The downturn catches up with Whitbread as sales growth hit

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THE UK’s biggest hotel operator Whitbread has finally succumbed to the economic downturn with a sharp slowdown in sales growth over the past three months.

Until now the Premier Inn hotels to Costa Coffee shops operator has proved immune to the slump as customers refused to give up their coffee treats and travellers downsized their hotel budgets.

Sales at Premier Inn, which has about 40 hotels in Yorkshire including Harrogate, York, Leeds, Sheffield, Hull and Doncaster, rose 2.6 per cent in the third quarter to December 1, down from growth of 5.2 per cent in the first half.

Sales at Costa Coffee, which has around 270 shops in Yorkshire and the Humber region, rose 3.8 per cent, down from growth of 6.7 per cent in the first half.

The company, which also owns the Beefeater and Brewers Fayre pub restaurant chains, said group like-for-like sales rose 2.4 per cent in the third quarter, down from growth of 3.3 per cent in the first half.

Chief executive Andy Harrison said: “I’d say this is a reflection of the general economic climate, but I would say that’s pretty impressive growth in total sales.”

Whitbread’s shares closed down four per cent last night, a fall of 62p to 1514p.

Evolution analyst Nigel Parson said Whitbread’s top line growth had been as strong as ever, but he noted the slowdown in comparable sales growth.

“Slowing like-for-like sales may prompt profit-taking today, but we would use this potential opportunity to pick up stock,” he said.

“Whitbread’s clear value propositions resonate strongly with customers and its strong balance sheet allows it to continue to grow at the expense of weaker competitors.”

Total sales, which include new hotel, pub and coffee shop openings, rose by 11.4 per cent in the third quarter.

Premier Inn has performed strongly throughout the economic downturn, benefiting from business customers trading down from four and five star hotels, and a £29 per room offer aimed at leisure customers in off-peak periods.

Costa has also fared well as consumers have treated themselves to affordable luxuries during the downturn.

It has also benefited from new drinks such as its extended iced coffee range and the roll-out of coffee machines at motorway service stations.

Charles Stanley analyst Sam Hart said Whitbread is well placed to weather the current economic downturn.

“Trading conditions in all parts of the hotel industry are likely to be tough,” he said. “The budget positioning of Premier Inn, however, means we expect it to be amongst the most resilient hotel operators.

“Indeed, it could actually benefit from both leisure and business customers trading down as travel budgets come under pressure.”

Whitbread said recent trading month by month has been variable in a challenging consumer environment, but Premier Inn has continued to win market share. For the first nine months of the year, Premier Inn increased the total number of room nights sold by 7.4 per cent to 9.6 million with room rates up 2.1 per cent.

Revenue per available room (RevPAR), a key industry measure, rose by two per cent in the regions and by 9.4 per cent in London, which has been more resilient through the downturn.

Mr Harrison said Whitbread shared the view of economists that the economy will be broadly flat next year.

The UK economy grew by 0.5 per cent in the third quarter of this year.

He said the company is on track to achieve its target of expanding Premier Inn to over 65,000 rooms in the UK from 44,000 currently by February 2016.

It also hopes to have over 3,500 Costa Coffee shops worldwide from around 2,000 at present.

The company said it is on course to meet full year expectations. The market is expecting full-year pre-tax profits to come in between £301m and £329m, with an average of £314m.

One area that has seen a sales improvement is restaurants.

Like-for-like sales at the group’s pub restaurants fell 1.6 per cent in the first half as customers looking for cheaper deals steered away from its more expensive brands.

But following the introduction of a new management team to turn around the performance of its restaurants, like-for-like sales rose 1.1 per cent in the third quarter.

New initiatives include £4.99 offers on meals at Beefeater and Table Table and an all-you-can-eat buffet in Brewers Fayre for £5.99.

ros.snowdon@ypn.co.uk