Analysts at UBS reckon there is the potential for Greggs PLC (LON:GRG) to open another 1,000 stores in the UK.
The pasty and sausage rolls seller trades from just under 2,000 stores at the moment, but according to the Swiss investment bank’s research, this figure could easily surpass 3,000.
READ: Greggs' vegan sausage roll pays dividends – almost literally
Most companies, especially ‘mature’ ones such as Greggs, limit their store openings to avoid cannibalisation – when one store eats into the sales of another nearby.
But Greggs has much lower cannibalisation rates than its peers.
When a new store opens, only 28% of its sales come from people who would have otherwise spent their money at a different Greggs store within a short walking distance.
Compare that to Costa, where almost half of a new café’s sales are ‘poached’ from nearby outlets.
“Our analysis suggests all net new stores will likely be in travel and work based locations for the last five years,” said UBS in a note to clients.
“Assuming these locations do not increase cannibalisation (as recent history suggests), if we then increase the concentration of stores to have a cannibalisation rate of 42.5%, (vs. Costa 44%), then this implies >3,000 stores possible.”
Back to ‘buy’
Having downgraded the stock earlier this year to ‘neutral’, the analysts have now reverted to their ‘buy’ recommendation.
Back in February’s downgrade, they were worried that the strong like-for-like growth had been solely driven by the launch of the vegan sausage roll and that this boost would be short-lived.
“However, we have since seen LFL growth remain strong, still running at c.9% for the last 7 weeks of Q2 despite the initial publicity around the vegan sausage roll subsiding, and with comps strengthening after the weather impact in Q1-18.”
Greggs shares were up 3% to 2,025p on Wednesday, taking them towards the top of the FTSE 250.