Pub-hotel boost brewed by alcohol regulation
15 SEPTEMBER 2014 8:36 AM
Diminished alcohol consumption amid increased legislation in the U.K., coupled with the hotel sector’s hearty health of late, will see breweries and related interests adding hotel stock to their pubs.
REPORT FROM ENGLAND—The hotel sector could prove a natural outlet for the United Kingdom’s breweries, pub-ownership companies and independent publicans who are looking to diversify business interests amid a more challenging operating environment.
“Brewers have the expertise in hospitality, so hotels are a natural addition, although food has been the largest facet to have been added recently,” said Neil Williams, communications manager for the British Beer & Pubs Association.
David Wigham, operations director for Punch Taverns, said his company, which owns 4,000 pubs throughout the U.K. and leases them to tenant landlords, has seen the demand to add accommodations both to pubs that already have rooms and to those that do not.
“We started a business-launch team, which has among its skill sets an understanding of what it means to market accommodation. This used to be left to the individual landlords, but we realized that we cannot expect them to know what it takes today to do that. We have the relationships with the booking engine and accreditation companies,” Wigham said.
He said Punch has in place design specifications for both value and premium pub rooms and would love to add keys to 40 of the 400 pubs it adds to its portfolio annually.
“It’s about us bringing economies of scale both in terms of finance and knowledge,” Wigham added. “We will not do large-scale development, but when we do invest in a pub, the adding of hotel stock will be a definite consideration.”
Marston’s, the U.K. public house operator and largest cask-ale brewery, is already moving in that direction with plans to develop a chain of hotels, according to a Reuters report.
Others could follow amid increasingly regulated U.K. alcohol legislation and an overall reduction in alcohol consumption, sources said. The hotel industry could be seen as a haven given its strong performance in recent years and the long history in the U.K. between alcohol and beds, dating back to companies such as Bass and Whitbread that were formed in the mid-18th Century.
Officials at Marston’s, who did not return calls by press time, talked to Travelodge executives in 2009 about hotel partnerships, but that relationship ended during Travelodge’s economic woes at the beginning of this decade. Now Marston’s is back in the hunt, with CEO Ralph Findlay saying that five of its annual 25 to 30 new pub openings could include a hotel component.
Marston’s, with both owned and managed pubs, 40 existing hotels and, at press time, a market capitalization of £882.76 million ($1.42 billion), has its headquarters in the Staffordshire town of Burton upon Trent, which also saw the origins of Bass.
Pubs, breweries and hotels have had long associations. Examples of U.K. breweries still in the hotel business include:
- St Austell Brewery: operates 15 small hotels, all in the Southwest of England, the brewery’s traditional home;
- Fuller’s: operates 26 small properties in the south of England, including 12 in London such as the 22-room Drayton Court Hotel and flagship, 64-room Chamberlain Hotel;
- Greene King: operates 52 historical hotels throughout England under its Old English Inns brand, including the seven-key Old Ferry Boat in St Ives, Cambridgeshire, reputedly England’s oldest inn.
Two examples of hotel chains that no longer have connections to brewing interests include:
- Whitbread PLC (Premier Inn and Hub by Premier Inn, which debuts this month) was founded in 1742 by Samuel Whitbread and listed on the London Stock Exchange in 1948. It left the brewery industry in 2001 and the following year also exited the pub ownership and tenancy business;
- InterContinental Hotels Group was formed in 2003 out of Six Continents PLC, which was Bass Brewery’s hotel interests (including 79 Posthouse Hotels properties that were rebranded under the Holiday Inn flag) as fashioned in 2000 by Interbrew, now known as Anheuser-Busch InBev. IHG now sits on its own.
Marc Finney, head of international hotels at commercial real estate company Colliers International, said brewery owners traditionally owned hotels both as licensed premises and as separate commodities. Examples include Bass with Crest Hotels; Scottish & Newcastle with Thistle Hotels; and Vaux Breweries and afterward Whitbread with Swallow Hotels.
He said the brewery relationship with pubs and, by extension, hotels was broken up by government anti-monopoly legislation in the late 1980s that saw the end to the tied-pub set up in which breweries owned pubs and leased them back to tenant publicans who then had little choice as to the beer they sold.
“What we are seeing now is a full circle from those days, with pub owners now not tied to breweries and, especially if they sit on larger grounds, realizing they have an opportunity to add on rooms,” Finney said.
We’re beer to stay
Many U.K. pubs are owned by lease companies such as Punch and Spirit, some of whose pubs do have hotels, or by independently owned businesses, known as freeholds.
“The slightly ridiculous thing now is that even if brewers were told to sell their previous pubs and hotels, the new lease companies have realigned themselves with breweries to take advantage of economies of scale. They’re not obliged to but are doing so anyway,” Finney said.
“I do not see many poor brewers,” he added. “Essentially, brewers convert a couple of vegetables and charge a lot for it, but with branding, marketing, distribution and tax all taking larger slices of the pie, diversification proves intriguing.”
“Added costs and taxes fall hardest on the ‘trade’—that is, the selling of alcohol in bars, hotels and restaurants—so investing in rooms on premises is definitely one way of brewing interests allowing assets to work more effectively,” Williams said.
Finney expects to see more crossover between pubs and hotel stock—a natural progression from the strengthening of drink license laws and public cognizance that drinking and driving is wholly unacceptable.
Even an independent pub might see the benefit of adding half a dozen hotel rooms, and they would probably get planning permission, he said, warning that it was still important to ascertain the market and not just add rooms for the sake of doing so.
With the hotel sector doing well in recent months, Finney foresees more pubs adding rooms.
Williams does as well. “If you think about it,” he said, “a pub hotel is a unique boutique offering if you love the culture surrounding the traditional British pub.”