manufacturing, logistics, retail operations, digital channels, and customer engagement. This integrated structure allows Greggs to maintain control over product quality, food safety, pricing, and operational efficiency while ensuring a consistent customer experience across its nationwide network. By controlling much of the value chain internally, Greggs has developed a business model that is difficult for competitors to replicate and that supports its position as the UK’s value leader in food-to-go. Greggs’ core proposition is to provide great-tasting, freshly prepared food and drink at affordable prices. The company serves a broad range of consumers seeking convenient meal solutions throughout the day, whether for breakfast, lunch, snacks, or evening meals. Its menu includes iconic products such as sausage rolls, steak bakes, sandwiches, wraps, sweet treats, and coffee, while also offering vegan alternatives, healthier options, and a growing range of hot food products. Over time, Greggs has successfully expanded beyond its traditional bakery roots to become a destination for multiple eating occasions, allowing customers to visit the brand more frequently throughout the day. The company organizes its product offering around several key categories that support different customer missions and dayparts. Savouries and bakes remain the foundation of the business and continue to drive significant customer traffic due to their popularity and attractive value proposition. Breakfast has become one of Greggs’ strongest categories, with the company now recognized as the leading brand for breakfast visits in the UK. Products such as bacon rolls, sausage rolls, porridge, coffee, and breakfast meal deals attract customers during the morning commute while generating attractive margins. Lunch is supported by a wide selection of freshly prepared sandwiches, baguettes, wraps, and meal deals that compete directly with supermarkets and other food-to-go operators. In recent years, Greggs has also expanded its evening offering with products such as pizzas, chicken goujons, wedges, and sharing meals, allowing the company to capture additional demand later in the day and increase utilization of its existing infrastructure. Beverages, particularly coffee, remain an important part of the offering and help increase average transaction values while competing with specialist coffee chains. A defining feature of Greggs’ business model is its extensive vertical integration. Unlike many competitors that rely on external suppliers and third-party logistics providers, Greggs manufactures a large portion of its products in its own manufacturing facilities and distributes them through its own logistics network. This gives the company direct control over quality standards, food safety, production efficiency, and inventory management. By eliminating intermediary margins and operating at significant scale, Greggs is able to offer customers high-quality products at price points that many competitors struggle to match while still generating attractive profitability. The company continues to invest in this advantage through modern manufacturing facilities, automated distribution centers, and advanced logistics capabilities designed to improve efficiency and support future growth. Greggs’ customer reach extends well beyond its physical stores. The company has developed a multi-channel ecosystem that allows customers to access its products through a variety of convenient formats. In addition to its nationwide shop network, Greggs offers Click + Collect, delivery partnerships, grocery distribution through retailers such as Tesco and Iceland, and franchise locations that expand its presence into travel hubs, motorway service stations, airports, hospitals, and other locations where company-operated stores may be less practical. This broad distribution footprint increases convenience for customers while allowing Greggs to reach a larger addressable market. Digital engagement has become an increasingly important component of the business model. Through the Greggs App, customers can earn rewards, access exclusive offers, place orders, and interact directly with the brand. The company’s customer relationship management systems allow it to personalize communications and strengthen long-term customer relationships. As adoption of digital channels grows, Greggs gains valuable customer data that can be used to improve marketing effectiveness, increase visit frequency, and enhance customer loyalty. Greggs’ competitive moat is primarily built on its vertically integrated operating model, value leadership, brand strength, scale advantages, and extensive distribution network. The company’s most significant competitive advantage is its vertically integrated supply chain. By controlling manufacturing and logistics internally, Greggs captures economic value that many competitors must share with suppliers and distributors. This allows the company to maintain lower prices while preserving attractive margins. The scale of Greggs’ manufacturing facilities, distribution infrastructure, and automated logistics network creates a significant barrier to entry because replicating such a system would require substantial capital investment and years of execution. This vertical integration directly supports Greggs’ position as the value leader in UK food-to-go. Independent bakeries, coffee chains, convenience stores, and many quick-service restaurant operators often rely on third-party suppliers, which increases costs throughout the value chain. Greggs’ ability to manufacture, distribute, and sell products itself creates a structural cost advantage that enables the company to consistently offer attractive prices while maintaining quality. This value proposition is particularly appealing during periods of economic uncertainty when consumers become more price conscious. Another important competitive advantage is the strength of the Greggs brand. Over more than eight decades, Greggs has become one of the most recognizable and trusted consumer brands in the United Kingdom. The company enjoys broad appeal across demographic groups and has successfully positioned itself as the destination for affordable, freshly prepared food. Products such as the sausage roll have become part of British consumer culture, helping reinforce brand recognition and customer loyalty. Because Greggs has thousands of customer touchpoints across the country, its brand remains highly visible and top of mind whenever consumers are seeking convenient food options. Greggs also benefits from substantial scale advantages. Its nationwide network of more than 2.700 locations provides purchasing power, operational efficiencies, and broad geographic reach that smaller competitors cannot easily replicate. The large store base supports brand awareness while also allowing the company to spread fixed costs across a significant revenue base. This scale becomes increasingly valuable as Greggs continues expanding into travel locations, roadside sites, delivery channels, and franchise partnerships. The company’s distribution network further strengthens its competitive position. Through company-operated stores, franchise locations, grocery partnerships, delivery services, and digital channels, Greggs can serve customers wherever and however they choose to purchase food. This omnichannel presence increases convenience and makes the brand more accessible than many competitors that rely primarily on a single channel or format. Finally, Greggs benefits from a culture that emphasizes service, operational excellence, and employee engagement. The company invests in training, fair pay, and profit-sharing programs that help attract and retain employees. This contributes to consistent service standards and a positive customer experience across its store network. While competitors can attempt to copy individual products, it is far more difficult to replicate the combination of brand trust, scale, vertical integration, value leadership, operational efficiency, and customer loyalty that Greggs has built over decades. Together, these advantages create a durable competitive moat that supports the company’s market leadership and positions it well for continued growth in the UK food-on-the-go market.

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 more than 85 year history. Her appointment reflected the board’s preference for continuity and deep operational knowledge, as Roisin Currie had already spent more than a decade in senior leadership positions within the business. Having worked across people management, retail operations, property, and strategy, she entered the role with a comprehensive understanding of Greggs’ culture, operating model, and long term growth ambitions. 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 through its Graduate Programme during the leadership era of Archie Norman and Allan Leighton. Over a period of approximately twenty years, Roisin Currie held a variety of senior positions at Asda, including Head of Reward, Retail People Director, and Distribution People Director. These roles provided her with extensive experience in retail operations, employee engagement, logistics, and large scale organizational management. Roisin Currie joined Greggs in 2010 as Group People Director. Over the following years, her responsibilities expanded steadily as she became Retail Operations and People Director in 2017 and Retail and Property Director in 2021. During this period, she played an important role in helping Greggs evolve from a traditional high street bakery into a modern food-on-the-go retailer with a broader menu, more diverse store formats, and an increasingly national footprint. Her progression through multiple operational leadership roles gave her firsthand experience of nearly every aspect of the business before becoming CEO. Since assuming the role of Chief Executive, Roisin Currie has continued to build on the foundations established by her predecessor while pursuing the next phase of Greggs’ growth strategy. Her focus has centered on expanding Greggs’ accessibility, increasing customer convenience, and broadening the occasions in which customers choose Greggs. Under her leadership, the company has continued to expand its store estate across travel hubs, retail parks, roadside locations, hospitals, and other non traditional formats. Greggs has also strengthened its digital capabilities through the Greggs App, Click + Collect services, and delivery partnerships, enabling the company to reach customers wherever and however they choose to purchase food. A key aspect of Roisin Currie’s strategy has been leveraging Greggs’ unique vertically integrated model to maintain its value leadership position within the UK food-to-go market. She has repeatedly emphasized that the combination of broad customer appeal, strong value credentials, menu innovation, convenience, and vertical integration forms the foundation of Greggs’ long term success. Under her leadership, Greggs has continued to invest heavily in manufacturing capacity, logistics infrastructure, and distribution capabilities to support future growth while preserving the cost advantages that differentiate the company from many competitors. Beyond commercial performance, Roisin Currie is widely recognized for her people focused leadership style. Throughout her career she has consistently emphasized employee engagement, training, and career development as critical components of long term business success. Greggs has long been known for its strong workplace culture, and Roisin Currie has continued to reinforce this reputation through initiatives that support employee wellbeing, development opportunities, and profit sharing. Her leadership philosophy reflects the belief that motivated and engaged employees ultimately lead to better customer experiences and stronger business performance. Roisin Currie is also deeply committed to social impact initiatives. She chairs the Employers Forum for Reducing Re-offending, working alongside the Ministry of Justice and the New Futures Network to create employment opportunities for individuals with criminal records. She played a central role in developing Greggs’ Fresh Start programme, which helps people leaving prison secure employment and rebuild their lives. In addition, Roisin Currie serves as a trustee of the Duke of Edinburgh Award scheme and as an Independent Non Executive Director at Howdens Joinery. In recognition of her contributions to business and social mobility, she was awarded an honorary degree of Doctor of Civil Law by Northumbria University in 2024. Given her extensive operational experience within Greggs, deep understanding of the company’s culture, and clear focus on maintaining value leadership while expanding customer convenience and accessibility, Roisin Currie appears well positioned to lead Greggs through its next phase of growth. Her combination of retail expertise, long standing knowledge of the business, and people first leadership approach aligns closely with Greggs’ strategy of strengthening its market leadership while continuing to expand its presence across the UK food-on-the-go market.

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 strong returns on invested capital, generating ROIC above 14% in every year except 2020, when the COVID-19 pandemic temporarily disrupted operations. Prior to the pandemic, Greggs regularly achieved ROIC above 20%, peaking at more than 23%, which is an impressive result for a retailer and food service company. This track record suggests that Greggs possesses several structural advantages that allow it to generate attractive returns on the capital invested in the business. One of the primary reasons Greggs has historically generated high ROIC is its vertically integrated operating model. Unlike many competitors that rely heavily on third-party suppliers and distributors, Greggs manufactures much of its own food and operates its own logistics network. This allows the company to capture value across multiple stages of the supply chain while maintaining tight control over costs, quality, and efficiency. As a result, Greggs can offer products at highly competitive prices while still generating attractive operating margins, which is a key driver of strong returns on capital. The company's scale also contributes significantly to its ROIC. With more than 2.700 locations across the United Kingdom, Greggs benefits from substantial purchasing power, efficient distribution, and strong brand recognition. The fixed costs associated with manufacturing facilities and logistics infrastructure can be spread across a large store network, creating economies of scale that smaller competitors struggle to replicate. This scale advantage strengthens profitability while limiting the amount of incremental capital required to support growth. Another important factor is Greggs' strong value proposition. The company has consistently been recognized as the value leader within UK food-to-go, offering freshly prepared food and drinks at prices that are often difficult for competitors to match. Because Greggs occupies a unique position between supermarkets, coffee chains, and quick-service restaurants, it attracts a broad customer base and benefits from high transaction volumes. This combination of strong customer demand and efficient operations allows the business to generate attractive earnings relative to its capital base. The decline in ROIC since the pandemic does not appear to reflect a deterioration in Greggs' competitive position. Instead, it is largely the result of a deliberate investment cycle. Over the past several years, Greggs has significantly increased capital expenditures to expand its manufacturing and logistics capacity. The company has invested in new production facilities, automated distribution centers, and supply chain infrastructure designed to support thousands of additional stores over time. These investments increase invested capital immediately, while the earnings benefits take several years to fully materialize. As a result, returns naturally decline during the investment phase even if the underlying business remains healthy. Management has been very transparent about this dynamic and continues to use return on capital employed as one of its key long-term performance metrics. In 2025, ROCE was approximately 16%, and management specifically highlighted that the lower return reflects the substantial capital that has been deployed into the company's growth program. Importantly, management continues to target a long-term ROCE of around 20%, suggesting that they expect returns to recover as the new infrastructure becomes more fully utilized. Several factors should help improve ROIC over the coming years. First, Greggs continues to expand its store network, which will increase utilization of the manufacturing and logistics capacity that has already been built. Second, capital expenditure requirements should moderate now that much of the supply chain investment has been completed, reducing the pace at which invested capital grows. Third, management continues to identify productivity improvements and cost-saving opportunities throughout the business. Finally, newer revenue streams such as grocery partnerships, franchise expansion, delivery, and digital channels should help generate additional earnings from the existing asset base. For these reasons, I do not view the recent decline in ROIC as a structural concern. Rather, it appears to be a temporary consequence of management investing ahead of growth. The key drivers that historically enabled Greggs to earn returns above 20%, including vertical integration, scale advantages, brand strength, and value leadership, remain firmly intact. While ROIC may remain somewhat below pre-pandemic levels in the near term as the company continues to absorb these investments, I believe returns should gradually improve as capacity utilization increases. Therefore, I believe it is reasonable to expect Greggs to move back toward ROIC levels of around 20% over the next several years, although the exact timing will depend on the pace of store expansion, sales growth, and the successful ramp-up of its new infrastructure investments.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Greggs has delivered remarkably consistent equity growth over the past decade. Equity increased in every year except 2020, when the COVID-19 pandemic temporarily disrupted the business and reduced profitability. Following the pandemic, equity growth resumed strongly, including a particularly large increase in 2021 as earnings recovered and the company rebuilt shareholder value. This consistency is encouraging because it demonstrates that Greggs has been able to create value for shareholders across different economic environments while continuing to return cash through dividends. The primary reason Greggs has grown equity so consistently is its ability to generate strong profits and cash flows. The company operates a highly efficient business model supported by vertical integration, scale advantages, and a strong value proposition. These advantages allow Greggs to earn attractive returns on capital, which in turn generate retained earnings that increase shareholder equity over time. Unlike many retailers that struggle to earn returns above their cost of capital, Greggs has consistently produced returns that allow it to both invest in future growth and reward shareholders. Another factor supporting equity growth is the company's disciplined capital allocation. Greggs has generally funded expansion through internally generated cash flows rather than relying heavily on debt. As the company has expanded its store network, manufacturing capacity, and distribution infrastructure, much of the value created from those investments has ultimately flowed back into equity. The result is a balance sheet that has steadily strengthened over time while supporting continued growth. The company's relatively conservative financial structure has also contributed to equity growth. Unlike some businesses that prioritize large share repurchases or highly leveraged acquisitions, Greggs has historically focused on organic expansion and maintaining a strong financial position. This means that a larger portion of profits has remained within the business, allowing equity to compound over time. The temporary decline in 2020 was largely the result of exceptional circumstances rather than any weakness in the underlying business. Store closures and restrictions reduced earnings, which negatively affected retained profits and therefore equity. The rapid recovery in 2021 demonstrates the resilience of the business model and suggests that the decline was temporary rather than structural. Looking ahead, I believe Greggs is well positioned to continue growing equity, although the pace may vary from year to year. The company still has significant opportunities to expand its store estate, increase penetration in newer channels such as delivery and grocery partnerships, and improve utilization of the manufacturing and logistics capacity it has built in recent years. These growth initiatives should support higher earnings over time, which in turn should continue to increase shareholder equity. That said, equity growth is unlikely to be perfectly linear. Management is currently in the later stages of a significant investment cycle, and future profitability will depend on how quickly the company can utilize the additional capacity it has created. Economic conditions, consumer spending patterns, and inflation can also influence annual results. However, given Greggs' strong competitive position, history of profitable growth, conservative balance sheet, and ability to generate attractive returns on capital, I expect equity to continue growing over the long term. While annual growth rates may fluctuate, the underlying drivers that have supported shareholder value creation over the past decade remain firmly in place.

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 historically been a strong generator of free cash flow. With the exception of 2020, which was heavily impacted by the COVID-19 pandemic, the company has consistently generated positive free cash flow and attractive free cash flow margins. Prior to the current investment cycle, Greggs regularly converted a significant portion of its revenue into free cash flow, with margins reaching double digits in several years. This strong cash generation reflects the quality of the business model and its ability to earn attractive returns while requiring relatively modest ongoing investment to support day-to-day operations. One of the primary reasons Greggs generates strong free cash flow is its vertically integrated operating model. While owning manufacturing facilities and logistics infrastructure requires capital, it also creates significant efficiencies. By controlling production, distribution, and retail operations internally, Greggs captures value across the entire supply chain rather than sharing it with third parties. This helps support profitability and allows a large portion of operating earnings to be converted into cash. Another important factor is the company's scale. Greggs operates more than 2.700 locations across the United Kingdom, allowing it to spread fixed costs over a large revenue base. Its manufacturing and distribution network can serve thousands of stores, creating economies of scale that smaller competitors struggle to replicate. This scale advantage supports strong operating cash flow generation, which ultimately drives free cash flow. Greggs also benefits from a simple and efficient business model. Most products are sold directly to consumers and purchased immediately, resulting in rapid cash collection and limited credit risk. The company generates substantial cash from its daily operations, which has historically allowed it to fund store expansion, invest in infrastructure, maintain a strong balance sheet, and pay attractive dividends without relying heavily on external financing. The decline in free cash flow over the past several years is primarily the result of a deliberate investment program rather than weaker underlying business performance. While operating cash flow has remained robust, capital expenditures have increased significantly as Greggs invests in its future growth. The company has spent heavily on new manufacturing facilities, distribution centers, automation, and supply chain infrastructure to create the capacity needed to support a much larger store network over time. In 2025 alone, Greggs invested approximately £263 million into the business, making it the peak year for capital expenditure. Importantly, the majority of this investment has been directed toward long-term growth projects rather than maintenance spending. Management has emphasized that much of the new supply chain infrastructure is being built ahead of future demand. As a result, invested capital rises immediately while the benefits in terms of revenue, earnings, and cash flow will only materialize gradually as additional stores are opened and capacity utilization improves. This explains why free cash flow and free cash flow margins have declined despite the underlying business continuing to perform well. The good news for investors is that management expects capital expenditure to decline meaningfully from current levels. After peaking in 2025, capital expenditures are expected to fall to around £200 million in 2026 and then decline further to approximately £150 million to £170 million annually from 2027 onwards. Since operating cash generation remains strong and is expected to continue growing, this reduction in capital spending should result in a significant improvement in free cash flow over the coming years. Looking ahead, I believe Greggs is well positioned to increase free cash flow and free cash flow margins. The company has already made many of the investments necessary to support future expansion, meaning that future revenue growth should require less incremental capital than in recent years. As additional stores are opened and the new manufacturing and logistics assets become more fully utilized, the earnings generated from these investments should begin to outweigh the associated capital costs. This should allow free cash flow margins to gradually move closer to the levels Greggs achieved before the current investment cycle. Greggs follows a disciplined capital allocation strategy with a clear order of priorities. First, management invests in maintaining and strengthening the business through store upgrades, manufacturing facilities, logistics infrastructure, and growth initiatives. Second, the company maintains a strong balance sheet and targets sufficient cash reserves to manage seasonal fluctuations. Third, Greggs returns cash to shareholders through an ordinary dividend, which management aims to keep covered approximately two times by earnings. Finally, any surplus cash beyond the needs of the business is typically returned to shareholders. Historically, this has often taken the form of special dividends, although management has indicated that share repurchases could also be considered in the future if they represent the best use of capital. Given the expected decline in capital expenditures, the strong operating cash generation of the business, and management's commitment to returning excess cash to shareholders, I believe Greggs has the potential to become a significantly stronger free cash flow generator over the next several years. Once the current investment cycle is complete and the benefits of these investments begin to flow through the income statement, investors could see both higher ordinary dividends and the return of additional shareholder distributions through special dividends or potentially share buybacks. While Greggs' current free cash flow yield suggests that the shares are not trading at a cheap valuation, this is largely due to temporarily depressed free cash flow caused by elevated capital expenditures. As a result, free cash flow yield may not be the most useful valuation metric 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 just 0,20 years of debt, indicating an exceptionally strong financial position. Greggs remained debt-free for more than a decade before taking on a small amount of debt in 2025. However, this was not due to weakness in the business. Instead, it reflected the company's significant investments in new manufacturing and distribution capacity while continuing to return cash to shareholders through dividends. Management has stated that the debt is temporary rather than a permanent part of the company's financing strategy. Given Greggs' strong cash generation, conservative financial management, and long history of maintaining a strong balance sheet, I do not expect debt to become a concern in the future.

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Risks

Potential food safety incidents is a risk for Greggs because the company serves millions of customers every week and has built its reputation on providing convenient, affordable, and trustworthy food. When customers purchase food from Greggs, they expect products to be safe, fresh, and accurately labeled. Any significant failure in these areas could damage consumer confidence and negatively affect the business. As a food-on-the-go retailer with a broad customer base and high daily footfall, Greggs is particularly exposed to reputational damage in the event of product contamination, allergen mislabeling, foodborne illness, or hygiene failures. While such incidents are relatively rare, the consequences can be severe. Modern news cycles and social media allow negative stories to spread rapidly, meaning that even a single incident can attract national attention and reach millions of consumers within a short period of time. This can lead to a loss of customer trust that may take years to rebuild. Greggs' vertically integrated business model creates both advantages and risks. The company manufactures much of its own food, operates its own logistics network, and sells products through more than 2.700 locations across the United Kingdom. This gives Greggs greater control over quality and consistency than many competitors. However, it also means that responsibility for food safety largely rests with Greggs itself. If a problem occurs at a manufacturing facility, during transportation, or in a store, the impact could potentially affect a large number of locations. Because products move quickly through the network every day, an issue that begins in one part of the supply chain could spread widely before being identified and contained. Food safety risks are not limited to contamination. Allergen management is becoming increasingly important for food retailers. Many consumers have allergies to ingredients such as nuts, milk, eggs, wheat, or sesame. An incorrect label, cross-contamination during production, or an employee mistake could have serious consequences for affected customers. In addition to potential legal liability, such incidents can generate significant negative publicity and damage the brand's reputation. The food industry provides several examples of how costly food safety incidents can become. Chipotle experienced multiple foodborne illness outbreaks between 2015 and 2018 that sickened more than 1.100 people, resulted in substantial fines, and severely damaged consumer confidence. Although the company eventually recovered, sales and profitability were negatively affected for years. Other major food companies and restaurant chains have experienced similar challenges, demonstrating that even strong brands can suffer significant reputational and financial damage when food safety standards fail. For Greggs, a major food safety incident could lead to product recalls, temporary store closures, increased regulatory oversight, legal costs, and lower sales. More importantly, it could undermine one of the company's most valuable assets: customer trust. Greggs has spent decades building a reputation as a reliable destination for affordable and freshly prepared food. Because many customers visit Greggs frequently and often choose it out of habit, confidence in the brand plays an important role in maintaining customer loyalty. If consumers begin to question the safety or reliability of Greggs' products, some may switch to competitors such as supermarkets, coffee chains, or quick-service restaurants. While Greggs invests heavily in quality control, food safety procedures, employee training, and supply chain oversight, no food business can completely eliminate the risk of human error or operational failures. Given the importance of trust in the food industry and the potentially severe consequences of a significant incident, food safety remains an important risk that investors should monitor.

Macroeconomic factors are a risk for Greggs because the company operates in a highly competitive industry where profitability is influenced by consumer spending, inflation, labor costs, and commodity prices. Although Greggs benefits from a strong value proposition and serves products that many consumers view as affordable everyday purchases, the company is not immune to broader economic pressures that can affect both costs and demand. One of the biggest macroeconomic risks for Greggs is cost inflation. The company relies on a wide range of ingredients, packaging materials, energy, and transportation services to operate its vertically integrated business model. As a result, increases in the prices of commodities such as wheat, dairy products, meat, and cooking oils can raise production costs. Packaging costs can also fluctuate due to changes in raw material prices. While Greggs typically secures a portion of its requirements in advance to reduce short-term volatility, prolonged increases in input costs will eventually affect profitability if they cannot be offset elsewhere. Labor costs represent another significant macroeconomic risk. People costs are Greggs' largest expense category, reflecting the labor-intensive nature of food manufacturing, distribution, and retail operations. In recent years, the company has faced substantial wage inflation driven by increases in the National Living Wage and higher employment-related costs. Because Greggs employs tens of thousands of people across its manufacturing facilities, distribution network, and stores, even modest increases in wages can have a meaningful impact on profitability. While wage inflation is expected to moderate compared to recent years, labor costs remain an important factor that investors should monitor. The challenge for Greggs is that its ability to pass higher costs on to customers is somewhat constrained by its value-focused positioning. A key part of Greggs' appeal is offering affordable food and drink at prices that compare favorably with competitors. If the company raises prices too aggressively to offset inflation, it risks weakening its value proposition and potentially driving customers toward supermarkets, convenience stores, or other low-cost alternatives. As a result, Greggs may occasionally have to absorb part of the cost inflation through lower margins rather than fully passing it on to consumers. Macroeconomic conditions can also influence customer behavior. During periods of weak economic growth, declining consumer confidence, or cost-of-living pressures, households often become more cautious with their spending. While Greggs generally benefits from being a relatively inexpensive option, prolonged financial stress can still affect purchasing habits. Customers may visit less frequently, buy fewer items per visit, or choose lower-priced products. These changes can reduce sales growth and place additional pressure on profitability. Energy prices represent another area of exposure. Greggs uses significant amounts of electricity to operate its manufacturing facilities, distribution network, and stores. Although management has taken steps to reduce volatility by securing much of its energy needs in advance, sustained increases in electricity, fuel, or transportation costs would eventually affect operating expenses. Diesel costs are particularly relevant because of the company's large logistics network, which delivers products across the country every day.

Changing consumer trends are a risk for Greggs because consumer preferences are constantly evolving, and food companies must adapt to remain relevant. Over the past decade, there has been a growing focus on health, wellness, nutrition, and lifestyle choices. Consumers are becoming more aware of the relationship between diet and long-term health, while governments, healthcare organizations, and public health campaigns continue to encourage healthier eating habits. If these trends accelerate, demand for some of Greggs' traditional products could come under pressure. Many of Greggs' most popular products, including sausage rolls, pastries, bakes, and sweet treats, are indulgent foods that are often high in calories, fat, or salt. These products have been central to the company's success and remain key traffic drivers across its store network. However, as consumers increasingly prioritize healthier diets, some customers may choose alternatives that are perceived as more nutritious. If a growing proportion of consumers shift toward healthier meal options, Greggs could face lower demand for some of its highest-volume products. Government regulation could further reinforce this trend. In recent years, policymakers have introduced various measures designed to improve public health and reduce obesity rates. These include restrictions on the promotion and placement of foods high in fat, salt, and sugar, as well as increased scrutiny of nutritional information. Future regulations could make it more difficult to market certain products or increase compliance costs for food retailers. If regulations become more restrictive over time, Greggs may need to adapt its menu, marketing, or product formulations to align with changing requirements. Consumer preferences are also evolving beyond traditional health considerations. Demand for plant-based foods, fresh ingredients, higher-protein meals, and more personalized dietary choices has increased significantly in recent years. While Greggs has responded by introducing vegan products, salads, flatbreads, fruit options, and other healthier alternatives, there is no guarantee that these newer categories will be as profitable or as popular as its traditional offerings. If consumer tastes change faster than Greggs can adapt, the company could lose market share to competitors that are better positioned to capitalize on emerging trends. One of the most widely discussed emerging risks is the growing adoption of GLP-1 weight-loss medications such as Wegovy and Ozempic. These treatments have demonstrated an ability to reduce appetite and lower overall food consumption. While the long-term impact remains uncertain, some early studies suggest that users often reduce spending on snacks, sweets, and other calorie-dense foods. If these medications become widely adopted across the population, they could reduce demand for some of the impulse purchases that have historically been important drivers of sales for food-on-the-go businesses. This risk may be particularly relevant for Greggs because many customer purchases are discretionary and often made on impulse. A customer who is less hungry throughout the day may be less likely to purchase a pastry, snack, or additional food item while commuting, shopping, or taking a break. Even a modest reduction in consumption across a large portion of the population could have a meaningful impact on industry demand over time.

Reasons to invest

Opening new stores is a reason to invest in Greggs because store expansion remains one of the company's largest and most visible growth opportunities. Despite operating more than 2,700 locations across the United Kingdom, management believes there is still substantial room for further expansion. Greggs continues to identify attractive locations where its brand is underrepresented, allowing the company to grow revenue, increase customer convenience, and strengthen its market position without significantly impacting existing stores. One of the most attractive aspects of Greggs' expansion strategy is the strong returns generated by new stores. Management targets a cash return of approximately 25% on the combined investment in both the store and the supporting infrastructure, with this target typically being achieved within two to three years of opening. As stores mature, returns often increase further, with older store cohorts generating returns comfortably above 30%. These economics suggest that Greggs is not simply growing for the sake of growth but is opening stores that create meaningful value for shareholders. Importantly, management has repeatedly demonstrated that new stores are generating largely incremental growth rather than merely shifting sales from one location to another. More than half of recent openings have been in areas where there was no existing Greggs within a mile, expanding the company's reach into entirely new customer catchments. Even when a new store is opened near an existing location, management has found that sales transferred from the older store are generally less than 5%. This indicates that the majority of revenue generated by new stores represents genuinely new business rather than cannibalizing existing sales. The company's digital capabilities provide additional evidence that store expansion is creating incremental demand. Through data collected from the Greggs App, management can observe customer behavior and purchasing patterns. The data shows that when Greggs opens stores in more convenient locations, customers tend to visit the brand more frequently. In other words, greater accessibility encourages additional purchases rather than simply redirecting existing ones. This supports management's belief that convenience remains one of the most important drivers of growth in the food-on-the-go market. Another reason for confidence is the significant amount of remaining white space available to Greggs. Historically, the business was heavily concentrated on traditional high streets, which represented roughly 80% of the store estate a decade ago. Today, that figure has fallen to around 50% as Greggs has expanded into a much wider range of locations. The company is increasingly opening stores in retail parks, petrol stations, supermarkets, airports, railway stations, hospitals, university campuses, and roadside locations. These alternative formats allow Greggs to reach customers in situations where they may not previously have encountered the brand. Many of these newer locations are proving particularly attractive because they align closely with the company's food-on-the-go proposition. Travelers, commuters, students, and shoppers often prioritize convenience and value, both of which are core strengths of the Greggs brand. Management has indicated that these newer growth locations frequently outperform the traditional estate, suggesting that future expansion opportunities may be even more attractive than some of the company's historical store openings. Greggs is also innovating with new store formats that could unlock additional growth opportunities. The company recently introduced its first "bitesize" stores, which are designed for high-traffic locations where space is limited. These smaller stores offer a focused selection of customer favorites while requiring less space and capital than a traditional Greggs location. Early results have been encouraging, and if successful, the format could allow Greggs to enter many locations that were previously uneconomical or inaccessible. In addition to opening new stores, Greggs continues to relocate existing stores to better locations within the same area. These relocations often involve moving into larger units or sites with higher customer traffic. Because the customer base is already established, these projects typically carry less risk than entirely new openings while still generating attractive returns. Management has relocated approximately 15% of its traditional estate since 2019, demonstrating its willingness to continuously optimize the store portfolio.

Expanding customer access is a reason to invest in Greggs because it allows the company to increase customer frequency, reach new consumers, and generate additional revenue without relying solely on opening traditional stores. Management believes one of the largest opportunities for Greggs is simply making its products available whenever and wherever customers want them. By increasing accessibility through delivery, digital channels, grocery partnerships, franchise locations, and new retail formats, Greggs can capture a greater share of consumer spending while strengthening its position as one of the United Kingdom's leading food-to-go brands. One of the most significant growth opportunities comes from delivery. Greggs has expanded its partnerships with major delivery platforms, and delivery now accounts for a meaningful share of total sales. Management has highlighted that delivery sales are largely incremental, meaning they add to overall revenue rather than replacing purchases that would have occurred in stores. Delivery orders also tend to have substantially larger basket sizes than traditional walk-in transactions, making the channel attractive from both a revenue and profitability perspective. As home delivery continues to gain popularity across the food industry, Greggs appears well positioned to benefit from this long-term trend. Digital engagement provides another avenue for growth. The Greggs App has become an increasingly important part of the customer experience, with a growing percentage of transactions linked to the platform. Through loyalty rewards, personalized offers, and targeted marketing campaigns, Greggs can strengthen customer relationships and encourage more frequent visits. Management has repeatedly noted that loyalty initiatives have exceeded expectations and provide valuable insight into customer behavior. These insights help the company tailor promotions and improve engagement, which can support both higher transaction frequency and stronger customer retention. Grocery partnerships are also expanding Greggs' reach beyond its traditional store network. Through long-standing relationships with Iceland and more recent expansion into Tesco stores, customers can now purchase Greggs products in thousands of additional locations across the country. These partnerships allow Greggs to reach consumers who may not live or work near one of its stores while leveraging the company's existing manufacturing infrastructure. As distribution expands further, grocery partnerships could become an increasingly meaningful contributor to growth. The importance of convenience should not be underestimated. Management has repeatedly emphasized that accessibility remains one of the most important drivers of customer behavior in the food-to-go market. Data collected through the Greggs App shows that when customers gain access to additional Greggs locations or channels, they tend to visit more frequently. This suggests that increasing convenience does not simply shift purchases from one location to another but can actually increase overall demand.

Innovation is a reason to invest in Greggs because the company has demonstrated an ability to adapt to changing consumer preferences while continuously finding new ways to drive growth. The food-to-go industry evolves constantly as dietary trends, consumer tastes, and eating habits change over time. Rather than relying solely on its traditional products, Greggs has consistently expanded its menu, entered new categories, and developed new customer occasions that keep the brand relevant to a broad audience. This ability to innovate has been an important factor behind Greggs' long-term success and remains a key driver of future growth. One of the most significant examples of Greggs' innovation is its successful expansion beyond its traditional breakfast and lunch business. Historically, Greggs was primarily known for products such as sausage rolls, sandwiches, and baked goods that were typically consumed earlier in the day. In recent years, however, the company has deliberately broadened its appeal by targeting additional eating occasions. Through extended opening hours and the introduction of products such as pizzas, chicken goujons, potato wedges, mozzarella bites, and mac and cheese, Greggs has established a growing presence in the evening market. This strategy has been highly successful, with the evening daypart becoming the fastest-growing part of the business and now accounting for a meaningful share of sales. Importantly, this growth is not simply the result of longer opening hours. It reflects the company's ability to develop products and occasions that attract customers at times when they historically would not have considered Greggs. Innovation at Greggs is also driven by its ability to identify emerging consumer trends and respond quickly with attractive value-oriented products. Management has repeatedly emphasized that understanding changing consumer preferences is central to the company's product development process. As consumers have become increasingly focused on health, wellness, and nutrition, Greggs has expanded its offering to include products such as protein shakes, egg pots, and wellness-focused drinks. The company has also introduced products that appeal to consumers seeking higher protein intake, smaller portions, and more balanced meal options. These initiatives allow Greggs to remain relevant as dietary preferences evolve while attracting customers who may not have traditionally visited the brand. The company's response to plant-based eating provides another example of successful innovation. Greggs gained significant attention through the launch of vegan alternatives to some of its most popular products, demonstrating its willingness to adapt to changing dietary trends. Rather than treating plant-based foods as a niche category, Greggs incorporated them into its mainstream offering, helping attract new customers while reinforcing its reputation as a modern and relevant food retailer. Greggs also continuously refreshes its menu with new flavors, limited-time offerings, and seasonal products. Recent examples include products such as Tandoori Chicken Pizza, Red Pepper, Feta and Spinach Bake, and iced matcha beverages. These introductions help maintain customer interest, encourage repeat visits, and generate excitement around the brand. By regularly introducing new products while retaining popular core items, Greggs balances innovation with familiarity, allowing it to attract new customers without alienating existing ones. Another important aspect of innovation is Greggs' expansion into higher-margin categories. Management has highlighted that many traditional packaged food products eventually become commoditized, making it difficult to maintain strong margins. To counter this, Greggs increasingly focuses on products that are prepared in-store or require greater value-added preparation. Hot drinks, iced beverages, freshly prepared meals, and specialty products often generate higher margins than more standardized items. Recent innovations in beverages, including iced drinks and matcha products, are examples of how Greggs continues to enter attractive categories that can support both revenue growth and profitability.

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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 1,19, based on Greggs' fiscal year 2025 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 £9,09. 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 £4,55 (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 327, and capital expenditures were 263. 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 184 in our calculations. The tax provision was 45. We have 101,5 outstanding shares. Hence, the calculation will be as follows: (327 – 184 + 45) / 101,5 x 10 = £18,52 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 £0,73 and a growth rate of 7,5%, if you want to recoup your investment in 8 years, the Payback Time price is £8,20.

Conclusion

I believe Greggs is an intriguing company with solid management. Greggs has built its moat through its vertically integrated operating model, value leadership, brand strength, scale advantages, and extensive distribution network. The company has historically achieved a high ROIC, and while returns have been lower than usual in recent years due to significant investments in manufacturing and distribution capacity, management expects these investments to support higher returns in the future, with ROIC potentially exceeding 20% again over time. Free cash flow has also declined in recent years, but this is primarily the result of elevated capital expenditures rather than weaker business performance. As these investments begin to normalize, free cash flow should improve. Potential food safety incidents are a risk for Greggs because the company serves millions of customers every week and relies heavily on consumer trust. A significant food safety issue, such as product contamination, allergen mislabeling, or hygiene failures, could damage the company's reputation, lead to lower sales, and take years to fully recover from. Macroeconomic factors are a risk because rising costs for ingredients, labor, energy, and transportation can pressure profitability, while Greggs' value-focused positioning limits its ability to fully pass these costs on to customers. In addition, weaker consumer confidence and cost-of-living pressures could reduce spending and weigh on growth. Changing consumer trends are also a risk because growing demand for healthier foods, evolving dietary preferences, and the increasing adoption of weight-loss medications could reduce demand for some of Greggs' traditional high-calorie products. If consumer preferences shift faster than Greggs can adapt its menu, sales growth and profitability could come under pressure. Opening new stores is a reason to invest because the company still has significant room for expansion across underrepresented locations in the UK. New stores typically generate attractive returns, create largely incremental growth with minimal cannibalization of existing locations, and strengthen Greggs' market position. Expanding customer access is another reason to invest because delivery, digital channels, grocery partnerships, and new retail formats allow Greggs to reach more consumers and generate incremental sales. By making its products available whenever and wherever customers want them, the company can increase customer engagement while expanding its revenue opportunities. Innovation is also a reason to invest because Greggs has consistently adapted to changing consumer preferences by introducing new products, entering new categories, and creating new customer occasions. This has helped the company expand beyond its traditional breakfast and lunch business, drive growth in higher-margin categories, and remain relevant as dietary trends evolve. Overall, I believe there are many things to like about Greggs, and buying shares at the Ten Cap price of £18 could prove to be a good long-term investment.

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