The news that annual food price inflation has hit a record 17% has raised questions about whether or not certain stocks should be on the menu. Households seem likely to tighten their belts an extra notch to cope with larger grocery bills.
It could kill your appetite for Deliveroo burgers, Domino’s pizza, Greggs sausage rolls (pork or vegan) or Just Eat pasta.
The national fast food and takeaway market is expected to be worth £22bn this year, up from £21.4bn in 2022, and spending on food of all types delivered to our doorsteps is 42% higher than before the pandemic. But can Deliveroo, London-listed Domino’s and Greggs, and Amsterdam-listed Just Eat build customer loyalty at breakfast, lunch and dinner?
Anyone with shares in these companies should note the losses reported this week by online supermarket Ocado.
These figures suggest even the wealthy are becoming cautious, although Deliveroo and others should be able to exploit the tough economic climate, taking the wont out of weaker independents.
Taking investors for a ride? Will Shu, Founder of Deliveroo
The 12% rise in Greggs’ share price this year underscores the belief that this budget-focused company could make the most of the circumstances to achieve its goal of doubling annual growth.
It serves baked steaks (£1.80 each) and other staples across its 2,200 outlets and via home delivery.
But it’s growing rapidly beyond its northern heartland, under managing director Roisin Currie who’s fueled by a breakfast of Greggs porridge (yours for £1).
Mike Fox, director of the Royal London Sustainable Leaders fund, said adding new stores should now be easier: “There is plenty of space available in the South. For example, there are empty outlets in train stations – at far lower rents than they used to be.
Greggs is perhaps known for his clothing collaborations with Primark. But other aspects of the business are less publicized, as Fox points out: “We love its concern for its people and its supply chain.
“Greggs also offers an accessible way to be vegan. A vegan burger can cost £12. A Greggs vegan sausage roll costs £1.20.
Greggs share price is 2724p; analysts’ consensus target price is 2982p, with an optimist expecting 3845p. This prediction makes me happy to be an investor in Royal London Sustainable Leaders. Several investment funds also own Greggs, including Edinburgh and Mercantile.
But I’m less than thrilled to have a stake in Deliveroo whose shares have fallen 70% since their stock market debut in 2021, in what has been dubbed ‘the worst IPO in London history’.
In 2023, Deliveroo withdraws. As CEO Will Shu said, “Our fixed cost base is too big for our business.
But the company is breaking even and should “close to profitability”, according to at least one analyst.
This prompted me to hold onto the shares, especially as when I sit in one of my breakfast haunts watching Deliveroo drivers take orders for lattes and croissants, suggesting that the well-to-do don’t deny themselves – yet.
Since Deliveroo sets great store by its technological flair, I hope it deploys it to secure the sponsorship of these customers.
Under Pressure: Jitse Groen
Shares of Just East have fallen 25% in a year, but have recently recovered to €21.38 (£18.91). Analysts are targeting €34.77 (£30.76).
Chief Executive Jitse Groen is confident it can be very profitable, although its gross transaction value, a key metric that shows how much people spend on the platform, remained flat at 28.2 billion euros ( £25 billion). It all hinges on finding a buyer for its US arm Grubhub, acquired for $7.3bn (£6.1bn) in 2021 and now worth much less.
US activist investor Cat Rock Capital was so unimpressed with the deal that he accused Just Eat of “poor capital allocation, poor financial management and a lack of credibility with capital markets”. Yet, although Cat Rock has reduced its stake, it remains convinced that Just Eat is undervalued and has strong long-term prospects.
Shares in Domino’s Pizza, which operates the group’s UK franchise, are at 289p, down 18% from a year ago. There was an 8% decline in the past month, linked to lackluster results from New York-listed Domino’s Pizza Inc.
It may be a different business, but there is concern that higher prices will lessen the appeal of a pizza. The analyst consensus price target is an undisputed 327p.
Anyone betting on fast food is taking a chance on the love people have for their favorite takeaways and the convenience of home delivery. In tough times, affordable indulgence can be a can’t-miss treat.
Greggs’ sausage roll, in all its forms, exemplifies such indulgence. Even in central London it costs no more than £1.45.
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