Fuller, Smith and Turner has announced plans to buy Cotswold Inns & Hotels for GBP40m, adding seven hotels to its estate.
Earlier this year saw the pub group announce that it would focus on its hotels division after selling its beer business to Asahi for GBP250m.
At the time of the Asahi deal said that it was committed to “running a stylish, high quality estate” and would expand through organic growth and acquisitions.
Cotswold Inns & Hotels was founded in 1997 and, in the year to 30 September 2018, the properties being acquired generated revenue of GBP17.5m and site Ebitda of GBP3.4m with a gross asset value of GBP31.5m.
Fuller’s CEO Simon Emeny said: “The inns and hotels being acquired are all iconic, character properties in sought-after locations in the Cotswolds. They will further enhance our existing portfolio of premium hotel accommodation, adding 201 stylish bedrooms.
“A number of the sites have further development potential and Cotswold Inns & Hotels benefits from an established function business, spanning both leisure and corporate custom as well as weddings. We expect to realise further benefits from bringing the properties into Fuller’s and for the acquisition to be earnings accretive in the first year.
“Quintessentially English and renowned for a focus on fresh food, premium accommodation and an exceptional level of customer service, this collection of seven iconic country hotels is highly complementary with our existing strategy.”
At the group’s full-year results to 30 March, the company said that it had added 93 bedrooms to its estate including 15 at The Counting House on Cornhill, as it moved towards its target of 1,000 rooms. During the year it acquired six Bel & The Dragon country inns across the Home Counties.
During the period, the company saw 4.2% growth in like-for-like sales, with Emeny commenting: “This performance comes against a backdrop of rising cost pressures with the rise in both the National Living Wage and the Apprenticeship Levy, further increases in Business Rates and rising pension contributions. We do not anticipate these cost pressures abating in the near future.
“One of our targets has been to improve the amount of direct bookings, which means we don’t have to concede the commission demanded by third party aggregators. Using targeted, predominantly digital communications has resulted in a 26% increase in bookings made through our website.
“We have also worked to shorten the customer’s digital journey – the more clicks and questions, the higher the dropout rate. To that end, we have made it as short and efficient an experience as possible to book a room and we use post-booking emails to add value through restaurant bookings and local information.”
News of the deal with Cotswold came as Wetherspoon Hotels shared first place with Premier Inn for the best hotel chain in the UK, according to a survey undertaken by Which. The consumer group said that customers had “raved about the chain’s ‘outstanding value for money’ and its central locations in ‘sympathetically converted’ period buildings”. The chain only received three stars in the survey for cleanliness, meaning that it lost out on the winning spot.
The group has 55 hotels and for the year to 28 July reported a 3.9% increase in hotel room sales and said that it would continue to grow its hotel portfolio.
Fuller’s and JD Wetherspoon were not alone. At its most-recent results, Marston’s said that it expected to develop four new lodges this year, adding to its 1,500 room accommodation portfolio. At the beginning of October rumours suggested that the company was planning to sell 150 hotels to help cut its GBP1.4bn in debt, although these were not expected to include pubs with rooms.
HA Perspective [by Katherine Doggrell]: The delight of pubs with rooms is that the rooms are, much like the classic Airbnb flat share model, free money. Yes, you have to pay to put a bed up there, with a lamp and a hairdryer, but an awful lot of pub companies – who tend to be a lot more freehold oriented than hotel groups – are looking at their dead space upstairs and filling it with rooms.
And such is the history of the pub market that they tend to be in city centres and transport hubs. Talk about finding cash in the attic. And as for distribution? The better a time your guest downstairs has, the more they can be encouraged to stay upstairs, OTA costs non applicable.
Back to Airbnb and many guests are finding that the promise of hanging out in the community and swapping gossip with the locals is built in with a pub. Genuine experience with every pint of Guinness.
The people are speaking. According to a study from RPBI seen by Hotel Analyst, for the same spend on accommodation in the same area, in 2016 48% of consumers said they would rather stay in a pub, rising to 53% of those polled in 2019. Of the reasons given for staying in a pub, over half agreed the food was better quality and nearly three quarters said the food was better value, while the majority said the pub had a better atmosphere than a hotel.
The only consoling thing for the traditional hotels is that you can extend your loft as much as you like, you’re not going to fit 400 rooms up there.
Additional comment [by Andrew Sangster]: The early pioneers of the budget hotel market in the UK – Forte (with Travelodge) and Whitbread – benefited hugely from the landbank they had next to their existing restaurant or pub properties.
With almost free land cost it was now wonder that both the then Travel Inn and Travelodge estates mushroomed, becoming the dominant forces they are today.
This latest pub hotel boom is quite different. Rather than bolting on a hotel, often built on a volumetric / modular basis off site, which has 40 plus rooms, maybe even 60 or 80, these properties have fewer rooms. In the case of Cotswolds it is a reasonable number – just under 29 per property – but still short of what most operators would consider as a number to be operated efficiently.
This latest deal by Fuller’s is much more in the Hotel du Vin side of the business – restaurants / pubs with rooms rather than a rooms-led hotel proposition. At the time Frasers Hospitality bought Hotel du Vin in June 2015 it had 701 rooms across the 16 hotels, just under 44 rooms per property.
What you have is a chain that has expensive to run, and in most cases expensive to maintain, rooms. They need to sell for a premium compared to Travelodge or Premier Inn to generate a similar (or better if the premium is sufficient) return. This ought to be easy enough in holiday periods or at weekends but is the business strong enough midweek to sustain strong room rates? Perhaps in the Cotswolds where the grey pound is likely to be in evidence.
It seems a stretch to imagine that this is a business that can scale dramatically across the country, however, it ought to be able to be a strong niche player. Fuller’s is clearly switched on to the growth of the experience economy and is innovating across its estate of just over 200 managed pubs (it also has 180 tenanted pubs). At the Chamberlain in the City of London it has just opened a co-working space alongside the 64 rooms and 130-cover basement bar.