I prefer to invest in UK stocks, so Greggs (LSE:GRG) could be a candidate for my Stocks and Shares ISA.
This week (20 May), it released a trading update for the first 20 weeks of 2025. During this period, total sales were up 7.4% to £784m. Investors liked what they saw and, on the day, the baker’s shares closed 9.1% higher.
Much of this top-line growth was attributed to an increase in the number of its shops. When it floated in 1984, it had 261 of them. Now it operates 2,638.
Think about that.
A Greggs in every corner
According to the House of Commons library, there are only 1,099 towns and cities in Great Britain.
This could be why, in recent years, the food-to-go retailer has increasingly moved away from the high street to other high-footfall locations. But there are only 97 motorway service stations and 60 airports in the UK. I know there are hundreds of supermarkets, but the group’s current in-store arrangements with Tesco, J Sainsbury, and Asda will only work in their larger shops.
Of course, it’s possible to have more than one Greggs in a town or city. In fact, there are over 40 of them in London. But the point I’m trying to make is that the scope for expansion is becoming increasingly limited. The chain has no plans to go overseas so, for now, it’s the UK market that counts.
Based on the figures contained in the update, each of its shops has an average turnover of £14,860 per week. That’s impressive but it means expansion into the country’s 6,000 villages and small communities isn’t feasible.
I think there’s a limit to the number of sausage rolls that residents of a quaint English village are likely to buy each week. And I doubt they will be happy with the extra traffic and litter scattered around the church. But Norman and Marjorie, if you want one near you, Greggs is encouraging people to make contact — just e-mail them at [email protected].
Another approach
With fewer options to expand, it’s important to squeeze more from its existing footprint. Here, it’s doing okay.
During the first 20 weeks of the year, like-for-like sales increased by 2.9%. Product innovation has helped drive this. The group’s introduced a new range of over-ice drinks, potato wedges, and pizzas, which it says are doing particularly well.
But it remains to be seen how the move to healthier eating could affect things. However, weight-loss jabs might not be as big a threat as some fear. Imagine a scenario where you can eat as many pastries as you like for a couple of months and then have a few injections to lose the pounds gained. That’s my kind of on-off dieting!
Undoubtedly, Greggs is a British success story and has become something of an icon. Since May 2020, its share price has risen 23%. But it’s been much higher than this, which suggests some investors believe there are currently better opportunities elsewhere. And I tend to agree.
Although I think Greggs has lots going for it – including its reasonable 3.3% dividend yield — I fear that its rate of growth is inevitably going to slow. For this reason, I’m not going to put the baker’s shares in my Stocks and Shares ISA.
