Gadfly

Brexit Britain Ate All the Pies

Greggs' cheap eats are faring well compared with posher grub.
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Photographer: Chris Ratcliffe

Earlier this year, I asked the question that really mattered in Brexit Britain: cake or sausage?

Now it seems we have the answer: Greggs Plc, famed for its sausage rolls, reported knockout third-quarter sales. Same-store sales from the shops it manages -- rather than franchises -- rose 5 percent in the 13 weeks to September 20. That's well ahead of Whitbread Plc's Costa Coffee, and the sort of growth of which the big U.K. supermarkets can only dream.

With consumers' disposable incomes being squeezed by inflation running ahead of wage growth, Greggs is the sort of business that should prosper. Along with the likes of pub operator JD Wetherspoon Plc and Associated British Foods Plc's Primark, it offers value-for-money when times are tough.

There was plenty of demand for Greggs bacon rolls and coffees in the period, but traditional savories, including its steak bake, sold well too. Changes to the menu to introduce healthier options -- Thai chicken soup is the latest addition -- have helped, as have new IT systems to improve the availability of food.

Greggs left its full-year profit forecast unchanged, as it incurred some technology costs and the price of ingredients headed higher. However, it expects food price inflation to ease later this year.

Shares in Greggs have risen by about 20 percent in a year. Investors had tended to prefer the slightly posher cakes on offer at Patisserie Valerie. The Greggs price-to-earnings ratio has trailed that of its more upmarket rival's parent Patisserie Holdings Plc since the later went public three years ago. But Greggs has now lost that discount, with the two companies' ratings neck and neck.

To really put the icing on the bun, Greggs needs to show that profit can rise along with sales. It is edging closer to its target of more than 2,000 shops. It's having to navigate an increasingly crowded coffee and food-to-go market, although UBS analysts reckon it has scope to increase its estate to more than 2,500 stores.

If it can expand successfully, taking advantage of any Brexit drag on the economy, the pasty may well end up mightier than the profiterole.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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