Digital Channels And Urban Trends Will Reshape Convenient Dining

Key Takeaways

• Expansion into diverse shop formats, digital channels, and retail partnerships is set to boost revenue growth and create previously untapped high-margin earnings streams.
  
• Supply chain automation and menu innovation focused on health trends are poised to deliver sustained margin improvements and outsized market share gains.
  
• Shifting consumer preferences, rising costs, regulatory risks, market saturation, and increased competition threaten Greggs' market share, margins, and long-term revenue growth.

Catalysts

Operates as a food-on-the-go retailer in the United Kingdom.

• Analyst consensus sees significant shop expansion as a growth driver, but the underlying customer data and shop ROI evidence suggest Greggs can exceed the 3,500 shop target by entering even more diverse, high-return formats and catchments, which would transform the upper bound of revenue growth over the next decade.
  
• While most view new supply chain sites as simply supporting more shops, the company's automation, format flexibility, and built-in capacity for future expansion at Derby and Kettering unlock sustained structural margin improvement, meaning net margins could reach historic highs as scale benefits intensify across next phases of estate growth.
  
• The rapid adoption of digital channels-including the Greggs app now used in over a quarter of visits, integrated kiosk trials, and data-driven CRM innovation-points to the ongoing shift in consumer behavior, positioning Greggs to sharply increase visit frequency and average transaction value, driving both revenue and EBITDA in excess of current forecasts.
  
• Greggs' new bitesize shop format and expanded grocery/wider retail partnerships (Tesco, Iceland, etc.) represent a step-change in market reach, creating incremental earnings streams unpriced by the market and opening up vast new high-margin channels in out-of-home snacking and on-the-go occasions.
  
• Menu innovation tightly aligned to rising demand for health, plant-based, and protein-led options, plus Greggs' nimble ability to tailor its offer by daypart and location, positions the brand to take outsized share as eating habits trend further towards convenient, ethical, and value-oriented dining, resulting in outsized market share gains and structural increases to long-term sales growth.

Greggs Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Greggs compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Greggs's revenue will grow by 9.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 7.0% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach £153.3 million (and earnings per share of £1.49) by about August 2028, up from £144.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the GB Hospitality industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.45%, as per the Simply Wall St company report.

Greggs Future Earnings Per Share Growth

Risks

• Rising health consciousness and shifts toward healthier diets threaten demand for core Greggs products such as pastries and baked goods, which may place long-term pressure on revenue growth and risk erosion in market share if not offset by substantive menu innovation.
  
• Cost headwinds from persistent inflation in labor and urban rents, as well as additional regulatory levies such as packaging and environmental compliance, are outpacing like-for-like sales growth, leading to declining operating profit and potential net margin compression even as total sales grow.
  
• The company's significant UK market concentration exposes it to domestic risks, including changing regulations such as potential taxes on unhealthy foods and broader economic volatility, which could increase earnings volatility and revenue downside.
  
• Expansion through a dense store network brings ongoing cannibalization risk as incremental locations-particularly in mature or saturated catchments-may drive diminishing returns on new openings, threatening same-store sales growth and undermining long-term revenue performance.
  
• Intensifying competition from supermarkets, quick-service restaurants, and food-to-go specialists-combined with digital disruption from delivery platforms and aggregators-creates pressure on both market share and margins, forcing Greggs to defend its brand value while potentially ceding direct customer relationships and pricing power, with negative implications for revenue and profit sustainability.

Valuation

• The assumed bullish price target for Greggs is £30.6, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Greggs's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £30.6, and the most bearish reporting a price target of just £13.3.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £2.7 billion, earnings will come to £153.3 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of £16.22, the bullish analyst price target of £30.6 is 47.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.