Premier Inn has ambitious expansion plans. The UK’s largest hotel chain already has 53,000 rooms at 660 locations across the country – around 30 per cent more than its closest competitor, Travelodge – but it is eyeing up opportunities in prime city centre locations to continue growing its market share.
Over the next four years, the Whitbread-owned company plans to invest more than £1bn in building 22,000 hotel rooms, at an average build cost of £50,000 per room.
“The housing market is coming back, the office market in London never went away really… and it’s getting more and more competitive to find sites”
Alex Flach, Whitbread
Its target is to open 170 new hotels by 2018, taking its total to 830 locations in the UK, as well as adding to its existing estate through extensions.
This financial year, Premier Inn will deliver 4,000 new bedrooms and in 2014/15 the target will increase to 4,500.
As the UK economy recovers and there is more competition for sites and resources, what challenges will the hotel chain face in the years ahead?
Race for space
Whitbread’s construction director for hotels and restaurants Alex Flach says he expects getting new hotels to site will become more difficult over the next five years than it has been during the downturn.
Premier Inn is responding to the demand for cheaper city centre hotels with a new hotel format, Hub by Premier Inn, in which rooms will be almost 50 per cent smaller than a standard Premier Inn bedroom and around 30 per cent cheaper for guests.
What Premier Inn wants from contractors
Flexibility Contractors must be able to adapt to Premier Inn’s latest designs without making unreasonable additional charges.
Innovation Contractor are urged to offer ideas about how Premier Inn can build faster, cheaper or better.
Quality of construction There is no room for error and projects completed to time and budget.
Competitive price With build cost inflation creeping in, Premier Inn is looking for competitive tenders without compromising on quality.
Considerate construction Good health and safety records, a clean site and respectful employees are essential, particularly during refurbishment and extension works when hotels remain open.
Northern Irish contractor McAleer & Rushe is currently on site at St Martin’s Lane, London, building the first 167-bed Hub hotel, which is due to open next summer.
A further four London sites are in development and Premier Inn plans to build 3,000 Hub rooms in London and other major cities, including Birmingham and Manchester, by 2018.
Prime commercial competition
It means Premier Inn is competing with commercial developers for sites that are also prime office locations, pushing up acquisition prices.
Mr Flach says the government’s decision to cut the red tape on office-to-residential conversions is putting additional pressure on the competition for space.
“The housing market is coming back, the office market in London never went away really… and it’s getting more and more competitive to find sites,” he says.
“Everyone is starting to spend more money and contractors’ workloads are starting to build again so that means we can start to see inflation coming in to our business”
Alex Flach, Whitbread
He adds that securing planning permission for conversions is an ongoing difficulty and calls on the government to “take away the whims of planners” who, he believes, attribute more value to office jobs than those created through the opening of a new hotel.
Mr Flach is also concerned that building out Premier Inn’s pipeline is going to become more expensive with contractors seeking higher margins on jobs as their order books grow.
“Everyone is starting to spend more money and contractors’ workloads are starting to increase again, so that means we can start to see inflation coming into our business,” he says.
Due to ongoing economic problems in Northern Ireland and a stagnant housing market, Mr Flach says Irish contractors are currently the most cost-competitive on tender, with McAleer & Rushe winning many of Premier Inn’s recent jobs.
Premier Inn has recently employed independent consultants on its construction sites. “With the recession going on and tendering being as tight as it was, certain contractors were cutting corners that we weren’t happy with,” Mr Flach explains.
Having contractors who respond to challenges in a collaborative way to save time and money is important to the business, he says.
Premier Inn tends to work with contractors with turnovers ranging from £30m to £100m, which Mr Flach says “suits the type of project we work on”.
It has longstanding relationships with a number of contractors and has worked with some, such as Carter Lauren and Ogilvie Construction, for more than 15 years.
The company forms new partnerships with contractors after having worked successfully with them on developer-led projects, which Mr Flach says is “a great way of getting them over the hurdle of understanding how we work and how they work with a developer – when it’s not our money at risk”.
In recent years McAleer & Rushe and Sisk & Son have joined Premier Inn’s “open pool” of contractors after first delivering developer-led projects. It also works regularly with RG Carter Construction and Gilbert Ash.
Mr Flach says he wants to work with contractors who innovate, from “ridiculously simple ideas” such as taking levels out of its car parks, to offering a well-developed offsite construction strategy.
“We’ve done a huge amount of work on system build in the past, but have never been able to make it financially work for us. We’ve never built a hotel cheaper than building it traditionally”
Alex Flach, Whitbread
“We’ve done a huge amount of work on system build in the past, but have never been able to make it financially work for us. We’ve never built [a hotel] cheaper than building it traditionally,” Mr Flach says.
Premier Inn is currently building its first hotel to be fully designed using building information modelling in Southend.
RG Carter won the job having a track record of using BIM on projects for supermarkets including Sainsbury’s, and Mr Flach is confident that the technology will bring benefits for Premier Inn, particularly for the long-term asset management and maintenance of its hotels.
He also demands that contractors can adapt to deliver evolving designs, even if their contract was agreed on a previous design up to two years earlier.
“We demand quite a lot of flexibility from our contractors because as a brand we can’t afford to stand still,” he says.
Refurbishment while guests sleep
Premier Inn will expand its refurbishment programme in 2014/15 with every room in the estate to be redecorated, refurbished or stripped out and refitted every three years on a 12-year cycle.
Contractors CLC Group and Novus are currently delivering Premier Inn’s £80m refurbishment and maintenance programme for 2013/14. The new programme will go out to tender in early 2014.
Premier Inn guarantees guests will be able to sleep in its hotels at any time day or night, so Mr Flach says the ability of refurbishment contractors to work considerately in a trading hotel “is more important than cost”.
The Good Night Guarantee means Premier Inn has also had to refuse sites in desirable locations in the UK’s ‘spire cities’ due to noise levels.
“There was a site in Derby and it was too near the cathedral and its bells,” Mr Flach says. “If there’s one thing that’s impossible to keep out, it’s the bells.”