• CHE Group shows faith in mid-market

The much maligned mid-market full-service segment has refused to die despite dire predictions to the contrary for more than a decade.

And now CHE Group, the former Choice Hotels Europe, is once again talking a growth story for such properties.

CHE successfully raised £18.6m in January this year which it is currently ploughing into upgrading its existing hotels and rolling out the limited service Sleep Inn brand.

In the company's own words it is now seeking to transform itself from a \defensive survivor to being a more aggressive force\ within its chosen areas of focus.

These areas are the previously mentioned premium limited service and \a focused offering within the mid-market full-service sector\.

The easiest bit to sell was the £8.6m which is being ploughed into Sleep Inns. A director of development has been hired to take CHE's Sleep Inn portfolio to 60 properties within five years.

Much tougher to convince investors about, however, is the determination to grow in the mid-market segment. CHE says the segment is currently reinventing itself \as a consequence of the impact on buying methods brought about by low cost air carriers and the internet\.

Further rationalisation of CHE's mid-market portfolio is promised as it seeks to \refine its offering in this area\. Already re-shaped is the group's sales structure to recognise the role of the online intermediaries.

During 2005, CHE saw sales slump slightly by £0.4m to £79.2m. The pre-tax loss doubled to £0.4m although operating profit held firm at £4.6m.

Rising energy costs was the principal reason gross operating profit margin dropped 0.5 percentage points to 34.8%.

A similar looking set of numbers was also put out last week by Peel Hotels, the nine-strong chain also in the mid-market full-service segment. Operating profit was up slightly by 1.9% and pre-tax profits were static at £1.18m.

What was missing from the Peel results presentation, however, was the vision shown by CHE. Whereas the changed market conditions, and in particular the online threat, was flagged-up by CHE, it seems to be business as usual at Peel.

If CHE delivers on its strategy – and it certainly has the calibre of management to do so – then it ought to be able to pull away from the likes of Peel over the coming years.

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