Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

It goes without saying that many of us are longing to get back to normal, and Greggs, judging by its website, feels just the same. Click onto the bakery chain’s homepage, and you’re greeted by the image of a steak bake surrounded by captions like: “enjoy a taste of normal”, “no different than before”, and “they’re back and they’re the same, normal never tasted so good.”

It’s no surprise to see that Greggs is feeling nostalgic. The chain had long been bucking the trend of the flailing high street before the pandemic hit, becoming one of the UK’s favourite brands largely through a combination of clever marketing and a gradual shift of focus towards the grab-and-go market.

The company will have entered 2020 with high hopes, off the back of a “phenomenal year” in 2019. And while today’s Q3 results do show signs of recovery, the pandemic has undoubtedly hit Greggs hard. Since reopening all stores on 2 July, like-for-like sales in company-managed shops have averaged 71.2% of the 2019 level in the 12 weeks to 26 September.

That’s not a bad result, especially given that Greggs couldn’t take part in the Eat Out To Help Out scheme over August, with its stores not allowing customers to dine in - like-for-like sales did improve over September to 76.1% of 2019’s level.

However, today’s sales figures were accompanied by hints at job cuts. The firm explained that: “With business activity levels remaining below normal for the foreseeable future we must change the way we work to be as productive and flexible as we can in order to protect as many jobs as possible for the long term”, and that they were working with consultants to “minimise the risk of job losses by negotiating reduced hours in our shops”.

Innovate or stagnate

The unfortunate irony for Greggs is that much of what brought the company success over recent years is precisely what has harmed it most since the pandemic hit. Greggs had very successfully repositioned itself as a ‘food-to-go’ chain, offering quick lunches to passing trade, rather than a take-home bakery. As such, it has increasingly targeted locations where on-the-go demand is highest - think airports, train stations and city-centres, rather than local towns and high-streets.

While the strategy had paid off well coming into 2020, the pandemic has decimated that kind of trade. Airports and train stations have been shunned, while the shift to homeworking has starved cities of their usual lunchtime shoppers.

Fortunately for investors, Greggs’ success has not rested wholly on this strategy. It still has a sizable presence on local high streets, which means its sales are not solely dependent on city trade (unlike Pret). The company has also proven itself able to adapt and innovate. Its vegan sausage roll was launched off the back of a PETA online petition calling for Greggs to launch a vegan alternative to its most popular item - rather than shun the bad publicity, Greggs saw an opportunity for expansion.

And the quick thinking didn’t stop there. It garnered huge publicity for the product’s launch after a tongue-in-cheek exchange with Piers Morgan on Twitter, after he bemoaned the need for a vegan sausage roll.

Investors will hope to see Greggs recreate this kind of creativity over the coming months, and it’s certainly an area that the company was keen to highlight today, claiming to have “proven our ability to operate with social distancing and adapt to new digital channels.”

All stores now offer a Click & Collect option, while 100 of its larger stores have now reopened customer seating. The company also shared plans for a national delivery option, having teamed up with delivery service Just Eat to provide a ‘Sausage Roll-er skating squad’ - that is, a roller-skate delivery service to be trialled from two London stores.

A roller-skating delivery service may sound like a gimmick, and perhaps it is. But it builds on a legacy of innovation and agility that, until recently, had made Greggs a darling of UK stock pickers. It could provide a novel solution to immediate problems faced by its city-centre and airport outlets, while its original high-street stores continue to attract home-workers.

At the very least, investors will be pleased to see the company doing what it can to adapt to these unique circumstances. It’s important to put company results this year within their wider context and try to understand what is driving underperformance. Should all the blame be shifted onto the pandemic, or is there more a company can be doing to ensure it survives the tricky months ahead?

Greggs may look to the past with fondness, but, more importantly for investors, its focus remains very much on the future.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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Investing ideas; Shares; UK

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