While Your Local Café Worries About Electricity Bills Greggs Spends £300 Million

Why Greggs Spent £300 Million While Your Local Café Worries About Electricity Bills

It's 2025, and Greggs - yeah, that Greggs, the one you probably passed on your way to college / school this morning - has just announced they're dropping £300 million on expansion. Three. Hundred. Million. Pounds. Meanwhile, the little independent café down the road from your house is genuinely panicking about their monthly electricity bill, which has jumped from £600 to over £1,100 since 2021.

Same industry, both selling food and drink, but different money problems. What's going on?

This is the world of capital expenditure versus revenue expenditure - or as we could call it, "the £300 million investment vs the £1,100 electricity bill dilemma."

The Two Types of Spending

If you want to run a business you need money. But it's not just about having money - it's about understanding what you're spending it on and why that matters. In IB Business Management terms, we split business spending into two massive categories, and trust me, the difference between them is the difference between Tesla building a gigantic factory in Shanghai and your mate's dad paying the gas bill for his restaurant.

Let's break it down.

Capital Expenditure: The "Buy Now, Use for Ages" Spending

Greggs invested £300 million in 2025 on supply chain capacity expansion and opening new shops across the UK. They're not spending that money on this week's flour delivery. They're building infrastructure that'll be around for years.

Capital expenditure is spending on non-current assets - stuff that's going to stick around and generate revenue for at least the next 12 months. We're talking about:

• Property and buildings (like Greggs' new production facility)

• Capital equipment and machinery (ovens, production lines, all that jazz)

• Motor vehicles (delivery vans, company cars)

• Computers and technology systems

Take Tesla's new Shanghai Megafactory - they invested $198.7 million (that's about £155 million) in a massive energy storage battery plant. Construction finished in just seven months, and it started trial production in late 2024. That's capital expenditure on an absolutely massive scale.

Capital expenditure doesn't immediately affect your profits. Yeah, you read that right. You can spend £300 million, and your profit and loss account basically shrugs and says "whatever, mate." That's because this type of spending shows up on your statement of financial position (your balance sheet) as an asset. You've bought something valuable that'll help you make money later.

Think about it like buying a car. You don't lose all that money - you've got a car worth that money. Same principle, just with factories and equipment instead of a motor. However, as you are probably well aware by now, new cars specifically depreciate by 10-20% in price (not in value) as soon as you buy them followed by a further 15-25% within the first year, but that is a story for another day.

Revenue Expenditure: The "Can't Avoid It, Happens Every Month" Spending

Now let's talk about the spending that actually does hit your profits - and hit them hard if you're not careful.

Revenue expenditure is the day-to-day, routine spending that keeps your business actually functioning. It's the stuff that gets used up relatively quickly - definitely within 12 months. This includes:

• Raw materials and stock (flour, coffee beans, ingredients)

• Wages and salaries (paying your team)

• Utility bills (electricity, water, gas - the bills that make small business owners cry)

• Insurance

• Fuel

• Rent

UK small businesses are currently paying an average of £13,264 per year for electricity - that's 70% more than they paid before the energy crisis. For context, electricity prices jumped from about 14.81 pence per kilowatt hour in early 2021 to over 28 pence by late 2023. That's not just a bit more expensive - that's genuinely a proper knockout punch for a small business.

Revenue expenditure appears directly on your statement of profit or loss (profit and loss account). Every pound you spend on wages, every penny on electricity, every quid on raw materials - it all chips away at your profit. Immediately. No waiting around.

Greggs faced overall cost inflation of around 4% in 2024, mainly driven by employment costs, which means even massive, successful companies feel the squeeze from revenue expenditure.

Why Is This Split Relevant?

Okay, so we've got two types of spending. Why should we be concerned about this?

Because managing the balance between capital and revenue expenditure is literally make-or-break for businesses.

Let's say you're running a business, and you get a bit excited about expansion. You see Greggs opening shops everywhere, you see Tesla building gigafactories, and you think "right, I'm having some of that!" So you blow all your cash on a fancy new warehouse, top-of-the-line equipment, maybe a fleet of electric vans because you're thinking about the future.

Brilliant. Except now you can't pay this month's wages. Or the electricity bill. Or buy the raw materials you need to actually make anything. You've spent all your money on capital expenditure and forgotten that revenue expenditure doesn't stop just because you've invested in business growth.

This is called a cash flow crisis, and it's one of the most common ways businesses - even profitable ones - go under.

If you're too scared to invest in capital expenditure, you never grow. You never upgrade your equipment, never expand your capacity, never invest in efficiency. Research shows 89% of UK businesses used more energy than ever in 2024, but if you'd invested in energy-efficient equipment (capital expenditure) earlier, you might not be facing skyrocketing electricity bills (revenue expenditure) now.

It's about finding the right balance.

How Successful Businesses Deal With This

Let me show you how the pros do it.

Greggs opened a record 226 new shops in 2024 and plans to open 140-150 more in 2025, targeting over 3,000 UK stores long-term. That's massive capital expenditure. But they're not being reckless - they're carefully managing their revenue expenditure too.

They secured forward cover for commodity costs with almost 100% of electricity requirements fixed for the year. Smart move. They're locking in their revenue expenditure costs so they can predict their cash flow while still investing heavily in growth.

Or look at what Hyundai and LG are doing - building a $7.6 billion electric vehicle and battery facility in Georgia that can supply batteries for 300,000 EVs per year. Absolutely enormous capital expenditure. But they've done their homework on the revenue expenditure side - they know what it'll cost to run, they've planned for the utility bills, wages, and ongoing operational costs.

The lesson? You need both types of spending, but you need to understand what each one does to your business.

Where Does All This Show Up?

Here's your exam-friendly summary:

What To Take For Your IB Business Management Course

Whether you're Greggs investing £300 million in expansion, Tesla building a megafactory in seven months, or a small café trying to manage £13,000-a-year electricity bills, you're dealing with these two fundamental types of expenditure.

Capital expenditure is about investing in your future - buying the stuff that'll help you make money for years to come. Revenue expenditure is about surviving today - paying for the ongoing costs that keep your doors open.

Get the balance wrong, and you're either cash-strapped despite having great assets, or you're stuck in the present with no investment in growth. Get it right, and you're building a sustainable business that can weather storms and seize opportunities.

And that's why Greggs can confidently drop £300 million on expansion while your local café owner is still checking their electricity meter twice a day. They understand capital versus revenue expenditure, they plan for both, and they don't let one completely dominate the other.

Now you understand it too.

Stay Well,