Greggs (LON:GRG) is a company well known by most in the UK  - it's a high-street (and increasingly off-high street; we'll come to that later!) baker famed for catering towards the hard value end of the spectrum. It's a sector I admit I have a little experience with personally, and I have often observed that Greggs does a pretty good job differentiating themselves from the rest of the high-street. The 'higher-end' is clustered with faux-authentic pasty outlets and ubiquitous coffee shops, but if you fancy something cheap and relatively warm (don't start this again..) to my mind Greggs is probably your best bet. I think it's essentially a monopoly, though the differentiating lines in real life are always more complicated than in theory. It's probably safer to say that they have a well-differentiated niche.

Given that, it's no surprise Greggs interests me. Companies with defensible niches can earn better returns than companies buffeted by the winds of competition, and large companies which fall into this category are doubly beneficial - a small, well-run company can be muscled out - a big, dominant player which is operating efficiently can only be taken on at great cost. See Howden Joinery for an example of where, while returns are strong, the barriers to competition still appear to make them well protected.

All isn't rosy, though, otherwise Greggs wouldn't be cheap. While I don't think they were ever particularly expensive, their shareprice recently took a hit with a less-than-positive trading statement. Like-for-like sales are down quite substantially, and management noted that they believed profits would be to the 'lower end' of market expectations. Helpfully (and coincidentally something Howden also do) they actually state what they think market expectations are - in this case, in the range of £47.5m to £55.2m. Frankly, these forecasts seem rather bullish in the first place, which makes me wonder which measure of profit they're talking about - operating/PBT/net. Still, it's mostly an irrelevance, and flavour for discussion, since there's nothing particularly dramatic in there. 

The decline

To me, the graph alongside is far more interesting data than the relatively short-term gyrations of their first quarter revenues and profits - it's more noteworthy, and more elucidating. 

Returns have dropped pretty steadily…

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