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It’s a big day for FTSE 250 stock Greggs. Here’s why I’d buy

Today’s the day UK baker and food-on-the-go retailer Greggs (LSE: GRG) is opening around 800 shops for takeaway customers. My guess is the experiment will be a big success for the FTSE 250 company.

The company has been careful about its preparations for this moment. In early May, it started trialling “a small number” of shops to test social distancing measures and operational processes.

A phased re-opening for this FTSE 250 stock’s business

Today’s larger-scale openings will feature new procedures and equipment. And, if things go well, the directors plan to re-open the rest of its shops in early July. The entire estate totals around 2,050 outlets.

The measured approach to reopening the business strikes me as sensible. The alternative would have been to open everything at once without really knowing if the operational changes would work in practice. It could have been chaos! But today will run smoothly, I’m confident of that.

We’ve already seen how pent-up demand has caused customers to flock back to other takeaway outlets. Queues for drive-through McDonalds and KFC outlets have been crazy. My earlier doubts about whether the great British public would be comfortable returning to takeaway food in a world featuring the coronavirus are out the window!

I reckon the uptake for Greggs’ offering will likely be robust. And, because of that, the phased reopening could lead to further rises in the share price. At some point, the market will probably price-in full operational recovery anticipating the fading of the pandemic. Meanwhile, with the share price close to 1,784p, it’s still almost 30% below its level before the stock market crash of the spring.

Of course, sales will be lower for the time being. And costs will be higher. It almost goes without saying such a pincer movement will squeeze profits. But to get things moving again, Greggs is putting some big changes in place. For example, floor markings and signage will help customers maintain social distancing. There’ll be protective screens at counters. Staff will have protective workwear. In-store cleaning regimes will be intensified.

Recovery and growth potential

We’ve seen a lot of this in other retailers’ outlets already, of course. But the directors emphasised in last week’s update the size of each shop will constrict the firm’s capacity to operate to varying degrees. They anticipate that overall sales may be lower than normal “for some time.”

Lower anticipated sales and a reduced range of products mean some staff will remain on furlough “until sales levels begin returning to normal.” But Greggs has a great business that seems well worth saving with help from the government.

Over the past few years, the stock has been a great investment for its shareholders too. Indeed, proceeds from the cash-generating business have been ploughed back in to fund an impressive expansion programme.

Chief executive Roger Whiteside said in last week’s update: “Great uncertainty remains.” But the directors are “confident” Greggs can adapt to market conditions in the short term while continuing to invest in the long-term growth of the business. 

I’m tempted to buy some of the shares for their recovery and growth potential.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.