Here’s Stone & River’s full interview with CFO Richard Hutton ahead of the release of 2019’s Brand Momentum report at Insight 2019, where he chats about all things Greggs from location planning to vegan sausage rolls.
What have been the most important factors in driving your consistent LFL performance over the past four years?
First of all, we have been clear about who we are – defining ourselves as food on the go business with roots in bakery – so that gives us the freedom to chase down different growth areas in the market. Without a focused proposition, we wouldn’t be as focused on where we need to grow. Historically we have been torn between on the go and bakery – but 6 years ago came to decision we had to break away from traditional bakery categories to grow in food on the go categories. We’ve made those changes slowly as you can only move your range and estate progressively. Shifting the estate towards travel and work locations has also been a driver of growth, as has investing behind the scenes into more integrated systems and realigning our supply chain. This has given us more capability for growth and consistently high-quality products. The positive effects have started to come through now and will contribute to more progress in the next few years.
You mentioned location as a key driver, could you talk more about this?
Moving, relocating the estate has been very important. 80% of Gregg’s shops were on the high street but as we’ve grown we’ve deliberately consolidated our presence high streets and expanded in areas where customers are travelling or around work locations. At the end of 2018, the 80/20 split was more like 63/37. This is much more balanced and the opening programme will carry on shifting – we hope to get 40:60 in time. Of course, we don’t want to write off high street altogether – there are some locations that trade very well. Shopping has been threatened by online and declining consumer spend, and subsequently, we’ve seen high street decline, but we want to go after people more generally out of home.
When you’re shifting towards travel and work locations, what is your location strategy there? Do you focus on premium travel locations as they’re higher quality?
Premium locations haven’t been top of our minds historically, traditionally we’ve been quite shy of them. For example, with rail, we’ve typically traded around railway stations rather than inside them but recently we’ve moved to inside more stations. We started off by testing our model in regional rail stations. This was actually very popular so gave us confidence to try premium locations like Birmingham New Street where we were part of that redevelopment, and London bridge too. We were surprised and delighted by customer response – it has helped us understand our suitability to commuter customer. We used to be intimidated by high rent locations but our model can work in those locations sometimes, but they’re hard to make work as they’re very high volume and have long trading days. Recently we’ve proved that the Greggs model well suited to deal with it, so we’ll likely see more premium travel locations in the future. Greggs is rooted in value and we can’t drift away from that. We’ve got to be mindful of the brand, so high-cost locations won’t always work.
With a franchised model is it harder to maintain consistency and brand experience?
We have 260 franchised sites so far, but we expect half of our new openings will be franchised. We’re not choosing to move more into franchised sites deliberately but it helps us get closer to areas that might otherwise be unavailable to us. Previously, we were scared standards would slip but we’ve been very careful in choosing the right partners and as a result, we have standards we’re very happy with in our franchised estate, but you have got to have real trust between you and franchise partner. We’ve gone down the corporate franchise route who are in charge of particular catchment rather than public franchise. Some of our franchises are involved with other brands, so they’re experienced and understand our expectations, know what’s involved, and how to live up to brands’ reputations. As long as you’re open with each other, and honest conversations about customer expectations and delivering experience, then it becomes easier to maintain consistency. We’ll always make more money non-franchised, but franchising gives us access to areas we otherwise couldn’t tap into.
Culture is obviously an incredibly important part of any business, particularly when growing further, so what would you say Greggs’ culture stands for?
Yes, we talk about culture a lot – it’s a strategic strength of ours. You feel it when you come into the business as it’s very friendly, we don’t take ourselves too seriously and we enjoy what we do.
It’s important to us that we do business in a responsible manner and we have nurtured family values and moral principles of Ian Gregg from back when it was a family bakery business.
Culture can also be consumer-facing as by treating staff well, they’ll give good service. This all translates to customer experience, and then good trading. The shift towards responsible business also plays a strong part in culture, Greggs has traditionally always been supportive of the community that we trade in but now expectations of customers have shifted to broader remit such as the health agenda by improving nutritional content and working with Public Health England. Fairtrade is also key, so we are sourcing responsibly, and we maintain high standards of animal welfare to an industry leading extent, and we are conscious of our environmental impact. The way that we employ people also reflects our culture with equality as a principle, we have as broad as possible an employee base to give a better reflection of society. You don’t change culture in the short term, you invest it in the long-term but you can lose it really quickly if you don’t constantly reinvest.
With the amazing success of the Vegan sausage roll it shows how important food innovation is to the consumer, do you think this demand will continue at the pace it has been recently?
People have always wanted international, diversified, aspirational food and we’ve always responded to that however we can. We’re a value orientated food operator and we democratise food to make it more accessible. Typically, we wait for something to become established, then try and make it affordable as an everyday purchase – the vegan sausage roll is a great example of that. The innovation trend will definitely continue and the demand for vegan food, gluten-free food, and other dietary requirements has tipped from being niche into mainstream. Like the Vegan sausage roll, it’s not just bought by vegans, it has become a mainstream dietary trend and overtime we foresee people eating less meat. We will continue to innovate around that, with the vegan sausage roll we spent 2 years developing it to get it right – we seem to have caught the wave with that one, but not every new venture can be so successful!
You can download the full CGA | Stone & River Brand Momentum report here.