Premier Inn Owner Whitbread Presses Ahead With Germany Expansion

What do you do with $5.1 billion (£3.9 billion)? If you’re Whitbread, you spend some of it on expanding your business internationally.

The parent company of Premier Inn plans to use the proceeds of the sale of Costa Coffee to Coca-Cola to grow its hotel business outside the UK.

In February, Whitbread bought 19 hotels in Germany as it looks to replicate the success it has had with Premier Inn in the UK. It plans to almost double the number of rooms it has in the country to 6,000 by 2021.

“The substantial net cash proceeds [we] will receive once the Costa transaction completes in the first half of 2019 will further enhance our ability to grow Premier Inn,” CEO Alison Brittain said on a conference call Tuesday with analysts after the release of Whitbread’s first half results for 2018-19.

Germany is a bigger market than the UK with close to three-quarters of hotels classified as independent.

“We expect branded budget [hotels] to increase their share over the time as they’ve done in more mature with the market, such as the U.S. in the UK,” Brittain said.

Whitbread’s property portfolio is a mixture of owned (63 percent) with the rest leased (37 percent) making it different from many of the other global hotel chains, which favor an asset-light, leased-heavy approach.

Although Whitbread is aggressively expanding in Germany, over the past year it has pulled out of India, Thailand, Singapore and Indonesia. Currently, it operates a joint-venture with Emirates in the Middle East.

Using the term “internationally” in its results announcement, implies that Whitbread has plans beyond Germany and it will hold a capital markets day in February to update investors on the “ongoing opportunities available to Whitbread following the sale of Costa.”

Direct Distribution

In Germany, Whitbread said it had a 100 percent direct business, only slightly ahead of the UK at 97 percent, a remarkable figure, given how big a role online travel agencies have in the market.

“We’ve achieved the UK number by a huge amount of focus and lots of testing and checking along the way. So we’ve not lightly removed our OTA, for example, but we’ve done it in a targeted and appropriate way. What we don’t like, of course, is to pay OTA for business, which would have come to Premier Inn,” Brittain said.

Around 74 percent of Premier Inn’s UK business comes through its own website, 5 percent come through the app, and 5 percent is classed as direct non-digital. Business bookers/agents account for 13 percent (Whitbread classes this as direct) and only 3 percent though online travel agents.

First-Half Results

Revenue rose 2.6 percent to $1.4 billion (£1.1 billion) with the pre-tax profit level at $334 million (£257 million). same as the previous year’s period. The company incurred costs of $4.7 million (£3.6 million) relating to “a significant operational restructure,” which included lay-offs and consultancy fees. The reorganization will continue in the second half of the year.

Brand growth

As well as building business in Germany, Whitbread is also rolling out new brands at different prices points and locations in the UK.

Zip, which Whitbread announced on Monday, is targeting the budget market with prices starting from £19. Hotels will be situated on the edge of major towns and cities. Hub, which Whitbread launched three years ago, while Hub, its tech-focused offering, is growing in city center locations.