Rolling with the Punches: Greggs' Response to Inflation and Consumer Confidence

Greggs, the beloved UK bakery chain, has become a lightning rod for economic debates as it raises the price of its iconic sausage roll by 5p to £1.30. This modest increase has sparked consumer backlash, with some accusing the company of abandoning its “cheap and cheerful” image. But the factors behind this price hike reveal broader economic forces at play.

Inflation and Cost Pressures

The latest price rise, part of a 4% increase across key products, reflects the persistent inflationary pressures gripping the UK economy. Greggs’ CEO, Roisin Currie, highlighted three main drivers: higher wages, increased employer National Insurance contributions, and rising food costs. These pressures echo the broader post-pandemic inflation trends that have challenged businesses globally.

Two-thirds of Greggs’ staff received a 6.1% wage increase in 2025, a move designed to align with rising living costs and support employee retention. While wage increases bolster household spending power, they also raise operating costs for businesses, forcing price adjustments to maintain profitability. Currie acknowledged these headwinds but assured customers that Greggs remains committed to value, with meal deals like the £2.85 breakfast bundle untouched.

Weaker Consumer Confidence and High Street Decline

Despite strong annual sales of £2 billion in 2024—a record for Greggs—the company reported slowing growth in the latter part of the year. Fourth-quarter like-for-like sales grew by just 2.5%, compared to 5.5% earlier in the year. Analysts attribute this to subdued consumer confidence and reduced high-street footfall, as households tighten belts in the face of economic uncertainty.

These challenges illustrate a key economic principle: consumer spending and confidence are critical to driving retail growth. As real disposable incomes face competing pressures from energy bills and mortgage payments, demand for non-essential purchases like sausage rolls becomes more price elastic—more sensitive to price changes.

Strategic Responses: Value vs. Growth

Greggs is navigating these challenges by doubling down on its value proposition while pursuing long-term growth. The company opened 226 new shops in 2024, expanding its presence and bolstering convenience for customers. Innovations like over-ice drinks and expanded digital capabilities aim to attract new audiences and boost revenue.

However, analysts warn that price hikes may erode Greggs’ reputation as a value leader in the competitive fast-food market. Broker Peel Hunt noted that rising prices could diminish Greggs’ appeal, particularly as competitors vie for price-sensitive consumers.

Balancing Act

Greggs exemplifies the delicate balance businesses must strike between cost management and customer satisfaction. By leveraging economies of scale, investing in supply chain efficiency, and protecting flagship offers like meal deals, Greggs seeks to preserve its market position without alienating its loyal customer base.

Ultimately, the humble sausage roll is a microcosm of today’s economic landscape—a blend of inflation, wage growth, and shifting consumer behaviour. For students of economics, Greggs’ strategy provides a real-world example of how businesses respond to macroeconomic forces while striving to maintain their brand identity.

Glossary of Economics Terms

1. Inflation: A sustained increase in the general price level of goods and services in an economy over a period of time.
2. Price Elasticity of Demand: A measure of how the quantity demanded or supplied of a good responds to a change in price.
3. Consumer Confidence: An economic indicator reflecting the optimism or pessimism of consumers about their financial situation and the overall economy.
4. National Insurance Contributions: A tax on earnings and self-employed profits to fund state benefits in the UK.
5. Value Proposition: A business's promise of value to customers, highlighting why a product or service is better than competitors'.
6. Economies of Scale: Cost advantages that businesses achieve as they increase long-run production, reducing the per-unit cost of goods or services.