Greggs has seen a jump in sales in the first half of the year as the cost of living has seen customers turn to their value meals.
In the 26 weeks to 2 July sales for the bakery chain jumped by 27.1% to £694.5m compared to £546.2m the previous year.
Despite this half year profits were by in large flat year on year stands at £55.8m compared to £55.5m the previous year.
The cost of inflation could hit 9% this year which will push up food prices, energy and higher packing Greggs warned.
Chief executive Roisin Currie told the PA news agency, “We know the economic environment is challenging and it is tough out there for our customers, so we are doing everything we can to protect our price proposition.
“We are not immune to cost inflation but we are trying hard to mitigate against it impacting customers.”
Charlie Huggins, Head of Equities at Wealth Club said, “Greggs has managed the pandemic well and sales have recovered strongly. However, just as one major threat recedes, another rears its ugly head – this time inflation.
“The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits.
“There’s a limit to how far it can raise prices to offset these extra costs. Greggs also has a reputation for offering exceptional value for money, which it’s keen to uphold. Aggressive price increases now would be akin to gorging on pasties and donuts – feels good in the short-run but not so good for long-term health.
“So far, Greggs is managing these pressures well. While costs have grown, so too have revenues. Gregg’s brand reaches more people today than before the pandemic, and is in fine fettle.
“For that, the group can thank Piers Morgan’s hatred of vegan sausage rolls, but also excellent operational execution. Greggs has transformed its supply chain while growing its product range and store estate. Nowadays, you can get a Greggs sausage roll, or even a Mexican Chicken Baguette, delivered directly to your door.
“If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures. But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook. That headwind is probably more or less baked into the share price, but until inflation comes down, Greggs will have to run hard just to stand still.”