A pandemic-enforced refocus on staycations has led UK pub companies to take another look at the benefits of offering accommodation alongside pies and pints.
However, for some the immediate challenge will be refloating businesses that have had a lengthy period closed due to government lockdowns. Once trading again, they will be keen to reopen accommodation to take advantage of what is expected to be another strong summer season. Uncertainty remains around the practicality of international summer holidays in 2021, leading to a second year of positive staycation business.
Neil Morgan, a senior director of pubs and restaurants at Christie & Co, expects the momentum to continue. “There was already a momentum building in accommodation-led pubs, and there’s absolutely no reason why that won’t continue.”
Aside from staycation-driven demand, he also sees a shift in behaviour as those who spend more time working from home decide to spend the money they save on commuting, on weekend breaks instead.
The growth story is driven by the fact that accommodation-led pubs deliver better returns, according to Christie’s own data. Pandemic aside, pub running costs continue to come under pressure, “and in order to retain margins, operators will be looking at utilising every inch of space”.
Oakman Group is one pub group looking to bounce back strong from the pandemic – and add rooms along the way.
“I think staycations are a thing – and people will spend that time at interesting properties,” Oakman CEO Dermot King told Hotel Analyst. “This is the reinvention of the coaching inn.” The refocus on travelling closer to home, along with more working from home, puts Oakman’s properties in a good space, he believes.
In March, the company acquired six properties from administrators of the Seafood Pub Company, also retaining the brand as the third in its portfolio. The properties, all in northern England, will be managed by Seafood’s former MD, Joycelyn Neve.
Oakman followed with a further deal weeks later, signing the lease of the Woburn Hotel. The 25 year deal with landlord Bedford Estates gives the group operation of a 48 room hotel with seven cottages, plus conference and event space. The addition is the company’s 34th property, its largest to date, and takes Oakman’s rooms portfolio to 225. “We will be looking to further grow our capacity,” said King, “as we develop our ability to provide compelling staycation packages, as well as ensuring we meet the needs of business travellers.”
King, formerly an MD at Butlins, plans to keep promotion and marketing in-house as the portfolio grows, building off a base of wedding and conference business. Oakman has used a share sale to small investors, many of whom are customers in their pubs, to raise timely funds for expansion.
Another group looking to expand its pubs with rooms is Inn Collection. In 2018, the company had seven sites when acquired by private equity investor Alchemy Partners in 2018, and it is now on track to grow to 22 sites within a year. The company has had a further investment from Alchemy, and attracted debt funding from OakNorth, as it acquires inns across northern England. Last month it added its latest site, the Wateredge Inn in Ambleside, which has 38 rooms and was quietly marketed by Colliers.
“The Wateredge Inn is matchless and will be a stunning new addition to our eat, drink, sleep and explore collection,” commented Inn Collection MD Sean Donkin. He said the group was “preparing for a predicted staycation boom fuelled by Covid uncertainties about overseas travel, and Brexit.”
Recent pronouncements from the large pub groups have been all around survival, refinancing and reopening. But while there has been little specifically about accommodation, many remain keen on the concept.
Greene King, for example, reiterated its interest in accommodation in its 2020 annual report: “We believe that the combination of pubs and adjacent rooms is an attractive guest proposition in the context of both business and leisure travel. We have 3,358 bedrooms in our estate and see scope for this to grow in the future.”
The brewer was taken private by Asian investor CK Asset Holdings in 2019. It reported annual figures for 2020, which saw the overall group still in profit. However, “Greene King recognised an impairment of HKD995m for certain pub property assets due to underutilisation resulting from such lockdowns and restrictions, and incurred other operating losses of HKD2,467m for the year.”
At pub group Marstons, cash burn during lockdown has been GBP3-4m per week, but the company cut expenditure and maintained liquidity. Speaking in December 2020, CEO Ralph Findlay commented: “Marston’s has entered the current year fit for the future and excited about the nextchapter in the company’s development as a focussed pub and accommodation operator.” In mid–2018, Marstons set itself a target of 4,000 rooms, from its 1,500 at that date.
The last few months have seen Marstons busy with deals including a beer brewing joint venture with Carlsberg, and a deal with Welsh brewing group Brains to take over operation of 156 pubs in Wales.
Pub group Fullers raised GBP53.6m in a share placing, at the end of March. The company said the funds would enable it to “reopen strongly once trading restrictions are lifted”, and “capitalise on available opportunities”. The company reported that, when it was allowed to trade during 2020, “trading from staycations in rural hotels and pubs with rooms was particularly strong, with very high occupancy levels”. Currently the company has just over 1,000 rooms in its 215 managed pubs.
And brewery group Youngs reported strong trading – when it was allowed to open its premises – through summer 2020. In its last half year reports, chief executive Patrick Dardis noted: “Geography played its part in the demand for hotel rooms and has varied greatly across the estate. With more than 50% of our hotel room stock located in London boroughs where occupancy was just 27.0%, the decline of footfall in the city has had a significant impact on the overall performance of our room sales. This is in stark contrast to our staycation friendly locations such as Burnham-On-Sea, Canford, Instow and Stow-on-the-Wold where the average occupancy was up at 83.2%. The remaining rooms in the Home Counties saw occupancy levels of 49.4%. Overall, for the ten weeks of trading, our accommodation sales were down by 46.7%, with an average room rate of GBP78.92 and revpar of GBP33.13.”
Morgan said Christie continues to see strong demand. “People still want to buy pub assets, interest is very strong and pubs with rooms are a top requirement.”
HA Perspective [by Chris Bown]: OK, they might not be giving the big hotel chains sleepless nights just yet, but the growing pubs with rooms niche looks to have plenty of momentum. Structural changes forced by the pandemic, from a focus on staycations, to working from home, all push demand in a positive direction. While plenty of families love the consistency and value of a Premier Inn, there are couples travelling without kids who seek out something with more character – and they’re prepared to pay more, too.
Smart, small scale operators have worked out that if you sell a room alongside a decent food and beverage offering, your guests spend almost as much on food and drink as they do on the room. That’s enough to make many a hotel owner weep. And, if they market sensibly, without relying on the crutch of the OTAs, then margins are good, as is repeat business.
And for those pubs without the cash to splash doing up their empty upper floors into swanky bedrooms, Christie’s Morgan has a tale of one entrepreneurial landlord banking on another form of operational real estate. Owners of the Dodo Pub Company in Cheltenham worked out they could convert their upstairs rooms into coworking space, for around a third of the price of a bedroom fitout. Dodo Works was born, and is reported to be trading well. And, let’s face it, who doesn’t like the idea of an office with a bar downstairs?