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I remain fairly excited about being a shareholder in Greggs (LSE: GRG). I see the iconic high street baker with a proven business model as undervalued. Still, Greggs shares have not been going anywhere fast. They are down 5% so far in 2026, 11% over the past year, and 30% on a five-year timeframe.
That sort of consistent downward trend suggests that much of the stock market does not share my bullishness about the outlook for the sausage roll purveyor.
So, while continuing to weigh up what I see as the attractive points of the investment case, I have also been thinking about whether I am missing or mis-sizing some of the possible risks.
Higher energy prices are bad news
For starters, there is the impact of the Middle Eastern war on energy costs.
Greggs has thousands of shops. It also has multiple large production facilities. Each uses some electricity.
Unlike a paper shop or ironmonger where the main electricity use is keeping the lights and heating on, Greggs’ entire business model involves baking. That requires heat – and lots of it, given that the company shifts millions of tasty food items each week.
Its electricity costs alone could eat significantly into the company’ s profitability this year and beyond, I fear.
No AI pie in the sky — just pies!
Recent years has seen the prospect of some companies cutting large numbers of jobs as people get replaced by AI.
That seems unlikely to happen at Greggs, given the manually intensive nature of much of its business model.
The company has said that, at the head office level, AI functionality is “being developed to drive service standards and efficiencies”. But I reckon this will have modest overall impact on a business that has over 2,700 physical shop locations.
In a time of growing employment costs, due to wage rises and tax increases, that is also a risk to profitability.
Indeed, for this year the company expects that ”employment cost inflation will again be the biggest driver of higher costs”, even though that inflation may be lower than in the past several years.
Eating habits are changing
The growth of appetite suppression pills is potentially a significant disruptor to customer demand for certain types of food.
But that is only one of the risks that could eat Greggs’ lunch (while its customers stop eating their own!). Another is shifting eating habits more broadly.
Greggs has become ubiquitous through growing to thousands of shops and planning further ones, alongside rolling out frozen goods in hundreds of Tesco shops. That opens up an opportunity for regional rivals to try and take some of its market share with more innovative, localised product offerings.
Here’s why I’m hanging on
Still, I am a long-term investor and that informs my approach here.
Greggs’ like-for-like growth is modest – but it is still growth. Add new store openings to that and it become substantial.
The company has a proven business model, a powerful value proposition for customers, and is profitable. The fall in Greggs shares has pushed the yield up to a tasty 4.3%.
That is enough to keep me happy, as I hold on in the hope of long-term share price growth.
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