Whitbread post Brittain 

The budget and economy sector continues to ride on the ragged edge of brand growth in the UK and Europe as the market looks to the US and wonder whether it fancies some that or not. 

The luxury sector may be where investors are currently besotted, but until you can identify a destination budget hotel, the brands are doing all the hard work in dragging people through the door. 

At Whitbread, which was chatting about its full year results this morning, there was a continued focus on what it called the “significant structural shift” it was seeing in the market in both its regions: the UK and Germany. 

This significant shift was described by now-in-come CEO Dominic Paul, as “a structural decline in the independent sector”, which meant that, in the UK hotel supply was back to where it was in 2013 with the group expecting hotel supply to remain below 2019 levels until at least 2026. It planned to make merry with traumatised independent hotels and saw the potential to increase the network from 91,000 rooms to 125,000. 

In Germany, the company was planning to grow organically and through targeted M&A, the latter of which has in the past involved rebranding, which muddies the pure and glistening flow of conversions from independents, but never mind. 

The company was confident it could be a thorn to existing brands in its segments, with Paul commenting that it was “closing the gap”. The open and committed estate currently adds up to 16,000 rooms in the market, same as Best Western and 1,000 rooms behind Motel One and B&B, both of which have 17,000 rooms (Ibis was the market leader with 24,000). So certainly it is becoming a more credible threat than it has looked in the past, although those rival numbers did not include pipeline. 

As ever in Europe, you’ll be prising the economy segment out of Accor’s cold, dead hands, or, now they’ve split it off, buying it for a few billion and rejoicing in owning something where you might not be hosting your mates, but you won’t need to because you’ll all be hanging on the yacht. 

Whitbread’s Germany business remained in the red, but “within range” with adjusted loss before tax of £50m. Next year this is forecast to drop to between £20 and 30m. 

One of the reasons Paul has rejoined the company was to push the growth in Germany and keep shareholders happy. In the short term he has done the latter by hiking the dividend, but in the long term he’ll have to prove that he can grow in a country which has gotten used to all those Ibises. 

Germany was attractive to Whitbread because it looked a bit like the UK: not opposed to leases and wasn’t overly branded. But while it is one of the most-recognised brands in the UK, this isn’t true in Germany. Is brand strength important to owners and investors? Or is having a strong covenant of more interest? 

Or… will Whitbread have to deploy its cash stash (it has cash and cash equivalents of £1.17bn)? Further down the results it said: “Having the flexibility to purchase attractive freeholds and execute bolt-on M&A in Germany without the need for external financing is a competitive advantage and underpins our long-term growth plans.”

In the past, we have meanly called the group ‘boring boring Whitbread’. Is that set to change? It may not be about to buy Accor’s business*, but could it scoop up a lower rival? 

*please buy the Accor business. 

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