Greggs has blamed its sales slowdown on subdued consumer confidence and a ‘challenging market backdrop’ - Jonathan Brady/PA
The gilts market might be in turmoil. A recession may have already started. The jobs market might be collapsing, and real wages starting to fall.
Still, no matter how bad the economic outlook might get there was one thing you could surely always rely on: there would still be good money to be made from selling competitively priced sausage rolls.
But shares in Greggs fell sharply last week as its sales growth stalled, and the cheap-as-chips retailer B&M reported similarly disappointing figures.
The blunt truth is this: when even the discounters are struggling, you know Britain is in real trouble – and plenty of other companies will be feeling the pain very soon.
It was the one company we might have assumed was immune from the mounting gloom surrounding the British economy. Greggs, with its tasty, reliable and inexpensive snacks, has proved a formidable success over the last decade, expanding right across the country, and easily growing sales every quarter.
On Thursday, however, it badly disappointed the markets with slowing sales growth, up by just 2.5pc over the last three months, compared to a 5pc increase in the quarter before that.
The company blamed the slowdown on subdued consumer confidence and a “challenging market backdrop”. The shares ended the week 23pc lower. Anyone who thought Greggs was a guaranteed hedge against an economic downturn will have been disappointed.
It was a similar story over at B&M. The discount chain has been one of the big success stories of the last decade, and has expanded massively with an ultra-cheap range of household goods. If you needed some cheap pots and pans, or toys for the kids, it was the place to go.
And yet it recently reported that like-for-like revenues from its UK arm dropped by 2.8pc in the 13 weeks to Dec 28, even though overall sales were up for the quarter. Investors didn’t like the sound of that very much, and even with a special dividend the shares were down by 12pc on the week.
Again, despite its very cheap prices, the company is turning out to be not much of a hedge against a recession either.
Sure, not all the discounters are in trouble. Aldi and Lidl both reported very strong figures for Christmas, helped by the turmoil at Asda, and a strong grocery market over the festive season. (Tesco and Sainsbury also did well – whatever else we were all cutting back on this year it wasn’t the turkey or the crackers.)
Even so, the overall lesson of the last week was clear: some of the companies that we assumed would prove completely resilient even in the face of an economic slowdown have shown that they are finding trading just as tough as everyone else.
In reality, the bottom end of the market faces two big problems.
To start with, it is their customers that are already struggling, and will feel the squeeze in living standards the most severely. Waitrose, M&S and John Lewis shoppers tend to have far more of a financial cushion, and of course if they are working in the public sector they are probably doing pretty well, with the government awarding them generous pay rises.
It is the lower paid workers who will be hit hardest by the National Insurance increase, and they will be the ones who will be facing pay cuts and possibly redundancy as well, while at the same time they probably don’t have any savings to fall back on.
The cheaper end of the market is getting hit harder because its natural customers are taking the biggest blow from all the decisions the government has taken.
It is those same companies that are taking the biggest hit from the NI increase, and also the steep rises in the living wage. They typically employ lots of modestly paid staff, and the margins are already wafer-thin (you don’t make huge profits on a £1.30 sausage roll, or six tumblers for £1.99). When costs rise significantly, as they have done this year, then profits take a very big hit.
And yet the bigger lesson is this: you have to be feeling very gloomy about your financial situation to decide a Greggs sausage roll is a bit too much of an extravagance, or that some new cookware from B&M is a treat that you can’t find room for in your budget. What we are witnessing is a very clear signal that the British economy is heading into real trouble.
The huge rise in employers’ National Insurance in the Budget is about to be passed on to to workers in the form of lower wages and that will mean less spending in the shops. Jobs are being lost as companies are forced to slim down their workforce, and no one is hiring because it costs so much more to take a new person on to the payroll.
Inflation is rising again, and all the extra green levies the Government is imposing are going to make that even worse.
The turmoil in the gilts markets, as global investors flee British assets, will drive up mortgage rates, squeezing homeowners, and very quickly that will be reflected in rising rents as well. Add it all up, and one point is surely evident: the economy is heading into deep trouble.
There are always plenty of early signs of a recession. It might be a rise in bond yields, or a sudden drop in the stock market, or a shrinking money supply, or some other indicator used by economists to decide whether output is expanding or contracting.
But the state of the discount companies is, in reality, a pretty good one. In the broke Britain of 2025, even Greggs and B&M can’t grow their sales any more – and that means every kind of business is facing what will prove a very hard year.
