Of course, it is easy for us to compare ourselves to billionaire investor Warren Buffett. Over time, the record will tell! Still, I have been buying shares in baker Greggs (LSE: GRG) over the past year or so. As far as I know, Buffett has never invested in the FTSE 250 company, but I do think it has some characteristics that put me in mind of Buffett’s approach to investing.
A resilient, sizeable target audience
For starters, there is the market Greggs seeks to address.
The business sells convenient, ready to eat snacks and drinks. Historically, that was most associated with the lunchtime opportunity, but in recent years Greggs has pushed into breakfast and dinner opportunities too thanks to its marketing messages, product assortment, and shop opening hours.
People need to eat and Greggs offers an affordable, consistent way to do that across thousands of outlets. Buffett’s past backing of Burger King reflected some similar market dynamics.
Greggs offers something distinctive in the marketplace
From Burger King to McDonald’s, multiple purveyors of simple, competitively priced ready-to-eat food have tried to differentiate themselves in a crowded field.
That can be difficult to do. But there are some levers to pull, from branding and promotional tie-ups to unique product offerings and limited edition flavours.
Those are not necessarily unassailable competitive advantages in the way patentable technology might be for an IT firm, but they can give a company an edge in the takeaway food marketplace.
With its legendary sausage rolls, some unique product branding, a loyalty scheme, and even its meal deals offering hot as well as cold food options, Greggs has also spent years trying to impress consumers with the idea that it is somehow different to rivals.
Reaping economies of scale
Its vast scale nationally can help – as well as helping deliver financial economies of scale when it comes to thing like buying and centralised production.
Again, this puts me in mind of some of Buffett’s investments, such as in pricey sweet maker See’s Candies.
With its branding and product offering, plus centralised production and a large retail network, See’s has successfully sought to differentiate its offering in what at its simplest level is otherwise a commodity product category.
Long-term growth, if not necessarily excitement
Greggs is not a racy business and its growth prospects can hardly be compared to those of an AI firm or biotech pioneer.
Meanwhile, its heavily staffed and energy-intensive business model means that there is an ongoing risk of inflationary pressures eating into its bottom line.
However, the business continues to grow both organically and through opening more shops. It remains well below what it sees as the number of shops the UK market alone can support.
Warren Buffett likes businesses that offer undramatic but steady growth, such as Coca-Cola. Greggs’ revenue last year was its highest ever, at £2.2bn.
Revenue is on course to grow again this year. The first 19 weeks of the current financial year showed total year-on-year sales growth of 8%.
I reckon the long-term outlook for Greggs is strong yet its shares – down 13% over the past year – have lately been going nowhere fast.
To me, this looks like what Buffett calls a great business at an attractive price. I see it as a share for long-term investors to consider.
Should you invest £5,000 in Greggs Plc right now?
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Christopher Ruane owns shares in Greggs.
