Indonesia and Germany could provide the opportunities for international expansion, as Whitbread continues to grow Premier Inn, and plans further ahead for growth. Back in the home market, strong occupancy is allowing the company to nudge up its prices, all the while mindful of its value for money guest promise.
“We remain excited about south east Asia and particularly Indonesia,” said chief executive Andy Harrison as he presented Whitbread’s 2013 results; as he revealed numbers demonstrating that the pipeline in the region is building, using a predominantly asset light model.
“The Middle East is doing well – here, we’re seeing good profit growth together with outstanding customer scores. India is a more challenging economy.” The Indonesian pipeline is building “nicely”, he added. South east Asia now accounts for 12 of the 22 committed international pipeline projects, and 9 of the 16 letters of intent signed. The pipeline is increasingly asset light, with 18 of the 22 projects in the committed pipeline under this format, and all 16 of the signed projects.
But it is in mainland Europe that management is currently spending much effort. “We’re still looking at Germany. It’s a very interesting market, we think the Premier Inn product will work there. Having said that, we are looking very carefully at the differences – the different behaviour of German consumers, the different distribution channels there are, particularly the differences in online distribution, quite a different competitive set.”
Harrison said any move towards a German launch would have to be focused on getting the customer experience right. “What you saw us do with Hub was really do our homework on developing a product and thinking very hard about what the customer reaction would be. We haven’t decided yet, and I think it will take us a few more months before we reach a conclusion.”
Quizzed about the costs of foreign expansion, which has still yet to deliver a return, Harrison added: “By 2018 we expect to get Premier Inn international into a profit. We expect to make a good return on capital on the mature hotels. It’s very much a business that requires some scale.” Where necessary, and in just a few cases, the company has signed selective support deals, to help projects proceed.
Whether or not Premier Inn starts building in Germany, it is already encouraging German guests into its London hotels. The company has recently launched four international websites, in French, German, Spanish and Italian, revealed hotels and restaurants managing director Patrick Dempsey, and these are being backed by localised “aggressive” pay per click advertising campaigns. “That’s something quite new to us. We’re really putting a lot of work into this area.”
Premier Inn continues to notch up improvements in occupancy, with a target of averaging just over 80%. During 2013 it edged up 1.7% to 78.1%. Harrison revealed that through an average week, Tuesday is the busiest night at 87.4%, with Sunday the quietest at 55.2%. Higher occupancy has given the company the confidence to raise rates: “There’s a bigger opportunity to make selective rate increases using our dynamic pricing system. For instance, in the UK regions, we’ve recently increased our prices especially for the higher occupancy nights in the high occupancy hotels. In London, we’ve raised our price cap from GBP189 to GBP200.”
Dynamic pricing “is a journey” with many elements still quite a manual process. There are, Harrison added, opportunities to automate, with refinement to forecasting and automated event pricing. “The journey is continuing, with plenty of road ahead.”
“We continued to win market share in both London and the UK regions, increasing our total room stock by 6.5% while delivering total revpar growth of 5.4%,” said Harrison. “Total revpar for the midscale and economy sector grew by 8.3% against weak comparatives, and it grew by 5.1% for the total UK hotel market.”
The company is on track to hit its previously announced growth milestones of 750 hotels by 2016 and 830 by 2018. During 2013 it opened a net 23 hotels, bringing the portfolio to 672, while the committed pipeline is 11,500 rooms of which almost half are in the London area. With an ever growing portfolio, so the refurbishment bill is growing and last year reached GBP80m. As well as redecorating, Premier Inn is working on improving its wifi offering, and is installing air conditioning, which now extends to more than half of the portfolio.
One area where Whitbread has many budget rivals beaten is online. In the last four years, it has grown online reservations from 67% to 85% of bookings, with three quarters of those coming direct. A new mobile website and iPhone app have been launched to help keep up the momentum. However, despite this, Whitbread is paying more today to OTAs than it did three years ago, with indirect web bookings up from 4% to 8% of reservations. Harrison noted that online conditions are permanently shifting. “We’re investing heavily in our online marketing capability, so that we can continue to grow the percentage of reservations direct.”
Questioned by analysts about the hot topic of the moment, Airbnb, Harrison revealed the upstart accommodation sharing site is losing him no sleep. “There is a whole load of competition, the online landscape is changing really quite rapidly, Airbnb is just one of the new players that are there.”
HA Perspective [by Katherine Doggrell]: The restructuring of Travelodge has meant that Premier Inn has had the market to itself for a while and it has certainly been making hay. However, while Whitbread was talking up Indonesia (a country which currently needs no talking up) Travelodge was returning to the promotional arena, with a GBP25m advertising campaign inspiring Britain to ‘get up and go’.
The campaign is, the company says, its biggest advertising spend to date and “marks the company’s return to television after a four year absence”. Sadly for fans of teddy bears from the wrong side of the tracks, it does not feature the return of Mr Sleep and the Zzz Squad.
CEO Peter Gowers said: “Our new advertising campaign is the latest milestone on our journey to build a new Travelodge”. He added: “Our campaign inspires you to get up and go and explore all that Britain has to offer … our continuing expansion into key city centres, our new more modern look and actions to slash the cost of WiFi access are all part of our ongoing journey to become Britain’s favourite hotel for value.”
Whitbread is not unprepared for this – it said last year that it expected to see a return to the fray of its old foe, even if it didn’t use ‘fray’ or ‘foe’. Harrison seems equally unfazed by the rise of Airbnb, although possibly he could stand to be a little more alarmed after a study last month from Boston University into the hotel market in Texas claimed that Airbnb was taking revenue from the budget sector.
The study found that the impact of Airbnb was not uniform across the state, but where it had established a presence, it had cut the revenues of budget hotels by 5% in the two years to December 2013. Looking forward, the study suggested that by 2016 the dent in budget hotels’ takings would be 10%.
“Even though lower-end hotels in Texas account for a disproportionately small amount of revenue as compared with upmarket hotels, they nevertheless bear the brunt of the impact of the market entry of Airbnb. Our evidence suggests that consumers are increasingly substituting Airbnb stays for lower-end hotels in Texas,” said the report.
Premier Inn currently has the dominant market position in the UK and has swept past Travelodge in its overseas expansion. With competition heating up for sites – competition it will hope to neuter with Hub – and competition heating up for guests, holding onto this position is about to become harder.