Greggs — Market share gains in difficult market

Greggs’ FY25 results reflect the negative operating leverage from lower volumes, which have continued into FY26, as well as the incremental costs from infrastructure investment. These combined to reduce return on capital employed (ROCE) to 16% from 20% in FY24. There is a clear message of market outperformance, and profit recovery is reliant on easing of pressures on disposable incomes. Management’s expected recovery to the targeted 20% ROCE in the medium term requires volume growth. Naturally, investors are asking about the outlook for food consumption overall given anticipated wider use of appetite suppressants. For this, management highlights its strong history of menu innovation in response to dietary trends, and has already introduced higher-protein options and smaller portion sizes in a number of categories. With lower underlying cost inflation and expectations for further volume declines in FY26, Greggs could demonstrate good operational gearing when volumes are more favourable. The peak capital investment is in the rear mirror and management will be able to consider enhanced returns to shareholders.