Malcolm Simpson is the FD who's overseen the growth of the Greggs bakery chain from a family firm run out of a suburban semi to a FTSE 250 powerhouse.

If the size and success of a company was measured by its HQ, Greggs would be a start-up. Nestled unobtrusively in the leafy Newcastle suburb of Jesmond, the baker’s head office â“ little more than a large converted house â“ is home to a small but dedicated team who oversee the kind of growth that would have most London corporates salivating. And then you remember: this is a FTSE 250 constituent worth £581m that has a shop on pretty much every HighâˆStreet in the UK.

At the age of 64, Malcolm Simpson is aware that his time as FD is probably coming to an end. But he has the satisfaction of looking back on a job well done. Soon after I arrive, he shows me the prospectus produced for Greggs’ flotation in 1984. The original offer price? 135p per share. Today’s FT is lying on Simpson’s desk so I quickly check the morning’s price. Greggs’ shares are trading at 4,850p â“ a 3,393 per cent gain.

Simpson can rightly claim to be one of the key forces behind that soaraway success. He joined the company, which was founded as a one-shop bakery in the thirties, from Procter and Gamble in 1973. Ted Heath was in No. 10, Wizzard was at number one, and “the healthy option” meant one helping of chips, not two. Since his appointment as FD a year later, Simpson has been the epitome of the steady hand on the tiller. So after 30 years in the FD’s office, what makes Simpson tick?

9.30AM Well, not hanging around is the first thing. We’re straight into a meeting with David Bridges and John Anderson from AON, Greggs’ insurer. We’re joined by Simpson’s deputy FD, Richard Hutton, and Clare Wilson, financial controller. The issue? Risk management. After 30 years, Simpson knows where the company needs most cover.âˆSo he focuses on the trickier areas â“ D&O cover is a big one â“ with the insurers.

“The risks have always been there, and they’ve always been managed,” the FD explains. “But in the past that’s been more by instinct and general knowledge than by formal systems. Now, we have improved our risk control by having a formal
system in place. Mind you, some of the formal processes are a bit onerous.”

We’ll return to the pressures of control and compliance later on. But it’s worth remembering at the outset that FTSE disciplines and City codes are not in Greggs’ DNA. It was called “Greggs of Gosforth” until a few years ago and there’s a distinct Geordie flavour to the team. And Simpson’s never felt the urge to head for the bright lights. Besides, that amazing growth record makes most other businesses look a bit pasty by comparison.

“When I joined in 1973 we had 28 shops,” says Simpson. “Now we’ve got over 1,300 and 12 divisions. In my first year we were just starting to expand into Scotland. Then we went into Yorkshire, Greater Manchester, Birmingham and so on. We went public in 1984. In 1994 we went from 500 shops to over 900 when we bought Bakers Oven, part of Allied Bakeries. So at that point we nearly doubled in size.”

That growth makes risk management all the more important. But the safety record is impressive for a company employing 19,000 people. There have only been two major fires in the group since 1974. Still, Hurricane Katrina has everyone worried that premiums will be squeezed. Indeed, one of the AON team reckons it could be “the biggest insured loss in history”.

The insurance experts run through Greggs’ more recent “significant claims” and the FD takes them through what the company is doing to manage the risks. Simpson likes to meet the underwriters whenever possible, so the AON team get started on making that happen.

10.30AM The FD heads back to the office to run through the risk register. He tells me about how last year’s Sudan 1 dye fiasco hit Greggs. It’s one of those cases where a company gets buffeted by outside forces. But the overall strategy remains very resilient to these hits.

Flexibility is important in an industry that’s changed a lot over the past 30 years. “We’ve always sold a lot of savouries, but the whole takeaway market has developed massively, mainly in sandwiches,” says Simpson. “They’re about 30 per cent of our turnover now; savouries are about 33 per cent. That’s a massive chunk of business. In the early days, we were normal retail bakers and about 40 per cent of turnover was in bread and rolls. Now it’s just eight per cent.”

What about fads like the Atkins diet? Has it taken a toll? People are certainly eating less bread than they did ten years ago. But, says Simpson, it’s in business practices that the big changes have occurred. “The supermarkets have chosen to make it a price-based battleground. So the large volume bread market is very price competitive now. The big players like ABF and RHM have massive plants where they drive their costs down, whereas a general purpose bakery like we operate would struggle. There’s no shelf life on our bread, so we have to make them to sell each day.”

Insulating Greggs from this kind of pressure is a huge task. And in recent times, the make-up of the typical High Street has introduced even more competition. “On the retail side, at least, we compete against the coffee operators and the sandwich shops, as well as M&S, Tesco Metro and so on,” says Simpson.

The answer to both mass-market, low-cost supermarkets and boutique snack chains? Keep your offering unique. “Not many other outlets offer savouries such as pasties and sausage rolls,” he says. “With our savoury section, our volume and the direct control we have through our shops, we can afford to put in highly automated processes. If you’re supplying supermarkets, you might not be prepared to invest £20m to fulfil a contract that might end next month.âˆWe can.”

Getting the forecasting right on those volumes is in Simpson’s hands. So a constant watch over the manufacturing â“ sorry, baking â“ aspects of the business is crucial. And Simpson certainly doesn’t mind getting his hands dirty.

11.30AM That’s why we’re heading over to the Balliol factory site, ten minutes outside the city. It was completed last year â“ and the company has yet more plans to expand.
We’re here to catch up on Greggs’ integrated production system with IT project facilitator Simon Wales and production project facilitator Craig Warkman. Simpson has been intimately involved in rolling out the system, but it’s just one of the many IT projects he’s spearheaded.

Is there one piece of technology he thinks is more important than the rest? “Even if everything else goes down, the one that’s got to stand up properly is payroll,” he says. “We’ve got 19,000 people, most of whom are paid weekly!” In fact, the FD’s been directly responsible for Greggs’ main software for the past decade. How did that come about? “In the early days we had a system written by a small software house in Leeds, which went out of business,” he says. “Overnight I had to learn how to program in DIBOL, a fairly complex language. I’ve kept up to date with it ever since.”

Simpson’s clear on the benefits of developing his own systems, despite the time invested. “Since we’re mainly retail, we have a huge EPOS system to maintain in any case,” he says. “We do all our retail systems in house and wrote our own financial system, too. That’s being revised â“ and we’re bringing in a new fixed asset system. A lot of people argued against it â“ most of the industry would buy a package in. But Wal-Mart writes its own systems and they’re not doing badly! We get value for money and our systems are tightly focused on what we do â“ we don’t have to pay for something that might have to run a whole spectrum of things.”

12PM We grab 20 minutes to take a quick tour of the factory. This is where your sausage roll starts its life. It’s noisy and pretty smelly, but you can see Simpson revels in it. Though the machinery is deafening, he grabs the opportunity to have a quick chat with the plant manager about how the new automated manufacturing system is going. The factory doesn’t require an army of workers, and the investment in automation is paying off.

Simpson reckons roughly £40m of capex in any given year is about right for the business. But getting the Balliol facility on stream has been a long process. It’s Greggs’ biggest and most modern plant â“ and a sign of the shift from bread (made in each store) to pre-prepared hot snacks.

“We can put a big factory in for savouries because we make them to the raw stage, freeze them and ship them out to the shops,” he says. “We hold stock, so every batch we make is tested through the microbiological lab to ensure there’s no bugs in it before we dispatch it. It’s then held in a freezer-fridge chain and baked fresh in the shop.”

1PM Time for lunch. We’re spoilt for choice in a food factory, so Simpson suggests we go up to the development kitchen to see what’s cooking. Head development chef Andy Phillips (the cover star from last year’s annual report) explains that maintaining a pipeline of new products is crucial to Greggs’ success. He’s been working on some new savouries, so we get the chance to sample the new products before the public do.

Phillips is particularly proud of the new range of wraps, which have been selling well in the face of competition from Boots and M&S. But the pasties are the real treat, with a five-pepper steak bake the pick of the new range. (Simpson admits to being quite partial to the odd sausage roll, but he does ration himself...)

2PM Lunch over, it’s time to head downstairs for a quick catch up on capital spending with site accountant Chris Caygill. The pair go through the line items on the latest budget forecasts. Caygill has responsibility for ensuring the factory is running properly and that Greggs’ capital investment is being carefully managed. It’s all part of the devolved way in which the company is run: divisional managers are given plenty of autonomy.

“We’ve grown up that way,” says Simpson. “Our systems are focused on the 12 regional divisions, which are each responsible for their own profit. We have an accounting team in each division â“ which means slightly higher overhead than if you had them all working centrally. But the accountant in that division is part of the business team that runs it. He reports to his divisional MD and only has a tangential relationship to the centre.”

This devolution is driven by the chain’s size. With a turnover of £504m and an average customer transaction of just £1.85, Greggs racks up a lot of sales data. Milking every penny depends on divisions carefully collecting and tracking reams of information, from the number of sandwiches made and sold per shop, to the amount of flour used and time it takes to serve each customer.

Being the guardians of those numbers, the regions are also best-placed to streamline the business. Greggs’ innovations in manufacturing, distribution, shop layout â“ just about everything â“ come from the bottom up. Of course, sometimes head office has to lay down the law⦠more on that later.

3PM On the way back to HQ, the FD decides to stop off at a local shop. The manager’s not been there long and Simpson wants to see how he’s getting on. The shop, in a suburban area, suffers from poor parking. It does, however, have the advantage of a huge Department of Work and Pensions admin building around the corner. The result? Manic lunchtimes; then dead from 2pm.

The two men have a detailed discussion on the layout of the shop and how they can make the ergonomics better. (Greggs has a mock-up shop at Balliol for just such tinkering.) Keeping queues short and staff happy exercises the minds of Greggs’ planners and Simpson is well aware of his role as facilitator, freeing up cash for shop maintenance.

“We try and look at macroeconomic trends and our cost profiles when we’re forecasting,” says the FD. “We all contribute â“ so the buying department looks at what’s happening in the wheat harvest or with suppliers, and so on.

“Our system takes the sales data, inflation and volume growth factors, and projects next year’s sales within a few minutes,” Simpson continues. “Then we stick in what extra shops and refits we’re expecting. We give that to the area managers and they assess each individual shop. Then they feed that information back into HQ.”

3.30PM Back to Jesmond for an IT meeting with Roy MacDougal and Keith Pulford. They’re preparing for a drive to harmonise all the company’s EPOS systems and practices. After all, devolution only works up to a point and economy of scale is a powerful driver in this market.

“If there’s six different ways to do things, you can be sure that across the company you’ll find people doing all of them,” says Simpson. “And only one of those ways is usually best. So we’re constantly saying, ‘Let’s agree the best way and we’ll all do it like that.’”

This model means, however, that any tiny flaw in the “best way” will be magnified across thousands of EPOS tills, with potentially disastrous results. Simpson shares the feedback from the local shop manager, and they make sure issues of physical dimensions and practicality are factored in.

4.30PM Simpson’s keen on the idea of extending Greggs beyond the traditional high-street outlets, but even managing the existing property portfolio keeps the FD busy. “Around 90 per cent of the shops are rented,” he says. “We try to own the freeholds wherever sensible, but we won’t overpay for them. Obviously, to hold all the freeholds would be an awful amount of money.”

Getting the positioning of shops right is something Simpson and chief exec Mike Darrington have made a priority since the company expanded by acquiring 440 shops from the old Bakers Oven chain in 1994. This business is all about passing trade, and the FD can spot a decent location at 200 yards (as can the customers â“ which is the point, presumably). “Now we’re moving into airports â“ the Newcastle one has gone ballistic,” Simpson tells me. “That’s annoyed easyJet: loads of people are going on board their planes carrying Greggs bags, instead of buying food in-flight.”

4.45PM As Simpson takes the opportunity to sign some correspondence, I ask what’s been the biggest change he’s seen over the past 30 years. “There’s been a massive swing towards compliance,” he says. “It’s not business-motivated at all. And in most cases it’s negative. The majority of businesses that are well run are saddled with the misdeeds of the few. I try to keep myself out of compliance work as much as possible, but there’s more and more of it.”

Simpson’s not one to indulge in nostalgia, but he does admit to missing the early days. “I really enjoyed growing fast, acquiring companies, adding shops at a good rate â“ and not having to deal with all this compliance,” he says. “I’d be able to cope if I was here for another ten years. But I’d take steps to get people in place who could deal with compliance. My strengths are in attacking, not defending!”

A nice line from an FD of the old school â“ a guy whose modest nature prevents him from trumpeting his own qualities too much. But with that 30-year record? We’re happy to do it for him.

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