Wheat shortages could prompt price hike, warns Greggs

Bakery chain Greggs has added its name to the growing list of companies warning that a sharp increase in the cost of commodities such as wheat could result in price rises later this year, although Chief Executive Ken McMeikan pledged to try to limit the impact on consumers.

Mr McMeikan, who also warned that Greggs was nervous about whether it would be able to continue to increase sales during the rest of 2010, said: "We now expect an increase in ingredient cost inflation in the second half of the year, following the recent rise in wheat prices." His comments follow concern about the impact of the poor harvests in Russia and the Ukraine, which have led to a sharp spike in the price of wheat this month.

However, he tried to allay concerns about a hike in the price of Greggs's sausage rolls and its other products.

"If there were to be any price rises, they would be pretty small and they would be pennies – it would be tiny," Mr McMeikan said.

He also pointed out that the price of wheat rose "more dramatically" to around £200 per tonne in 2007 and 2008, which compares to the recent high of £170 a tonne. "We think that prices have overheated and we expect and hope that they will come back down," Mr McMeikan said.

For the 26 weeks to 3 July, Greggs posted a 12.3 per cent uplift in pre-tax profits to £18.6m. The bakery chain, which has 1,437 shops in the UK, delivered like-for-like sales up by 0.7 per cent over the period.

But Mr McMeikan said he "did not know" if underlying sales would remain in positive territory during the second half, as he warned of tougher trading on the high street. "The pressure on the trading environment looks likely to increase in the second half and we remain focused on managing costs tightly."

Ben Hunt, an analyst at Oriel Securities, said: "We suspect current trading has deteriorated, too, as public sector job security has diminished.

"We also continue to have concerns for the competitive nature of the fresh food market, as space is being rolled out rapidly by the likes of Subway and the supermarkets."

Greggs did strike an upbeat note with a progress report on its eight new concept stores in London – which provide more products for self-selection by customers – citing "double digit" sales growth. Greggs plans a further 19 shops in the capital in the second half.