Whitbread completes Germany deal

Staycity Premier Inn Paddington
Staycity Premier Inn Paddington

Whitbread has announced the completion of the Foremost acquisition in Germany comprising 19 hotels, taking its total German open and committed network to 52 hotels.

CEO Alison Brittain said that the group would continue to look for opportunities to “further accelerate the growth of our business”.

Brittain said: "The completion of the Foremost acquisition marks an important milestone as we execute our ambitious growth plan for the Premier Inn brand in Germany. The acquired hotels are all in proven prime locations, are of high quality and will appeal to both business and leisure customers. This acquisition significantly increases our scale in Germany, taking our presence to 19 open hotels and a pipeline of 33 more across the largest cities in Germany.

“We believe the German market has many of the structural growth drivers that have underpinned the success of Premier Inn in the UK, and is a market that will deliver strong returns in the future.”

This acquisition included 13 trading leasehold hotels (comprising 2,140 rooms) and six committed pipeline leasehold hotels (comprising 970 rooms). The trading hotels will close for a period to enable the full rebrand to Premier Inn over the coming months, and the pipeline hotels will open progressively, starting this year.  

The company said that the German hotel market was 30% larger than the UK, 74% independent and highly fragmented, with a structural shift from independent hotels to branded hotels, following a similar trajectory to the UK. Premier Inn's strong quality and value credentials, it commented, provided a long-term opportunity to establish a major hotel brand and develop a successful business of scale “in this attractive market”.

Reporting fourth-quarter results in January, Whitbread continued to expect losses of £12m in the German business 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 planned 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. 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 was under pressure in its domestic market, with marginally declining total accommodation sales in the third quarter, which were compensated for in F&B.

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.”

Insight: There is no doubt that Premier Inn is a force in the UK, able to lean on its brand to the extent that its direct bookings are in the high 90s, but, as it looks to extensions and the like to grow, it was clear that it needed to look elsewhere for meaningful growth.

There’s no getting around that many observers hoped it would use its Costa cash to make a splash in Germany, but this is not the cautious Whitbread way and it returned the cash to shareholders. Sadly, as a certain France-based company is finding, you can return cash to shareholders all day long and they still agitate to break your company up.

Whitbread is not finding Germany easy going. Competition for sites is tough, particularly when you favour leases. It does not have first-mover advantage, far from it, and owners are more likely to look to that French company, which is deeply entrenched in the mainland European budget market.

What to do? Some rambunctious shareholders want to sell off assets and rase money that way. Were it to do so, this time it should avoid handing the money over and instead buy its way into Germany or even another European market which wasn’t so frothy. Scandic has just launched a budget brand, Go, to cater for a growing number of overseas visitors to its home market. Now there’s a thought.