Greggs has baked in responsible capitalism
In the summer of 2007, my family stumbled into a Greggs bakery while visiting a faded seaside resort in the north of England. Unimpressed by the stodgy bread and doughnuts, we had no desire to return.
Greggs has recently forced me to revise that opinion. Aided by a wry social media presence, the company has reinvented itself as one of the UK’s most popular purveyors of food on the go. Alongside sausage rolls and meat pies, it sells more coffee in the UK than Starbucks and is the top provider of ready-made sandwiches, according to research by NPD. With 90 per cent of stores now open by 7am, Gregg’s is the second-largest breakfast chain after McDonald’s.
Since 2013, when chief executive Roger Whiteside took charge with a mandate to give up competing with the supermarkets on selling bread, the company’s regular profits before tax and interest have more than doubled and its market value has quintupled to nearly £2.5bn. Some analysts think it could soon join the FTSE 100.
The icing on the cake of this extraordinary turnround has been what Mr Whiteside calls “nutritional choice”. Greggs has added a series of vegan, gluten-free and healthy options that have changed its image. When divisive television host Piers Morgan mocked Greggs’ introduction of a vegan sausage roll in January 2019 as the work of “PC-ravaged clowns”, the company Twitter account parried deftly: “Oh hello Piers, we’ve been expecting you.” Customer lines stretched out the door and the rolls sold out in some stores.
Greggs has issued five profit upgrades since then as its share price nearly doubled. It said last week that 2019 sales were up 13.5 per cent year on year and its 25,000 employees would share a £7m one-off bonus, or £300 apiece for those who have been on the job since March.
Although the bonus reflects an “exceptional” year, it is not a surprise. Greggs has long shared 10 per cent of its profits with its employees: last year’s profit-sharing payment was £10m, and this year’s payment will come on top of the one-off bonus.
These days, corporate luminaries such as JPMorgan Chase’s Jamie Dimon and the Business Roundtable are touting responsible capitalism that looks beyond investors to other stakeholders, such as employees, communities and the environment. Greggs has been doing it for decades.
Founded in Newcastle as a family business more than 80 years ago, the company remains deeply rooted in England’s former manufacturing towns and cities, especially in the north. Greggs gives 1 per cent of profits to its foundation, feeds 36,000 children free breakfast every school day, and provides training and work experience to prisoners at the end of their sentences.
The group has also been held up as a model employer for paying more than the minimum wage, eschewing zero-hours contracts and providing employees with regular shifts that make it easier to manage family commitments. The workforce is 71 per cent female, as are three of its eight board members, and it was ranked 10th in the FTSE 250 for women in leadership.
“It’s about wanting to live by a way of doing business that we could be proud of,” Mr Whiteside says, adding that he initially worried that his plan to refocus on food to go “would lose the magic that makes Greggs Greggs”.
But the company has been able to boost profit margins by 60 per cent since 2013, while opening close to 100 stores each year and keeping employee retention in the top quartile for its industry. Its commitment to social responsibility has built up tremendous goodwill. “That culture of being nice and trying to do the right thing underpins the brand and can apply to whatever product they offer,” says James Kirkup, director of the Social Market Foundation think-tank.
Contrast that zeitgeist-boost with what has happened to US fast-food chain Chick-fil-A. Its juicy chicken sandwiches fuelled rapid growth, but the company’s donations to anti-gay marriage Christian organisations have made it anathema to some consumers.
Rival US chain Popeyes capitalised on the controversy over the summer with a Twitter campaign for its new chicken sandwich that trolled Chick-fil-A for closing on Sundays to allow employees to go to church. And protests from LGBTQ groups helped doom Chick-fil-A’s first UK outlet, which closed in October. The chain changed tack in November, announcing that its 2020 charitable donations would omit the controversial Christian groups.
No company is perfect. Greggs management has said the new UK national living wage will push up costs, so its pay cannot be all that generous. Its gender pay gap still stands at 18 per cent. Mr Whitehead’s growth plan includes not only evening hours and food delivery but also reduced exposure to Britain’s flailing high streets in favour of stores in airports, rail stations and business parks.
But those are quibbles compared to the drastic cost-cutting and insolvencies that have ripped through the casual dining sector. Sceptics of responsible capitalism often warn that diluting the focus on profits leads to weaker companies and slower growth. Long may Greggs continue to prove them wrong.
Moral Money is our new weekly newsletter covering sustainable business, finance and investing. Sign up here for breaking news and insightful analysis on this bubbling revolution.