A report earlier this year predicted that combined turnover from accommodation in the sector could reach £750m, with over 50,000 rooms in 5,700 pubs (approximately one in nine of the UK pub market) providing accommodation. Almost two-thirds of the operators surveyed said they expect accommodation revenue to grow over the next 12 months.
This uptick in investment comes as perceptions of pub accommodation are changing, with research finding that 41 per cent saying they prefer to stay in a pub against 23 per cent in a branded hotel. The survey also noted that those running pubs with accommodation were 'upbeat, confident and anticipate growth' in the sector.
It also comes on the back of an encouraging performance from the regional hotel market. According to the latest Zolfo Cooper/HVS Hotel Bulletin, regional hotel performance was strong in the third quarter, with the cities reviewed recording an average 8 per cent RevPAR increase over the three months – significantly higher than any quarter since the downturn. More significantly profit has increased in each of the last six months on a late 12 months basis.
The report also found that there are early signs of hotel performance throughout the UK benefitting from the worldwide exposure created by the Olympics. Graeme Smith, partner at Zolfo Cooper, says: “A steady increase in the number of tourists visiting the UK was temporarily halted in summer 2012, where non-games visitors appear to have avoided the UK, perhaps due to high prices and perceived tourist congestion. Since the Olympics, however, overseas visitor numbers have stabilized and have then accelerated through the summer.”
Extra revenue streams
Earlier this month, Kings Park Capital (KPC), the leisure sector investment fund, acquired a majority stake in the three-strong Inn Collection group for £10m and says it plans to add more sites to the northern England-based pubs-with-rooms operator. Approximately 20 per cent of the group’s revenue is from room sales, with 56 per cent from food and the rest from drink.
Tillman said KPC was attracted to the coaching inn model because it offers three revenue streams - food, drink and accommodation - that complement each other. He says: “For example, business or leisure guests will often drink at the outlet at night then have breakfast there the next morning. We are specialists in leisure and leisure for us includes pubs, restaurants, hotels and travel, and assets like these provide elements of all.”
Like-for-like sales at Fuller’s rose 10 per cent across its managed pubs and hotels, with food and accommodation outperforming, over the first 16 weeks to 20 July. Jonathon Swaine, managing director of Fuller’s Inns, says: “Expanding the number of boutique bedrooms we operate within our managed pub division has been a key focus in recent years for Fuller’s. We now have well over 600 rooms.
“This expansion is directly in response to consumer demand; we have found a niche of people – certainly the more adventurous and gregarious guests – that prefer to spend a little more money and can stay somewhere with lots of character, where they can relax in a warm and welcoming environment, and enjoy great food and fantastic drinks. Anecdotally, we think some guests are trading up to us from the budget market, some from the traditional bed and breakfast market and some from the middle and four-star market, which can be a bit pricey for the experience they are getting.”
Testing the water
Marston’s is considering plans to roll out more lodges that it operates itself. The company opened its first new build lodge, the Two Rivers at Chepstow, last November and a second, the Starling Cloud at Aberystwyth, this spring. Both have pubs adjacent to them.
Chief executive Ralph Findlay described them to M&C Report as an ‘important trial’ for the company, which also owns a number of co-located sites with budget hotel operators Travelodge and Premier Inn.
“One of the decisions that we are looking at is whether our performance in the lodges will be strong enough to make this investment ourselves.” He said a decision on this question would be taken in the next few months. The company will examine issues such as the mix of customers between leisure and business and “what rates people would be willing to pay”. Findlay described trading at the Two Rivers and the Starling Cloud as ‘very strong’.
It is understood that Cirrus Inns, the investment vehicle, is close to completing a further round of funding, which will see it invest in excess of £10m in adding to its current 11-strong premium estate of freehold pubs with rooms. Cirrus, which was founded by 333 Holdings founder Alex Langlands Pearse, is aiming to eventually invest in up to 50 pubs with rooms.
Regional operator Arkell’s has an ongoing strategy to add accommodation to its pub estate. The brewery now has around 500 bedrooms across its estate of 100 pubs and hotels spanning Wiltshire, Gloucestershire, Oxfordshire, Berkshire and Hampshire. It plans to add further rooms to its pubs where there is the space and potential demand.
Brewery director George Arkell said: “There is a growing demand for good accommodation. The more income-generating opportunities a pub has, the better. If we consider that good quality accommodation would be of benefit to a pub and would serve the local community then it’s sensible to make the investment.”
Of course there are challenges with any business opportunity, and adding a significant bedroom operation adds complexity to a pub.
“However, it’s about making the most of what we have,” says Swaine. “In many cases we have the property and the latent opportunity, which with the right scheme and investment can deliver fantastic returns and completely transform the profit contribution of a site.”
This article appeared in M&C Report's 'Inside Track'. Subscribe here.