Greggs threatened by climate change

GreggsIt is too hot to eat these.
  • Climate change could be hurting sales growth at Greggs.
  • Recent extremes of hot and cold weather have triggered four profit warnings and created volatility in Greggs’ stock price, according to Barclays.
  • Data from the Met Office show Britain is getting hotter and rainier as the years go by.

LONDON – Climate change could be hurting sales growth at Greggs, the gigantic baked goods chain, according to an analysis of Meteorological Office data by Barclays.

Recent extremes of hot and cold weather have triggered profit warnings in recent years, moving Greggs’ stock price, according to Barclays analyst Richard Taylor and his team. High temperatures hurt sales growth, their analysis shows.

“Greggs issued a profit warning at its AGM in May following extreme cold weather (as well as ‘weaker market conditions’), so investors are very focused on how trading evolves. Our analysis indicates that in previous heat waves trading has been disrupted (hot food is not appealing), and there have been one positive and two negative share price outcomes,” he told clients in a research note seen by Business Insider.

The pastry chain’s sales are affected by severe weather in both winter and summer, the data show.

Broadly, Greggs is unstoppable. It has nearly 1,900 locations in the UK, dwarfing chains like McDonald’s, Starbucks and Pret a Manger. It is not uncommon to see multiple branches of Greggs on a single street, or two stores facing each across an intersection, such is Britain’s insatiable need for pies. The sausage-rolls-and-sandwiches company opens new locations in Britain at a rate of more than 10 per month. Its revenues are still growing: like-for-like sales were up 1.3% in May.

Greggs store locations statistaStatistaTotal locations of Greggs stores in the UK, by year.

Greggs is so vast that is it perhaps not surprising its business can only be swayed by planet-wide events, like global warming. The worry is that growth might be pinched if people don’t want to eat starchy baked pastries in warm weather, or they stay at home during winter storms, the Barclays analysis suggests.

Britain’s climate is certainly becoming more extreme. Average temperatures have risen nearly 2 degrees Centigrade since the beginning of the 20th Century, according to the Met Office.

Uk mean temperature climate change met office data 2Met Office

Britain also has heavier rain. In 1961, Britain got an average of just over 150 centimetres of rain per year. In 2017, it was well over 160 centimetres, the Met data say.

Uk annual rainfall thru 2017Data from the Met Office

And the UK has fewer frost days now than 50 years ago, too.

Uk annual frost days thru 2017Met Office

In May, Greggs issued a profit warning because sales were reduced by the “Beast from the East,” an unusually severe winter snowstorm that brought Britain to a halt for a few days. A large number of Greggs outlets were unable to open, and those that did saw lower foot traffic. The stock dropped 15% on the news.

So Barclays decided to find out just how much of a problem the weather is for Greggs. “Writing about the weather and its potential impact is never a proud moment for us, as we do not believe it affects the fundamental value of a company. However, we are regularly asked about recent warm weather, and share prices clearly react to this news,” Taylor told clients.

Greggs getty(Photo by Christopher Furlong/Getty Images)

He discovered that Greggs has warned of the effect of weather on its business on three previous occasions, which coincided with the three greatest temperature anomalies since 2003.

Greggs climate changeBarclays

Right now, of course, Britain is basking in a glorious – albeit unusual – heatwave that began at the start of June. There has been almost no rain across the country for several weeks. No one is in the mood for a cheese and bacon wrap.

“Given that the temperature anomaly reading in June 2018 is +1.8, similar to 2003 and 2013, we would be surprised if the company does not mention the weather as having an impact on trading when it reports H1 results (scheduled for 31st July),” Taylor’s note says.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.