Business Costs and Profits - Greggs Increases Prices of Sausage Rolls

Cost pressures have forced Greggs to raise the price of their iconic sausage roll for the 2nd time in less than a year. It has jumped from £1.00 to £1.05 and now another 10 pence to £1.15 - putting it on a par with the price of a standard McDonald’s cheeseburger.

The fast-growing food chain Greggs has announced a further price rise for their iconic sausage roll. They said:

“Like many other retailers, we're having to manage the pressure of rising prices across our supply chain. We've had to make some small price increases across our range.”

This is a good example to use of how changing costs impact on profit margins for businesses. Greggs is not alone in experiencing a significant rise in their operating costs including key variable costs involved in production.

Cost pressures facing the business:

1. Steep rise in energy prices
2. Higher wages & salary costs
3. Packaging costs are increasing
4. Sharp rise in ingredient prices

Higher costs cause an inward shift of supply and businesses may choose to pay on rising costs to consumers through higher prices.

As with the 10% rise in the price of a McDonald's cheeseburger, Greggs has decided to pass on a sizeable slice of their increased operating costs to consumers with a series of price rises across their product range. Will it affect your buying behaviour?

The market for bakery products, sandwiches and coffee is highly contestable especially within busy towns and cities. Greggs has an enviable reputation as one of the best-loved consumer-facing brands in the UK. So one might expect the price elasticity of demand following this price change to be relatively low at least in the short run.

Are you affected by this price rise? How strong is your loyalty to one of the UK's fastest-growing bakery businesses?