Whitbread, the owner of the Premier Inn hotel chain, says it expects cost inflation for the hospitality sector to reach 7-8% in the coming months.
Higher labour costs, rising energy bills and increased construction costs for its new hotels are putting pressure on the FTSE 100 company, says Whitbread’s chief executive, Alison Brittain.
The chain operates more than 800 hotels and parent firm Whitbread said bookings for Premier Inn’s UK properties remained “resilient”. Although there has been a “softening” of demand in recent weeks, due to the rapid spread of the Omicron variant of Covid-19, according to Whitbread’s latest trading update released on Thursday (12 January).
Premier Inn has outperformed the overall UK hotel market with sales growth that was nearly 15 percentage points higher than the sector average in its third quarter (up to 25 November 2021), due to “strong leisure demand and recovering business demand”.
The group said it expected to offset these increased costs through charging higher rates for rooms in its 800 Premier Inn hotels, as well as through cost efficiencies and by growing its estate.
The company, which also owns restaurant chains including Beefeater, Bar + Block, and Brewers Fayre, said higher levels of inflation would affect about £1.4bn of its cost base until April 2023.
Meanwhile, Premier Inn’s 32 hotels in Germany have been hit harder by the country’s tighter Covid restrictions, which have acted as “significant market drag” and are set to last until the end of the winter season.
Inflation in the hotel sector is forecast to be above “historic average levels” this year, Whitbread expects Premier Inn to “largely offset” these increased costs through higher average room rates, alongside its efficiency programme and the opening of new properties.
Inflation in the hotel sector is being driven by higher energy and labour costs, as well as increased construction prices.
Whitbread’s CEO Alison Brittain said business travel demand in the UK had been “improving” in the three months before the emergence of the Omicron variant, with overall like-for-like sales ahead of pre-Covid levels.
Brittain said the company had brought in a 5% staff pay rise in the last quarter of 2021, in order to retain workers and attract new ones amid a squeeze on hospitality staff. She said she anticipated increasing wages again in the spring for staff who are paid hourly rates.
“That [labour costs] is quite a large part of inflation for us, so are energy bills which are highly inflationary,” Brittain said. “Construction costs are higher, and so that impacts our building of hotels where we are not contracted, where we are looking at new hotel builds.”
Whitbread said that demand at its hotels and restaurants was dampened in December and during the festive period by fears about the spread of the Omicron variant.
The company’s food and beverage sales were 17.2% lower in the six weeks to 6 January than during the same period in 2019, as consumers stayed at home and many Christmas parties were cancelled. In recent weeks, governments in Scotland, Wales and Northern Ireland have also introduced more restrictions on consumers eating out and drinking inside hospitality venues.
However, Whitbread said accommodation sales at its UK Premier Inn hotels over the past six weeks were 5.1% higher than during the same period in 2019.
Before the news of the Omicron variant affected consumer behaviour, Whitbread had benefited from consumers taking domestic holidays, as like-for-like accommodation sales grew by 5.5% in the three months to the end of November compared with 2019.
However, this contrasted with food and drink sales, which slid by 13.4% during the period, leading Brittain to describe the “value pub and restaurant sector” it now operated in as “more challenging”.
Anticipated slower trading in January and February combined with supply chain disruption have caused Whitbread to delay £20m of spending on marketing and refurbishment of its venues.