Boosting Greggs to FTSE 100: The Power of Sausage Rolls

Greggs is a UK institution, so is the FTSE 100. In this somewhat satirical blog we look at what it takes to break into the FTSE 100 and answer the key question, just how many sausage rolls would Greggs need to sell to join the ranks of the FTSE 100?

John Gregg started out in 1939 delivering eggs and yeast by pushbike around Newcastle. In 1951 he set up Greggs of Gosforth selling baked goods.

Greggs expanded rapidly in the 1970s, acquiring other bakeries. This expansion and acquisition process continued through the 1990s, with Greggs opening it’s 1,500th store in York in 2011.

In 2013 Greggs branched out to offer sandwiches and other food focusing on ‘food on the go’. The reasoning was that by focussing solely on baked goods they simply couldn’t compete with supermarkets.

Greggs gained wide popularity for their sausage rolls and later their vegan sausage rolls. The latter causing British controversy with Piers Morgan claiming no body wanted a vegan sausage (note my phrasing is much more polite). Greggs later responded to this tweet with saying ‘Oh hello Piers, we’ve been expecting you’ when there were long queues for the new product and sell outs across stores on release day.

Greggs now has over 2,500 stores and is a household name in the UK.

The FTSE 100 (Financial Times Stock Exchange – 100) is an index representing the largest 100 companies the London Stock Exchange by market capitalisation.

To be included in the FTSE 100, a company must be listed on the London Stock Exchange, domiciled GBP and meet minimum float and stock liquidity requirements.

Stocks are ranked by market capitalisation, with the top 100 reaching the criteria making up the FTSE 100.

Market Capitalisation

Market cap, or market capitalisation is the total value of a company’s stock. To calculate market capitalisation, we simply multiply the current share price by the number of available shares.

Whilst market cap is a factor of the share price, this does not represent the equity value. This is hard to estimate and usually takes significant effort to work out, even then no two sources will agree. Different investing institutions will use different algorithms to calculate what they believe the right value for the equity.

Share price will often be represented as ‘overweight’, ‘underweight’ or similar terms such as ‘strong buy’ or ‘sell’ to indicate an analysis platform’s view on the future of the stock price. For example, Investing.com currently see Greggs as a strong buy as their analysis estimates the share price to increase above the current price in the next 12 months. This may also be indicated as an upside or downside.

FTSE 250

The FTSE 250 is the logical extension of the FTSE 100. For those companies that don’t make it into the top 100, there is the next 250 in the form of the FTSE 250.

FTSE Promotion and Relegation

Every quarter, all companies that meet the screening criteria for liquidity requirements are ranked by market capitalisation.

It’s not quite as simple as the top 100 companies are included in the FTSE 100. Instead, if a company not in the FTSE 100 is ranked 90 or above, they are promoted.

Similarly, if a company currently in the FTSE 100 is in 111th position or lower, then they are relegated into the FTSE 250.

As a result to enter the FTSE 100 you need to be ranked in the top 90 for market capitalisation which for currently stands at approx. £4,300 million.

Gregg’s currently hover around 25th in the FTSE 250, with a market cap of £2,830m.

Greggs have 2,500 shops with the intent to grow their presence to over 3000 stores. Turnover has been growing steadily since the COVID pandemic, with 2023 returning £1810m compared with 2022’s £1513m. Pre-tax profits also grew to £167.7m from £148.3m.

The 2023 annual report reflects on the resilience of the Greggs brand in a cost of living crisis with record high inflation.

Greggs manufacture and transport their products themselves using their own logistics. November 2023 saw the opening of a 4th savoury production line at their Balliol manufacturing site. This will enable production of an additional 4 million bakes every week.

Greggs have paid close attention to consumer trends. Noticing customer shifts away from animal products, Greggs released their iconic vegan sausage roll in 2019.

Their baked goods have become something of an national icon with LabBaby releasing a charity cover of We Built This City with sausage roll based lyrics and a mention of the Greggs brand.

According to YouGov, Greggs is the top food-to-go company in the UK with an 8.2% market share.

We’re going to approximate the figures here to make the maths a little easier to follow.

Market Cap Maths

Greggs currently has a market cap of approximately £2,800m. To enter the FTSE 100 we estimate Greggs will need to increase this market cap to £4,300m, so roughly a 50% increase.

We’re going to assume that all costs and revenues are linear, so to double revenue, profits and market cap, you simply need to double sales.

Linear Scaling of Sausage Rolls

Greggs currently sells roughly 130 million sausage rolls a year. For a simplistic calculation we estimate Greggs would need to sell in the region of 200 million sausage rolls to break into the FTSE 100.

This estimation of course requires all aspects of Greggs revenue and costs to scale in a linear fashion. Noting that Greggs would need to sell approximately 50% more of every good they produce.

Sausage Roll Enterprise

What if Greggs only sold sausage rolls? In fact, lets go vegan, what if Greggs only sold vegan sausage rolls?

Again, we’ll assume all costs scale linearly to meet the desired market cap of £4,300m. Looking at the most recent figures from the Greggs annual report, we can see that for the original £2,500m market cap, revenue was £1,800m. Operating profit was £171m.

From here, we’ll assume to reach the £4,300m target market cap we need a increase of roughly 50% in profit. This sets us a rough £260m target.

A standard vegan sausage roll costs £1.45. We’ll assume a generous 15 pence profit in each vegan sausage roll sold.

Assume the only product Greggs sells is the vegan sausage roll, to meet the profit and hence market cap target we’d need to sell 1.7 billion vegan sausage rolls.

Practicality of FTSE 100 Vegan Sausage Rolls

1.7 billion vegan sausage rolls is a lot.

To put this in perspective the UK has a population of approximately 67 million people. That includes everyone from working adults grabbing a sausage roll on their commute to babies, presumably eating liquidised vegan sausage rolls?!

This works out to be 25 sausage rolls per person, per year, roughly one a fortnight.

Another way of looking at this figure is by considering the locations that have the highest sausage roll consumption rate. In 2023, the Sun reported Greggs sold 30 million sausage rolls a year in Glasgow. To meet the market cap target all we’d need is for Glasgow to turn vegan and to replicate itself 56 times. Easy.

Clearly the dream of elevating Greggs into the FTSE 100 through the consumption of vegan sausage rolls alone will remain a fantasy. The real path to the success is Greggs’ ability to innovate and diversify it’s offerings.

The vegan sausage roll was a well timed innovation and proved Greggs’ business model and ability to deliver new products which directly boost sales. As they continue to expand into new markets and adapt to changing customer preferences, Greggs’ ascent into the FTSE 100 may well become a reality.

Nest time you take a bite of a Greggs’ sausage roll, whether vegan or classic, know that you might well be part of a bigger story of growth, innovation and maybe a climb into the top group of the financial food chain!

Note this blog was written for entertainment and education purposes, and we are not making an investing recommendation.