Premier Inn owner Whitbread is to scrap its chain of branded restaurants and recycle £1.5 billion of hotel freeholds through a sale-and-leaseback programme, placing 3,800 jobs at risk as the FTSE 100 group tears up its five-year plan in response to mounting cost pressures and a restless activist investor.
Britain’s largest hotel operator has been hunting for ways to lift returns and protect margins after the autumn Budget left it nursing a sharp rise in business rates and employer national insurance contributions. Pressure has been compounded by US activist Corvex Management, which has urged the board to launch a strategic review after a prolonged spell of share price underperformance.
Unveiling the outcome of its business review on Thursday, the company set out a new five-year roadmap targeting a £275 million uplift in annual profits and £2 billion of shareholder returns. Investors gave the plan a frosty reception: shares slumped 6 per cent, or 151p, to £22.34 in early trading.
Central to the overhaul is the extension of the £500 million restructuring of Whitbread’s food and beverage arm. Two years ago, chief executive Dominic Paul launched the so-called “accelerating growth plan”, converting 112 Beefeater and Brewers Fayre sites into 3,500 new bedrooms and offloading a further 126 restaurants. The group will now go further, replacing all 197 of its remaining branded outlets with what it described as “a more efficient integrated restaurant” format. The shift, expected to deliver a return on capital of between 15 and 20 per cent by 2031, will knock up to £160 million off food and beverage sales this year as sites transition.
The property strategy marks an equally significant pivot. Whitbread, which currently owns the freeholds of roughly half its hotels, will recycle £1.5 billion of property to fund future growth and trim net capital expenditure by more than £1 billion over the next five years. The move will reshape the company into a majority-leasehold business, with freehold ownership falling to between 30 and 40 per cent of the estate.
Paul defended the rebalancing as a pragmatic response to “significant cost increases in the form of business rates and national insurance, as well as the implied market discount of our inherent value”. He added: “Owning a significant proportion of our property is a unique strength which powers the growth of Premier Inn while supporting our resilience as a business, underpinned by a strong balance sheet. But we can improve our approach. We will refocus our capital spend and recycle more of our freehold real estate, driving increased margins and returns, reducing our capital intensity and increasing cash returns for shareholders.”
The strategic reset accompanied a set of full-year results that underlined why the board feels the need to act. Revenue for the 12 months to the end of February was broadly flat at £2.9 billion, in line with City forecasts, while pre-tax profit tumbled 19 per cent to £298 million after £130 million of impairment charges linked to the restaurant restructuring. The group held its full-year dividend at 97p, with a final payout of 60.6p per share.
For the wider hospitality sector, Whitbread’s retreat from its branded restaurant heritage and its tilt towards a leaner, leasehold-heavy model is likely to be read as a bellwether. With business rates revaluations, employer NICs and stubborn wage inflation continuing to bite, even the largest operators are concluding that capital-light growth and aggressive cost discipline are no longer optional.
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Whitbread axes branded restaurants and puts 3,800 jobs at risk in £1.5bn Premier Inn shake-up