Whitbread looks to drive B2B

UK hospitality company Whitbread has planned to separate its Costa Coffee chain from its hotel business Premier Inn to boost the café's competitive edge.
Premier Inn Frankfurt Messe, Germany

Whitbread is to increase marketing to corporate travellers, particularly in the regions, where CEO Alison Brittain said the group was “keeping a hawk-like eye on business investment and business confidence”.

Whitbread said that it was being “cautious and prudent” looking into the short term because of the current uncertain political and economic environment.

During the third quarter Premier Inn’s regional accommodation sales declined by 2.0%, below the midscale and economy market, which declined by 1.0%, reflecting the group’s greater business customer mix than the wider market.

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The London market was stronger during the period, aided by capacity growth and maturing new hotels, leading to total sales growth of 4.8%. This was ahead of the midscale and economy market, which grew by 3.7%.

Looking at performance for year-to-date November, STR reported that, in London, the midscale and economy sector saw a 0.7 percentage point increase to 85.2, with ADR up 1.6% and revpar up by 2.3%. Demand grew by 3.6% and supply by 2.9%.

For the wider UK, occupancy was down by 0.7 percentage points, ADR down 3% and revpar down 3.7%. Demand was up 2.4% and supply 3.1%.

Thomas Emanuel, director, STR, told us: “When compared to other classes, in London’s case the market revpar is growing at a far slower rate. Supply increases are higher, but interestingly so is demand growth, whereas revenue lags behind.

“For regional UK the declines are stronger, again supply is higher, but demand more in line.”

The UK business achieved total sales growth of 0.3% in the third quarter, with the company attributing this to “good F&B performance and marginally declining total accommodation sales”.

CEO Alison Brittain told analysts: “It’s too early to tell in Q4, the Christmas and New Year trading period and back to work get impacted by their timings, it’s hard to read. We saw an improvement in Q3 and early in Q4 but we’re not describing that as a trend, we’re keeping a hawk-like eye on business investment and business confidence, which are correlated to short-term bookings, particularly in the regions.

“In the regions we’ve narrowed the gap, we took actions on pricing and distribution and have been investing the products and would hope to see the results this year. The leisure sector is buoyant, which was true through last year’s political upheaval and that remains true now. We haven’t seen any dip in the core leisure customer.”

The company said that it had an ongoing investment of £25m to include the addition of Premier Inn Plus rooms, investment in direct channels and IT infrastructure.

Nicholas Cadbury, CFO, said: “We’re looking to drive B2B, where there have been headwinds. We are looking to invest in the Premier Inn Plus rooms, where early readings have been very encouraging. We’re also looking at how we’re targeting our B2B customers and we want more demand coming into our direct channels so will look at more marketing there.”

Brittain added: “We are prepared to extend our distribution reach into channels we haven’t played in, where a business consumer has to go through their business travel agent. We are not making a generic travel agent play, but those are guests we wouldn’t get any other way.”

The company said that it had net margin headwind of about £60m comprising:  inflation of about £75m, including the recently-announced higher National Living Wage, higher utility costs and stranded costs following the Costa sale as well as the £25m investment. It planned to offset this with £40m in efficiency savings.

The company said that it continued to take market share from the independent sector, with Brittain commenting that the main competitors had been Travelodge and Holiday Inn Express plus “a smattering of new brands in the metropolitan areas”.

The group continued to look to Germany, where it has a committed pipeline of 8,500 rooms and was looking for further bolt-on acquisitions. It continued to expect losses of £12m in this financial year, but Brittain said that the next 12 months would be “transformational”. She added: “By no means is it an easy property market in Germany. Negative yields means that there’s a lot of demand for property in Germany and there is a lot of demand in residential as well as hotels and we do compete hard on sites.”

The company plans to open 3,000 rooms in UK and 2,000 rooms in Germany this year, with a pipeline of over 20,000 rooms across both countries.

Brittain talked briefly about the group’s portfolio optimisation plans. She said the company was “considering churning hotels in some areas and extending others. Historically we have not closed hotels, this year we are closing nine - five were franchises, one we lost to a fire and three are sales.

“We’ve done the work to think about what our perfect portfolio would look like, it takes time to achieve. It’s not about total room stock and about losing customers, we are looking to close older, in need of refurbishment, smaller hotels. That perfect portfolio and optimisation growth will take place over a five to seven year period.”

Insight: Sisters may be doing it for themselves, but they are also doing it to themselves and, with shares in Whitbread falling by more than 4% on the news that things were still uncertain for the company, the market was growing ever hungrier for something more reassuring than “there remains significant long-term opportunities”.

The group is taking ever-more nibbles at its strategy, now announcing that it would be looking at getting rid of smaller hotels which need investment, but have similar costs than the larger sites. Profitability, it’s a thing you know. It will also be looking to access those easily-freaked-out corporate customers, who are loathe to spend without certainty. It is also expanding its Premier Plus rooms, leading many of us to mutter about amenity creep and question where the group thinks it is in the chain scale.

If only there was some dramatic move which could be made. If only the company had, until recently, had access to billions through the sale of, say, a large coffee chain. If only it wasn’t targeting Germany, a country where competition for sites is only won by those who have billions at their disposal. If only.

Premier Inn recently introduced defibrillators at their UK hotels and one life has already been saved, making the investment invaluable. The company is in no need of life-saving intervention yet itself, but as the long, drawn out suffering continues, there are many amongst its shareholders who have ideas on what surgery could be performed.

 

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