The next time you visit a Greggs shop try this exercise. Divide the store into 4x4ft sections and then zoom in and study each area in minute detail. What works? What doesn’t? Repeat the exercise for each 4ft section of the store.
This is the drill Greggs chief executive Ken McMeikan runs every time he visits one of the chain’s 1,500+ UK units. It’s a trick he learned from studying former Tesco boss Sir Terry Leahy and it’s one that has served him well during his four-year tenure at the helm of the rapidly growing bakery business.
In the past financial year, annual pre-tax profit was up almost 8% at a record £52.5m on sales of £662m, with sales in the first 18 weeks of this year up by 4.8%. Much of this growth can be attributed to McMeikan’s rigorous belief in the age-old mantra “retail is detail”.
Now he’s looking to sustain this growth by boosting store numbers past the 2,000 mark and entering the take-home market. This week Greggs branded sausage rolls hit 10 Iceland stores across Liverpool as part of a trial.
McMeikan a former Royal Navy officer who served in the Falklands before spending two decades working for Sears, Tesco and Sainsbury’s is bullish about growth opportunities in coming years. But with consumer spend dwindling, commodity prices hitting hard and the mults ramping up food to go and encroaching on the high street, how will the growth be sustained?
When McMeikan joined the company from Sainsbury’s, he was tasked with overseeing the baker’s rapid expansion plans. Under exiting CEO Sir Michael Darrington, the business had enjoyed huge growth, but the board wanted to step things up, and to do that McMeikan recognised that significant structural changes had to take place.
“Greggs had been operating as a decentralised business, but the company needed to become centrally run. I had an understanding of how that change could be made to work effectively,” he explains.
After centralising the management structure, McMeikan and his team identified a number of opportunities for growth, one of the most lucrative of which was entering the breakfast market.
“We already had our staff in the shop first thing in the morning but we didn’t have a breakfast range to bring customers in.” Machines offering fresh coffee, as much as 35% cheaper than rival high-street outlets, were introduced, alongside bacon and sausage rolls, porridge and bakery items.
The launch was a major success, but it’s just one of a number of small changes McMeikan has introduced that have made a big difference. As the nation entered the recession, Greggs pulled off a masterstroke in introducing a 99p sandwich, vastly cheaper than the £1.60 its cheapest sandwiches normally retailed for.
Another innovation was the addition of hot sandwiches to the range, an option that will be available in more than half the company’s stores by the end of the year. “We’ve focused on keeping our prices as keen as we can. We sell our hot sandwich for about £2.40 but we have a competitor down the road who does them for £3.99.”
Store layouts were also changed, with customer seating added to some stores and some products moved to the hearts of stores so customers could self-select. “The best people I’ve worked with start with the principle of: listen to what the customer wants, see where the customer is going, then follow the customer and make sure you deliver. If you keep doing lots of little things you get continued growth.”
Getting insight into customer needs is one of the reasons McMeikan undertakes unannounced inspections at Greggs stores up and down the UK. Several times a year he also works shifts in the company’s stores and bakeries to witness first-hand what the business is doing well and where improvements could be made. “There’s an old saying: ‘good sales hide a multitude of sins’. If you sit in an office and just look at the numbers you will get a very false reality, even if the numbers are good numbers.”
It’s a lesson that he learnt from observing the cream of the retail crop. “I always admired Terry Leahy, and Lord MacLaurin was a great inspiration. David Potts and Philip Clarke at Tesco were the same, as was Justin King at Sainsbury’s.”
As you can tell from this list of former colleagues, McMeikan’s retail CV is second to none. After leaving the Navy he spent five years working for Sears, before a 14-year stretch at Tesco where he occupied a number of different roles, ranging from store manager to leading the acquisition of Europa Foods. He was just about to embark on the challenge of heading up the retailer’s Japan operation when he got a call asking him to meet Justin King, who had recently taken over at Sainsbury’s and wanted McMeikan’s help.
The opportunity to resuscitate the fortunes of “one of the great names in British retailing” proved a draw for McMeikan, who describes the three years that followed as a “very exciting and challenging” period that resulted in a dramatic turnaround in fortunes for the multiple. As McMeikan was contemplating his next move, serendipity intervened again when he was approached by Greggs to replace Darrington. He hasn’t looked back. From pre-2008 to present day McMeikan estimates that the business has grown by 40% to 45%.
Of equal importance to him is the fact that Greggs has also managed to ramp up the business’s social enterprises. Its school breakfast clubs programme, which provides free food to children from disadvantaged backgrounds, has proved successful. And a scheme to help homeless people back into full-time employment is starting to reap rewards six months in, with more than 20 former homeless people finding work, including one with Greggs itself.
But the business’ social responsibilities don’t stop there. It has been working to reformulate products to make them as healthy as possible. Hydrogenated fats and oils have already been removed from products, and Greggs is working towards meeting the FSA guidelines on salt for 2012. The challenge, says McMeikan, is reducing the salt and fat content without affecting taste, so its in-house chef and technical centre in Newcastle have been working with a “leading university” to overcome the issue.
Creating healthier products is just one of many challenges the business faces. McMeikan admits he’s worried about commodity prices for things like wheat, which are running much higher than anticipated this year. Escalating energy costs are also hitting the business and its customers hard, as are fuel prices. Another potential drain on Greggs’ customer spend is the multiples’ ramped-up food to go offer. McMeikan says he’s not unduly worried, but that doesn’t mean he’s complacent. “There’s no doubt the supermarkets are going to challenge on value,” he explains.
McMeikan is a strong believer that innovation is key to the company’s future growth, so one option that could potentially be on the cards depending on the success of the Iceland sausage roll trial is launching Greggs branded products into a supermarket. “If we did decide to go down this route the challenge would be making sure we didn’t cannibalise our shop business. But some brands have made products accessible to the consumer through supermarkets, and it doesn’t seem to have affected their shop sales.”
Even if McMeikan does take this option, he’s quick to point out it would be a sideline to the business’ main growth opportunity of “opening new shops, based on a profitable model we know and understand. The focus is very much on new store openings and our existing estate.”
Greggs broke through the 1,500 store barrier in March and intends to add another 80 this year. Last year it opened 68, a record for the business. Crucially, it’s managed to sustain this growth using its existing UK network of 10 bakeries by investing in technology to boost production capacity. McMeikan believes the current supply chain model could service more than 2,000 stores but refuses to be drawn into a “numbers game”. What he will say is that Greggs could establish a store estate “significantly higher” than 2,000.
The estate could also one day encompass stores overseas, despite Greggs’ aborted venture into Belgium, which saw it establish a handful of stores in 2003 then draw a rapid retreat in 2008. McMeikan says Greggs learnt a lot from the experience and he still believes there’s an opportunity outside the UK.
But for now he refuses to be distracted, swerving questions about whether or not he might one day return to his supermarket roots. His focus, he says, remains on Greggs. “The challenges we face are substantial but the opportunities Greggs still has for growth are equally substantial. These are fascinating times for high-street retailing and the bakery industry, and I still have a part to play. If you start worrying about what you’re going to do next you’re not really concentrating on what you should be doing today.”
With that, he leaves to go and chat to the manager of The Strand store. During his earlier inspection he spotted a sign that had been placed too high on the ceiling. Retail is detail indeed.
Kennedy McMeikan snapshot
Marital status: Married with five children
Career snapshot: After leaving the Royal Navy, McMeikan worked for Sears. In 1990 he joined a management trainee scheme at Tesco where he fulfilled a number of different roles over a 14-year stint. He joined Sainsbury’s in 2005 as retail director and left in June 2008 to take up the post of chief executive at Greggs
Hobbies: Football. McMeikan supports Celtic and Leeds United, a fact that he attributes to the time his father spent in the Scottish guards (Leeds had a large contingent of Scottish players at the time).
McMeikan’s daily Greggs menu: Breakfast: Instant porridge or a croissant; Lunch: Sausage roll or hot chargrilled chicken sandwich: Dinner: Steak bake