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I stay pretty enthusiastic about being a shareholder in Greggs (LSE: GRG). I see the enduring excessive avenue baker with a confirmed enterprise mannequin as undervalued. Nonetheless, Greggs shares haven’t been going anyplace quick. They’re down 5% up to now in 2026, 11% over the previous yr, and 30% on a five-year timeframe.
That form of constant downward pattern means that a lot of the inventory market doesn’t share my bullishness in regards to the outlook for the sausage roll purveyor.
So, whereas persevering with to weigh up what I see because the enticing factors of the funding case, I’ve additionally been occupied with whether or not I’m lacking or mis-sizing among the attainable dangers.
Larger vitality costs are dangerous information
For starters, there’s the impression of the Center Jap struggle on vitality prices.
Greggs has hundreds of retailers. It additionally has a number of giant manufacturing services. Every makes use of some electrical energy.
In contrast to a paper store or ironmonger the place the principle electrical energy use is holding the lights and heating on, Greggs’ complete enterprise mannequin entails baking. That requires warmth – and plenty of it, on condition that the corporate shifts tens of millions of tasty meals objects every week.
Its electrical energy prices alone might eat considerably into the corporate’ s profitability this yr and past, I worry.
No AI pie within the sky — simply pies!
Latest years has seen the prospect of some corporations slicing giant numbers of jobs as folks get changed by AI.
That appears unlikely to occur at Greggs, given the manually intensive nature of a lot of its enterprise mannequin.
The corporate has stated that, on the head workplace stage, AI performance is “being developed to drive service requirements and efficiencies”. However I reckon it will have modest total impression on a enterprise that has over 2,700 bodily store places.
In a time of rising employment prices, as a result of wage rises and tax will increase, that can be a threat to profitability.
Certainly, for this yr the corporate expects that ”employment price inflation will once more be the most important driver of upper prices”, regardless that that inflation could also be decrease than prior to now a number of years.
Consuming habits are altering
The expansion of urge for food suppression capsules is probably a major disruptor to buyer demand for sure kinds of meals.
However that’s solely one of many dangers that might eat Greggs’ lunch (whereas its prospects cease consuming their very own!). One other is shifting consuming habits extra broadly.
Greggs has develop into ubiquitous by means of rising to hundreds of retailers and planning additional ones, alongside rolling out frozen items in lots of of Tesco outlets. That opens up a chance for regional rivals to attempt to take a few of its market share with extra revolutionary, localised product choices.
Right here’s why I’m hanging on
Nonetheless, I’m a long-term investor and that informs my method right here.
Greggs’ like-for-like development is modest – however it’s nonetheless development. Add new retailer openings to that and it develop into substantial.
The corporate has a confirmed enterprise mannequin, a strong worth proposition for patrons, and is worthwhile. The autumn in Greggs shares has pushed the yield as much as a tasty 4.3%.
That is sufficient to hold me completely satisfied, as I maintain on within the hope of long-term share worth development.
