Strong sales growth by Premier Inn as almost 4,000 new rooms in the UK helped boost annual profits for owner Whitbread in 2016.
The UK’s largest budget hotel chain achieved occupancy of more than 80% with record levels of direct bookings at 94%.
Premier Inn & Restaurants’ underlying operating profit rose by 7.4% to £468 million as Whitbread reported an overall underlying pre-tax profit up 6.2% to £565.2 million over the previous 12 months.
The hotel chain grew total sales by 9% and the number of rooms available by 9.3% as 25 new hotels were opened to take the total to 762 – 200 more than its closest rival.
Whitbread chief executive, Alison Brittain, outlining Premier Inn’s direct distribution strategy, said: “Our focus on providing our guests with the best digital booking platform has been vital to our success.
“We have grown our direct digital distribution from 77% in 2013/14 to 88% in 2016/17, driving incremental revenue and reducing our reliance on third party distribution.
“Not only does direct distribution provide our lowest cost booking channel, it also enables a direct relationship with our customers, helping to build loyalty over time. Our total direct distribution now stands at a record 94%.”
However, Whitbread incurred a net non-underlying charge of £49.8 million, predominately relating to the estimated cost of Premier Inn International’s withdrawal from India and South East Asia and re-organisation costs associated with cost efficiency efforts.
Brittain identified London as a “substantial growth opportunity” for Premier Inn due to its low 8% market share in the capital.
“Our UK committed pipeline has grown to 14,500 rooms, of which 5,900 are in London and 8,600 are in the regions,” she said. “Moreover, our extension programme has been driving incremental like for like sales growth and good returns and constitutes 20% of our committed pipeline outside of London.”
She warned that Premier Inn and sister coffee chain Costa “continue to face a number of cost headwinds from the National Living Wage, business rates, commodity price inflation and foreign exchange rates.
“We are incurring additional rent from the sale and leaseback transactions we successfully completed last year and are planning to carry out this year.
“We are also investing in line with our strategy of improving our customer proposition and building digital and IT capabilities and infrastructures that will enable the delivery of long-term sustainable growth.
“Over time these costs will be partially offset as we benefit from: the cost efficiency programme announced in November 2016, which plans to deliver £150 million of savings over five years; the investments we are making; our dynamic pricing model; and through the scale benefits of our organic growth.”
Whitbread expects Premier Inn & Restaurants margins to reduce between 0% to 0.2% points in 2017/18, in line with previous guidance.