Marston’s, the UK regional brewer and pub operator, has set itself a medium-term target of 4,000 rooms, up from the 1,500 it has at present.
The pub group joined rivals Young’s and Fuller’s in seeking to leverage the popularity of the pub to drive additional revenue streams, challenging brands such as Premier Inn and Travelodge.
During an analysts’ site visit, Marston’s said that, where there was an opportunity to build less than 40 rooms, these would be constructed above pubs, with lodges of 60 to 80 rooms or more would be freestanding, but next to a c200 cover pub.
The group’s 104 room Ebbsfleet Lodge was adjacent to the group’s newly-built Spring River carvery pub. The company said that the site was generating GBP75,000 per week and rising and should contribute GBP1.5m in Ebitda pa.
As the number of rooms rises, the company was planning to rely less on OTAs, which it said provided around 70% of business and charged 15% to 18%.
Mark Brumby, analyst, Langton Capital, said: “Running pubs well takes a great deal of effort. Units need to be located, built, staffed and serviced. Their product needs to be produced, marketed, prepared, sold and served. The market is challenging but eating and drinking out remains an affordable aspiration for most consumers. Lodges are a growth industry.”
Fuller, Smith and Turner used its annual results to highlight “good performance” from managed pubs and hotels with like-for-like sales growth of 2.9%, led by a strong performance from accommodation, which accounted for 7% of revenue. At the close of the year the group had 724 rooms, with plans to acquire new properties and building more in its existing estate.
CEO Simon Emeny said: “The year has seen another good performance with a solid set of results, particularly from Fuller’s Inns. It has been a year of building for the future – with a number of internal projects coming to fruition.”
The company said that it had benefited from both an increase in inbound tourists, many of whom liked to stay in a traditional British pub, and a rise in the popularity of the staycation.
The appeal of the pub as more than just a place to drink was echoed by Ben Stackhouse, founder & CEO, PubLove & Burger Craft, which has an estate of six hostels over pubs, who told Hotel Analyst: “There is a lot of unused space over the top of pubs which is free money, but it’s quite hard to make money out of hostels in such small spaces. For a standalone hostel you need at least 100 beds, but we can do it with 60 because we run three businesses out of the same building – the pub, the restaurant and the hostel – and because there are a lot of synergies in running a pub and a hostel: we check in at 2pm, for example, which is just after the lunch rush.
“If you ask 100 people coming into London, 80% of them want to see a pub. We work hard on our USP, which is staying in a hostel above a British pub. “What we tend to find is that some people choose a brand because of the sureties on quality and some don’t want a brand because they want somewhere independent. We try to keep the pub as the star, with its original name.
“The majority of guests are backpackers, but a smaller majority than it used to be. There are less Aussies and Kiwis now – they all know about Airbnb and Gumtree and start out by sofa surfing when they arrive instead. We are getting a lot of Europeans and south-east Asians as well as some Chinese.
In 2017 Stackhouse sold half the business to EiG, formerly known as Enterprise Inns, as part of the Ei Managed Investments venture. PubLove had previously leased four of its sites from EiG. Stackhouse said: “With their experience and access to a strong pipeline of new sites, this is a great opportunity for PubLove as we look to expand. There are a lot of pubs out there and we make quicker returns than EiG require.”
Graeme Smith, head of hospitality and leisure at global consulting firm AlixPartners, concluded to us: “Pubs enjoy a special place in the people of this country’s hearts. People have a positive predisposition towards pubs.”
HA Perspective [by Katherine Doggrell]: As Smith told us: “Pubs with rooms is something which makes an awful lot of sense. They have come full circle from the original coaching inns. Many of these pubs are centrally located and often have unused rooms above them.
“People are pushing more and more to find ways to fill their establishments in all the day parts and throughout the week – you have the guest there for breakfast and for meetings in the morning which are traditionally quiet for pubs; business demand is highest on Monday, Tuesday and Wednesday whilst you have the leisure customer mainly on Thursday, Friday, Saturday then there’s a complementarity of use.
“In terms of the customer, we’ve been through the wave of the business traveller getting used to the quality and price point of the Premier Inn or Travelodge, pubs with rooms offer a similar price, but with more character. One of their most common customers are the lone business travellers who would rather sit in a busy pub to have a bite to eat than in a restaurant across the car park from their hotel.”
But it’s not just the budget end of the market. Young’s hotels are rated upscale by STR and PubLove uses the word ‘boutique’ in its marketing. With hospitality leaning heavily on experience and community, pubs have a head start.
Additional comment [by Andrew Sangster]: One of the first jobs I had in journalism was working on the newspaper for the Campaign for Real Ale and then on to Publican newspaper. So it is with some nostalgia that I look at how pubs are moving (back) into the accommodation business.
The variability of the bedroom offer has held back pub accommodation in much the same way as the variability of cask beer damaged the reputation and sales of traditional ale. And just as traditional beer is now very much back in favour, shifting from a position as a mass market, old fashioned product to its new position as an upmarket craft alternative to the glitzy and heavily marketed lagers, pub accommodation is going boutique.
Pubs will never beat standardised, cookie-cutter new build hotel product but they can compete as a niche alternative that charges premium prices.
To these ends, the entrance of the brewers (and former brewers in the case of Young’s) back into the market is welcome. But they need to step back from making the strategic mistake of thinking they can build a viable alternative to existing distribution platforms. Marston’s et al need to focus on the product, leaving the retailing to focused platforms. The opportunity to emulate Whitbread’s ascendancy in accommodation has long passed.