The Iran war might feel a world away from the UK high street, but holders of Greggs (LSE:GRG) shares have felt its impact.

Over the past 10 days, the FTSE 250 stock has fallen a further 7.1%, which would have wiped roughly £350 off a five-grand investment.

Of course, the word on everyone’s lips right now is ‘inflation’. If energy costs remain elevated, which is possible if the Iran conflict drags on into the summer, then Greggs will take a hit due to the baking, refrigeration, and transport costs associated with its operations.

Not only that, but there could be the knock-on effect on sales if inflation-exhausted customers tighten their belts. This week, the average price of a litre of petrol rose above 150p for the first time in nearly two years. Anticipating higher interest rates, mortgage rates are on the rise.

Greggs has added a few pence to the price of its sausage rolls and pasties in recent years to offset higher costs, but it has a value proposition to protect. Raising prices yet again risks driving customers elsewhere (or workers could turn to packed lunches).

The company described 2025 as a “tough market“. This year could get even tougher.

So, given this quite frankly terrifying backdrop, is Greggs now a stock to avoid at all costs?

Thinking long term

The answer to that depends on the timescale of an investor. Looking a few months ahead, the outlook doesn’t look that great for Greggs.

But that’s no different to many consumer-facing businesses, including JD Sports Fashion, Domino’s Pizza, and J D Wetherspoon. All are suffering from weak consumer spending and higher operating costs.

Taking a contrarian view, however, now might be a great time to consider investing in Greggs for the long term. Because while the near term looks flaky, it’s a lot more certain than for many rivals that are shutting down and scaling back.

For example, embattled bakery chain Cooplands has been downsizing in recent years, while Exeter-based baker The Crusty Cob closed all nine shops last year. And 68 Pizza Hut restaurants disappeared in late 2025 (Greggs sells pizza).

As things sadly get worse, I expect more competition to shut up shop. But while rivals are going to the wall, the number of Greggs locations is expected to rise to above 3,000 over the next few years.

By mid-2027, it will have two new state-of-the-art facilitates open to support expansion, with more automation to drive efficiency. Cash flow is expected to improve significantly by then, supporting dividends and possibly share buybacks.

Similar to Wetherspoons, investors are focusing on the near-term challenges. But there’s a distinct possibility that these businesses carry on taking market share and emerge much stronger — and more profitable — in a few years’ time.

Passive income

After its latest pullback, the stock is sporting a forward dividend yield of 4.5%. So there’s decent income on offer, assuming Greggs pays out, which it has a great track record of doing.

Meanwhile, the forward price-to-earnings ratio is just under 12, versus a 10-year average of 21. Given that Greggs benefits from a fantastic brand and strong market position, with further shop openings to come, I see this valuation as attractive.

All things considered, I think Greggs is worth looking into below £15 per share.