October 19, 2010 10:26 pm

Whitbread thrives in coffee shops and hotels

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A man grinding coffee beans

Grinding beans: the group believes UK customers will seek out ‘everyday affordable treats’ from Costa Coffee

Alan Parker cannot help but compare Whitbread, the company he will be leaving next month after 18 years, with the pub groups that were once its peers.

“We were criticised for being a bit too conservative,” he recalled of the time when pub companies such as Punch Taverns and Enterprise Inns embarked on a period of debt-funded growth while Whitbread was cutting back.

But he resisted putting the three companies in the same class today: “When I look and see what has happened to ... not rivals, but other companies, I’m glad we didn’t go that route.”

Under Mr Parker’s six-year tenure as chief executive, Whitbread has gone from being a pub company with 100,000 employees to a sleeker 35,000-person hotel and coffee-shop operator that has a significant and growing presence in emerging markets.

Indeed, Starbucks and Hilton have edged out Punch and Enterprise as the real competition now.

The winnowing of Whitbread under Mr Parker kicked off in 2006, when the company sold 239 pub-restaurants.

That year it also retreated from non-pub restaurants, shedding its 50 per cent stake in Pizza Hut UK; in 2007, it sold TGI Fridays.

Finally it let go of the David Lloyd fitness club business for £925m ($1.5bn) in June 2007 at the height of the market.

“It was brilliant in terms of timing,” said Nigel Parson, an analyst at Evolution Securities. And while the group’s strategy was in place by the time Mr Parker took the helm from his predecessor, David Thomas, “a lot of strategy is about execution these days”, according to Mr Parson. “Anyone can come up with a strategy.”

Mr Parker – who rose up the ranks through Whitbread’s hotels business – remains sceptical about the restaurant industry, calling it “overbuilt in this country”, and made clear that any expansion by Whitbread of its restaurants – which include Brewers Fayre and Beefeater – would come in the form of joint-site development with Premier Inn hotels.

And yet he believes that UK customers will seek out “everyday affordable treats”, including flat white coffees or takeout breakfasts from a revamped Costa morning menu, even in a difficult economy. That means, he says, continued growth at home will serve as a strong base for steady expansion abroad.

Therein lies the strategic challenge for Mr Parker’s successor Andy Harrison, the former chief executive of EasyJet.

Costa contributed just 8 per cent to group profits in 2008-09 and analysts are more encouraged by its international expansion plans than they are by those of Premier Inn, where growth requires steeper investments – and where the brand is less recognised. Should the coffee chain be cut free?

Mr Parker is sceptical. “We didn’t get rid of businesses because they were doing well,” he pointed out, reviewing his restructuring of the group.

“We’ve proved without a doubt that Whitbread can run Costa extremely well.”

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