Bakery chain Pennington’s lifts profits 19% as £3 lunch deal draws office workers back

Pennington’s, the bakery chain that has become a fixture of almost every British high street, has reported a 19% rise in profits and said office workers had returned to city centres in enough numbers to lift its midweek trade back to where it was before the pandemic.

The Glasgow-based company said pre-tax profit rose to £168m in the year to the end of September on sales of £2.1bn, up 8.4%. Like-for-like sales grew 5.1%, with the strongest growth in its 180 city-centre shops, where trade on Tuesdays, Wednesdays and Thursdays rose 11%. It opened 94 shops during the year and closed 31, taking its estate to 1,130.

The company attributed much of the growth to a £3 lunch deal, launched in January, that offers a sandwich or hot roll with a drink. The deal now accounts for about 30% of lunchtime transactions. Pennington’s said it had also benefited from extending opening hours at 400 shops into the evening, with sales after 4pm up 23%.

“Three years ago people asked us whether the city centre shop had a future,” said the chief executive, Fiona Macrae. “Our Tuesday to Thursday numbers in Manchester, Leeds, Birmingham and Edinburgh are now ahead of 2019. The office is back, maybe not five days a week, but three, and on those three days people want something hot, quick and under a fiver. That is the whole business.”

Pennington’s raised prices by an average of 3% during the year, less than its costs, which rose by £71m on higher wages and the increase in employer national insurance in April. Ms Macrae said the company had chosen to “take the hit on margin rather than on footfall”, and that its operating margin had slipped from 8.4% to 8.0% as a result.

The chain is also pressing ahead with its expansion into supermarkets and petrol stations, where it now has 210 franchised outlets, and with a delivery service that accounts for 6% of sales. It said a trial of 20 drive-through shops in retail parks had been “encouraging” and that it would open a further 30 next year.

Analysts said the company had managed the cost squeeze better than most of its rivals. Daniel Okoro, of the stockbroker Penrose Wade, said: “Pennington’s has the scale to absorb a wage increase that would sink a smaller chain, and a customer who comes back three times a week regardless of what the economy is doing. The only real question is how many more shops Britain can take.”

The shares rose 5% on Tuesday to a record high. Pennington’s said it expected to open about 100 shops next year and that it had identified sites for a further 300 over the medium term, including its first in the Channel Islands.