Whitbread harbours eastern ambitions
Whitbread CEO Andy Harrison said that expansion would focus on the Middle East and India
Andy Harrison is having to curtail his flight plans. The chief executive of Whitbread and amateur pilot recently received a government letter at his home in St Albans warning him not to enter restricted airspace above London during the Olympics.
“It said a Typhoon [fighter jet] would be dispatched . . . but they warn you with flares first,” he said.
No stranger to managing risks, Cambridge-educated Mr Harrison will celebrate his second anniversary in charge of the FTSE 100 group in September.
Previously, he spent four and a half years as chief executive at easyJet, where he contended with acrimonious shareholder squabbles and a fellow executive who emailed his resignation while Mr Harrison was skiing near Geneva.
Despite that, Mr Harrison is credited with turning a relatively small UK-based airline into a major European carrier.
Speaking at the Premier Inn restaurant in King’s Cross – replete with swirly carpet, garish wallpaper and trademark purple flourishes – he outlined bold plans for the international expansion of Britain’s biggest hotel operator by number of rooms.
“There will be hundreds of Premier Inns internationally – we need to have an economy of scale,” he said. “There is a steady shift from independent [operators] towards brands [and] we are looking at growing the business internationally.”
Mr Harrison said that expansion would focus on the Middle East and India, where Premier Inn has four and two hotels respectively.
Would Easterners warm to purple flourishes?
“We target both international and domestic travellers but the big market will be when the domestic market grows,” he said. “Low-cost airlines are growing fast in India and in 10 years’ time there will be a big middle-class – it’s a long-term strategy.”
Meanwhile, Whitbread is concentrating on its 620 UK hotels, which remain the company’s revenue engine, accounting for £756m of £1.7bn in sales during the last financial year. Over the same period Whitbread opened a record 31 hotels to increase capacity from 49,000 rooms to 65,000 rooms by 2016 and boost market share from 6 per cent to 10 per cent.
However, neither the Premier Inn in Dubai nor King’s Cross is representative of the brand’s estate. All but 14 of the company’s hotels are outside central London, many in a depressed provincial market. That is why Premier Inn’s growth in revenue per available room (revpar), an industry indicator, has been lacklustre, up 2.4 per cent since February 2009.
The group’s 380 pub-restaurants, usually next to a Premier Inn, have also underwhelmed. Last year the division, including brands such as Beefeater Grill and Brewers Fayre, registered a 1.2 per cent increase in like-for-like sales, underperforming the managed estate of peers such as Greene King and Marston’s.
The bigger issue on many analysts’ minds is whether Whitbread will split its hotels and restaurants from Costa, following the April appointment of Christopher Rogers, the group’s former finance chief, to head the coffee chain.
“Never say never,” said Mr Harrison. “But for now the focus is on the advantages which Whitbread brings, [such as] management capability and our long-term view.”
Critics argue that Whitbread could hardly justify the company’s chunky price/earnings to share price ratio of over 14 if it demerged its fastest-growing business.
Following the £59.5m purchase of Coffee Nation’s vending machines in 2011, Costa has boosted its presence in garages, forecourts, airports and motorway stops.
This helped buoy a total sales rise of nearly a quarter last year. Mr Harrison plans to add 600 stores to its 1,400 strong UK estate and double its 850 global stores by 2016.
“Costa accelerates group growth and without [it] Whitbread would become increasingly dependent on the vagaries of the hotel cycle, particularly as Premier Inn reaches maturity,” said Simon French, an analyst at Panmure Gordon.
But it is Costa’s China business which excites investors the most.
The company has about 190 stores in China – second only to Starbucks – and plans to build a further 310 by 2016. Mr Harrison said the Chinese business will break even this financial year.
“It’s an aspirational purchase, it’s a taste of European coffee culture, the [Chinese] drink the takeaway cups instead of mugs in the stores because they have the brand on them,” said Mr Harrison. “One day we will have thousands of stores in China.”