Baker Greggs targets growth without debt

By James Davey

LONDON (Reuters) - High street baker Greggs (GRG.L) wants to expand beyond 2,000 shops and revamp its manufacturing capacity, ideally achieving both without taking on any debt, its chief executive said.

The Newcastle-based group sells sausage rolls, pasties, sandwiches, cakes and bread from about 1,400 UK outlets.

"The potential growth opportunity for us is more than 2,000," Ken McMeikan told Reuters in an interview, revising up the firm's previous target of up to 2,000 outlets.

McMeikan, who succeeded Michael Darrington as CEO last August, said Greggs could target under-represented areas such as the South West, East Anglia and northern Scotland, and open more stores in business parks, airports and bus stations.

"Our opportunity is we've got to take Greggs to more parts of the UK. We're only serving one million customers a day, so there's another 59 million people out there that don't come into a Greggs."

McMeikan, a former Tesco (TSCO.L) and Sainsbury (SBRY.L) executive, plans to open a net 10 new stores in 2009 before accelerating growth in 2010 with about 60 net openings.

He is also looking to enhance productivity from the group's 10 regional bakeries and a major restructuring is on the cards.

Following the example of the successful development of a central savouries unit in Newcastle, this could involve bakeries switching production to a smaller range of products but with higher volumes.

"If we don't change the way we currently service our shops with our bakeries then we'll run out of capacity way ahead of the (retail) growth opportunities that we have," said the CEO.

Greggs, which is strongly cash generative, ended 2008 with no debt and despite his big expansion plans McMeikan has no desire to stretch the firm's balance sheet.

"I am a Scot, I actually don't like debt in my personal life let alone in business life," he said, but added he would "keep an open mind" on the issue.

Although Greggs has in the past acquired established regional businesses as a platform for development in new trading areas, McMeikan said the focus was firmly on organic growth.

"The opportunity is for us to grow organically, there isn't a need for us to grow through an acquisition route, but I wouldn't rule it out if the right company was there."

Since becoming CEO he has been quick to introduce changes.

He is converting 164 Bakers Oven shops to Greggs so the firm has a single brand, is trialling new concept stores, has closed down operations in Belgium and has pushed through a share split to make the stock more popular with staff and small investors.