Soaring costs take bite out of Domino’s profits but Greggs savours rise in sales of cheaper treats

Soaring prices and squeezed households budgets have led to a slump in half-year profits at Domino’s Pizza – but a jump in sales for value bakery chain Greggs.

The UK pizza chain reported a 16.3 per cent drop in underlying pre-tax profits to £50.9m for the six months to 26 June after taking a hit from soaring costs despite raising prices for franchisees and introducing a delivery fee.

The company is banking on a boost from the football World Cup at the end of the year.

Greggs saw sales leap 27.1 per cent in the 26 weeks to 2 July as customers turned to value meals amid the cost of living squeeze, but warned its own cost inflation could hit 9 per cent.

Half-year profits remained largely flat year on year at £55.8m compared with £55.5m last year, due to the reintroduction of business rates, an increase in VAT and higher costs.

It is the latest sign that consumers are beginning to adjust their spending habits. A recent YouGov poll found more than one-third have been forced to reduce, or stop spending money entirely, on eating out and takeaways over the past six months, as a direct result of rising costs and inflation.

Rising food prices were identified by the ONS as a major contributor for rises to the consumer price index (CPI) and the Bank of England describing them as “apocalyptic”.

These increases have even been felt in supermarket value ranges, which are a key source of nutrition for many of the UK’s most deprived people.

In May, Greggs said customers would see 5p or 10p increases on some items as it was forced to raise prices for the second time this year.

But Greggs has fixed prices with suppliers for around the next five months, meaning the cost of its food and drink should not rise any further in that time, said chief executive Roisin Currie.

“We know the economic environment is challenging and it is tough out there for our customers, so we are doing everything we can to protect our price proposition,” Ms Currie said.

“We are not immune to cost inflation but we are trying hard to mitigate against it impacting customers.”

The company intends to have 500 shops open until 8pm by the end of the year to target more customers who want hot food in the evening.

Charlie Huggins, head of equities at Wealth Club, said: “The cost of raw materials, energy and wages are all rising rapidly. Greggs is significantly exposed to all three, putting pressure on profits.

“There’s a limit to how far it can raise prices to offset these extra costs. If Greggs can maintain its recent sales momentum, it will go some way to offsetting inflationary pressures.

“But the group’s near-term prospects still look rather unappetising given the extremely unsavoury cost outlook.”

Greggs’ financial results coincide with the company announcing the appointment of Matthew Davies as its incoming chairman. He will take over from Ian Durant on 1 November.

Domino’s expects some relief from increased prices for its franchisees but this was on a “lagged basis”, meaning that the full benefit will not be felt until the final six months of the year.

The group is expecting profits to be weighted towards the end of the year and kept its full-year guidance unchanged.

Domino’s said it is boosting marketing spend “significantly” to attract more customers, having seen like-for-like sales excluding so-called split territories drop 6.4 per cent due to the increase in the VAT rate.

Outgoing chief executive Dominic Paul said: “We will be increasing our media spend in the second half compared to the first half, amplifying our value message to customers as we head into key events such as the men’s football World Cup.

“We are also continuing to acquire new customers by expanding our trial with Just Eat following positive initial results.”

He added: “Domino’s scale and integrated supply chain are always key to our success. As inflation accelerates and consumer budgets tighten, these differentiators are more important than ever.”

Mr Paul recently announced plans to leave in December to head up Premier Inn owner Whitbread.