DUNSTABLE, England—Whitbread on Thursday released its trading statement for the year to 27 November, but buoyant figures were offset by news that Patrick Dempsey, MD of Whitbread Hotels & Restaurants, who was responsible for Premier Inn’s continued dominance of the United Kingdom budget-hotel market and the September 2014 introduction of economy budget brand Hub by Premier Inn, will leave both the Whitbread board and company on 28 February.
In an official news release, Whitbread announced Paul Flaum, head of the company’s restaurant division, will take over the role on the following day. Reporting to him in the position of MD, Premier Inn U.K. and Hub by Premier Inn, will be Simon Jones, marketing and strategy director. Dempsey started in the role in 2004.
Russell Kett, chairman of HVS London, said he is surprised at the announcement and acknowledged that the company is in fine shape.
“The company is one of the bright stars on our horizon, and it will be an interesting challenge to fill his shoes. I am surprised he wants to move on, but of course we do not know what he is moving on to,” Kett said.
Kett added that Dempsey, together with a strong team, has read the hotel market extremely well over the last decade.
“(Premier Inn) has done particularly well on revenue management and room rate optimization. They have made sure the product is as homogenous as it can be and are now starting to tweak the next generation of hotels and making more exciting their (hotel) restaurant concept where appropriate. Added to that they have now successfully entered the lower rate end of the market with Hub,” Kett said.
Continued U.K. dominance
The change is unlikely to derail Whitbread’s hotel division, according to sources.
During a conference call, analysts did not ask a single question about the management changes, although it was mentioned by Whitbread executives, who said that the alterations were made so that the company could step up to the next level.
Andy Harrison, Whitbread’s CEO, said during the call that his recent comments on the continuation of strong trading momentum into the third quarter had been proven true.
For the 13 weeks to 27 November, Whitbread’s Premier Inn hotel arm saw like-for-like sales grow by 8.5% and total sales grow by 15.4%. For the 39 weeks to 27 November, like-for-like sales for Premier grew 9.2%, while total sales grew 14.9%.
“Our strong brands continue to win market share, reinforced by our ambitious organic network expansion. We remain on track to open around 4,500 new Premier Inn U.K. rooms (in 2014). … (and) our committed U.K. room pipeline stands at around 12,400 new rooms, with a number of attractive London freehold opportunities at various stages of negotiation,” he added.
Whitbread trading highlights over the last three quarters, according to Harrison, included:
- Revenue per available room increased 8.7%;
- total number of rooms available increased 5.8%;
- occupancy grew 3.3% to 84.2%; and
- total roomnights increased 10.1% to 12.7 million;
Over the last quarter, Harrison added, Whitbread performance included:
- In London, total sales increased 17.2%, with a 14.8% increase in the number of rooms available;
- occupancy in London stood at 89%, while total RevPAR increased 1.8%;
- total RevPAR in the U.K. regions increased 9.3%; and
- occupancy in the U.K. regions increased 2.9% to 84.2%.
Harrison said he expects the company’s capital investment for the full-year 2014 to be about £575 million ($902 million). He said Whitbread’s freehold properties will “replace leasehold opportunities, and exchange off balance sheet lease liabilities for on balance sheet debt. They also reduce business risk, increase flexibility and capture property appreciation.”
New markets?
During the call, Harrison said that indicative of this was that the company is likely to open two freehold Hub office-conversion properties in the center of London that would have a combined 450 keys and a capital expenditure of £120 million ($188.3 million).
“Our lumpiness in capitalization is due to the London freehold sites we’re looking at, but it is a relatively small number of London rooms that will deliver a disproportionately high profit backed with excellent market fundamentals,” Harrison said.
A call to Whitbread resulted in no new information being given beyond what is already in its official 11 December statements.
If there is an obvious barrier to overcome, according to HVS’ Kett, it is in Premier Inn’s stated intent to move into non-U.K. markets. It has six hotels in the United Arab Emirates and three in India (but more than 650 in the U.K. and Ireland), and in October announced two possible properties in Germany.
“There have been a number of (non-U.K.) initiatives over the years, but whatever they decide for the concept, it will only work with critical mass, large numbers of hotels. Effectively (Premier Inn) focuses on the domestic market wherever they go, so the upcoming challenge for anyone is the need to find strong rental partners who are willing to roll out capital. If they do not find these partners, then it will not happen,” Kett said.
Mark Anderson, MD of commercial and property at Whitbread, has been appointed to head up efforts in Germany, which will likely be the company’s focus in regard to a second major market, Harrison hinted during the analyst call.
Hub properties
In response to a question on pricing of Hub, Harrison said the plan, which has not changed, was to price it at 25% less than Premier Inn.
He added that Premier Inn’s competitors are not growing, but that outside London’s orbital road, the M25, the main challenge to growth derives from the reduced U.K. disposable income.
Harrison concluded by stating that Premier Inn’s strong rate growth was the result of overall market health underpinned by high and increased occupancy.
Nicholas Cadbury, Whitbread’s group finance director, said the Premier Inn hotels enjoyed a £5.50 ($8.63) premium in regions over competitor properties, a figure that would be higher if its hotels (approximately 40% of the total) were removed from competitive-set analysis from STR Global, HNN’s sister company.
“We’re comfortable where we are,” Cadbury said.