With its sights set on dominating the UK’s hotel sector, Travelodge’s managing director for development, Paul Harvey, talks to Noella Pio Kivlehan about the group’s strategy
Travelodge is gaining a reputation in the industry as the hotel group that will sleep with anyone. So far in its 25-year history in the UK, the budget hotel chain has notched up comedy clubs, supermarkets, and pub groups to pair up with. But it draws the line at strip clubs. The brand, after all, does have scruples.
“We do deals with Tesco, Waitrose, Aldi and Lidl, and we have done deals with Wetherspoons, Frankie & Benny’s, Marston’s, and [comedian] Lee Hurst, but we wouldn’t do tie-ins with anyone who has a late licence for the obvious reasons, and clearly we don’t do anything that compromises our brand,” says Paul Harvey, managing director for development at Travelodge. “Most of the tie-ins are complementary.”
The profitable Travelodge, which announced in April that sales were up 3% on last year to almost £300m, has extremely ambitious plans to more than double its business from the 30,000 beds it already provides to 70,000 by 2020. So, the chain needs to tie-in with as many different brands as it can.
“We have flexibility,” says Harvey. “Although the physical product of the room is standard, the exterior varies to fit in with the local surroundings. The model makes a scheme economically viable, maximises employment and works with retail on the ground floor level.”
Smart move
All of the UK is on its target sheet (see box below), but Harvey says that the concentration of new hotels will be in Greater London – a smart move, given that a PricewaterhouseCooper’s survey earlier this month revealed prospects for the capital’s branded budget and luxury operators are starting to improve.
Harvey says: “In terms of rationale for expansion – 70,000 rooms for us is about 10% of the UK market share – many of the market leaders have shares over 10%. We know where we want the additional 40,000 to be. Somewhere between one-quarter and one-third will be conversions of existing hotel brands, and the rest will be new-build or conversions of office buildings. Around 20,000 rooms will be in central London.”
One recent source of expansion was via the purchase last month of 52 Innkeeper’s Lodges, comprising a total of 1,994 rooms, from restaurant and pub operator Mitchells & Butlers.
“If you think about the hotel sector in London and the size of the market, there is scope for many more rooms, particularly in the London boroughs where they lack branded hotels,” says Harvey. “They have mid-market hotels, which are frankly horrible.”
While the recession may have slightly slowed things down for the group in 2009, overall it has been an asset. “From a trading perspective, we had a decent recession,” says Harvey. “We were sitting there two years ago with aggressive expansion plans, but once Lehmans went down we sat down and asked what should our approach. We decided to keep growing. But because of the nature of our leasehold model, we didn’t need large chunks of our own capital to continue developing, so there was no cash restraints.”
Harvey does admit that the recession did have a minor effect on growth last year. “We did slow down a bit, increasing by only 1,764 rooms and 21 hotels. In 2008, we added 3,646 rooms and 38 hotels,” he says.
While Travelodge survived the recession, the same cannot be said of its major shareholder Dubai International Capital. DIC is the international investment arm of sovereign parent company Dubai Holding which, in June, ran into major financial difficulties. It was thought that Travelodge could be sold off – a prospect that wetted the lips of Whitbread, which was said to be interested in buying the chain.
But despite speculation arising again two weeks ago that it will be sold, Travelodge is adamant it is not for sale, especially given the lucrative prospects ahead with the 2012 London Olympics.
The chain wants to be the biggest hotel operator in London before the Games start. “Our development aim was always to build in Greater London,” says Harvey. “The Olympics will be good, and we have been very impressed with the legacy portfolio. We are going on site for a hotel in Stratford, E15, but it’s not as if we are opening 15 hotels next to [the Olympic Park].”
Harvey says the company has 2,800 rooms on site being developed, adding that Travelodge has “an assured pipeline for the development of a further 6,000 – so that’s 8,800 rooms we have that are being developed.”
Expansion does not include Travelodge spin-offs, such as spas or luxury hotels. “We believe in keeping it simple, and there’s so much growth in doing that, we don’t need to diversify,” says Harvey.
He is not even worried that his competitors will catch up with Travelodge’s growth figures once the economy is fully back on its feet.
“When the good times start rolling again it is clearly good business for everybody,” says Harvey. “From our perspective, we would just continue to develop the pipeline we have got, and if the competition comes back, we will continue to work harder.” And, as he adds: “I don’t care what our competitors think of us. I care what our customers think.”
The Travelodge location wish-list
