Baker Greggs warned the new national living wage will put pressure on the group to raise the prices of its pasties and sausage rolls.
The chain, which runs 1,668 outlets, said it was not planning price hikes, but cautioned over the impact of a higher wage bill on the business.
Greggs currently pays its shop staff £7.11 an hour, however Chancellor George Osborne said in his July Budget the UK’s hourly minimum wage from April 2016 will lift to £7.20 for over 25s, from its current level of £6.50, and to at least £9 an hour by 2020.
Roger Whiteside, chief executive of Greggs, said: “Wage rises will increase inflationary pressure in the business. It is not our intention to raise prices. But ultimately we will see how the market goes.”
The warning came as the firm posted its latest trading update, revealing a better-than-expected 4.9% rise in like-for-like sales in the 13 weeks to 3 October, helped by strong demand for new additions such as its Aberdeen Angus spicy meatball melt baguette and mildly spiced chicken curry soup. Shares lifted more than 7%.
It said its “balanced choice” range of sandwiches and flatbreads with fewer than 400 calories also sold well and has been extended to include own-label drinks with no added sugar.
The business added it has refurbished 158 shops so far this year and is on track to upgrade 200 stores by the end of 2015.
It has opened 65 new shops so far this year and closed 47 as the business trims its high street presence in favour of more outlets in retail parks and motorway service stations.
It said it has so far opened 30 sites with Blackburn-based forecourt operator Euro Garages, with plans for a further 27 by the end of the year, bringing the baker’s full-year store openings to a net total of between 50 to 60.
Analysts at N+1 Singer said: “Another positive update from Greggs today with third quarter like-for-like growth comfortably above our assumption.”