What makes Premier Inn Britain's most successful hotel brand?

It operates in more than 850 locations, providing some 85,000 guest rooms and its adverts are famously fronted by comedy legend Sir Lenny Henry. Founded almost four decades ago, Premier Inn has grown to become the UK’s largest hotel operator but just what lies behind its success?

The firm’s latest trading update provides some clues, though it’s also clear the business faces a number of challenges, not least the continued fallout from the cost-of-living crisis and ongoing inflationary pressures.

Parent company Whitbread, which also runs the Beefeater and Brewers Fayre brands, said total group sales were up by 1 per cent to £739 million for the three months to May 30, compared with the same period last year. While sales were 1 per cent down year on year over the first seven weeks of the quarter, demand for accommodation then recovered to match the previous year.

Budget and mid-market hotel brand Premier Inn operates in more than 850 locations.

Bosses noted that while midweek business demand and peak leisure demand remained robust, weekend demand at short notice had been “slightly softer”, particularly in London, reflecting a return to more normalised levels after what was a very strong performance last year. It’s a cautious stance from the hotel giant, yet it continues to outperform the market with total accommodation sales growth leading to a revenue per available room (RevPAR) premium of £5.62 - RevPAR being a critical industry measure of profitability.

FTSE-100 Whitbread is certainly a business that refuses to rest on its laurels, pushing ahead with overseas expansion and plans to add more than 3,500 hotel rooms across its vast estate, which includes scores of establishments in Scotland as it targets busy tourist routes and key towns and cities. Chief executive Dominic Paul has assured investors that the group is on track with its programme to restructure its food and beverage business announced earlier this year. That will see the firm offload or convert more than 200 restaurants and cut about 1,500 jobs as it puts its budget hotel business first and foremost.

The latest update also revealed that food and beverage sales were 1 per cent lower year on year, as strong breakfast sales at hotels were offset by weaker trading in some branded restaurants.

Paul told investors: “Underpinned by the favourable supply backdrop, total accommodation sales and RevPAR remained significantly ahead of pre-pandemic levels. Whilst the normal booking pattern means our forward visibility remains limited, our forward booked position is positive and we remain confident in the full year outlook. Our ‘Accelerating Growth Plan’ to optimise F&B [food and beverage] at a number of sites and add 3,500 rooms to our UK pipeline is on track and will increase our momentum to deliver long-term profitable growth.”

Premier Inn's adverts are well known for featuring British comedy legend Sir Lenny Henry.

The budget hotel business was set up by Whitbread as Travel Inn in 1987, to go head to head with Travelodge, which remains its largest rival. Whitbread went on to acquire Premier Lodge in 2004 and merged it with Travel Inn to form Premier Travel Inn, which was then shortened to the current name in 2007. The hotel chain accounts for upwards of three-quarters of group revenues.

City analysts said the latest numbers reflected the company’s ability to navigate the challenging hospitality landscape while continuing to focus on expansion. Mark Crouch, an analyst at investment platform eToro, said Premier Inn was “still a hit with customers”. He added: “Plans to boost investment in Whitbread’s Premier Inn hotel chain are well underway, with the major expansion adding around 3,500 new rooms across the regions as occupancy rates remain robust for the hospitality powerhouse.

“The hotel sector is Whitbread’s bread and butter, and despite economic challenges, the brand is clearly carrying weight with customers at a time when consumer spending is falling. With Premier Inn making up over 70 per cent of Whitbread’s revenue, it’s little surprise the company is moving more of its eggs into its Premier Inn basket.”

Richard Hunter, head of markets at Interactive Investor, said Premier Inn may not have fully recovered from the “ravages wrought by the pandemic” - a period that dealt a hammer blow to much of the wider hospitality sector - but progress was continuing apace as the group continues to build on its position as Britain’s largest hotel chain.

He noted: “It has been a testing few years for the group. The sale of its jewel in the crown, Costa Coffee, to Coca-Cola in 2019 left some wondering how the remainder of the business would perform on a standalone basis. The pandemic then drove a stake through its operational and expansionary plans, particularly in its new target market in Germany. However, the latter has also proved to be something of a blessing in disguise.

“The subsequent demise of many independent hotels and a constrained growth supply has played into Whitbread’s hands, and in its own part of the market, the midscale and economy segment, the group is currently a major player. Also underpinning balance sheet strength is the fact that the majority of the group’s estate is freehold, which provides extra flexibility on a number of fronts. In addition, the group has seen a spike in demand to levels which now exceed those experienced pre-pandemic.”

Derren Nathan, head of equity research at investment platform Hargreaves Lansdown, described the business as “best-in-class”, noting that the ongoing programme to convert lower yielding restaurants into hotel rooms is likely to provide a “strong return on capital over time”.

Whitbread plans 3,500 more rooms at Premier Inn but some restaurants and 1,500 jobs to go: reaction