Smaller hotels offer Travelodge room for growth

Hotels in the UK’s big budget chains are getting smaller, with the opening by Travelodge of sites with as few as 20 rooms – half the company’s usual minimum size.

The concept, dubbed “Metro”, will allow the country’s second-biggest budget hotel chain to take over unusual locations such as pubs, defunct cinemas or office buildings. In the past, Travelodge did not look at sites unless they could accommodate at least 40 rooms, but the group plans to open 100 smaller Metro hotels by 2020.

“In taking over the Mitchells & Butlers estate last year [comprising 52 Innkeepers Lodge budget hotels], we realised that 20-bed-a-hotel hotels can be run as profitably as bigger ones,” said Guy Parsons, Travelodge chief executive, citing the company’s internet booking system and standardisation of services as ways of keeping down costs.

The smaller footprints give the company access to towns and neighbourhoods where limited demand or planning permission might have deterred them in the past. “I genuinely believe there’s an opportunity for us to put a Travelodge at every Tube station,” said Mr Parsons.

He said the new model was not the catalyst for increasing targets recently, to 100,000 rooms across 1,100 hotels by 2025, but “it will help us get there”. Metro sites could steal business from independent hotels and bed & breakfasts in particular, which make up most of the UK market.

The company’s bigger rival Premier Inn, a unit of Whitbread, is also looking to develop hotels in spaces it once saw as unfit, opening hotels with about 40 rooms and without the restaurants typically attached to their smaller units. Both Premier Inn and Travelodge emphasise that the room size and furniture in the new units would not differ from traditional sites.

But InterContinental Hotels Group, whose brands include Holiday Inn Express, has no plans to go down this route with its budget offerings. It said: “In a third-party business model where the brand owner takes a percentage of rooms revenue, you tend to find the branded hotels need more rooms for it to be financially worthwhile for the brand owner.”

The average 50-room hotel would only earn the franchise owner about £25,000 ($41,161) a year, it estimated. “It means you need an awful lot of hotels to make money.”

But Travelodge’s retail model is a different equation, and Andreas Scriven at consultancy Christie + Co, says the Metro idea would benefit not just revenues and profits but brand-building. “If you can get your flag up in more locations, you can get more clients.”

He also estimated that by “solving problems” of property owners in trouble, Travelodge could get good deals on the leases. “You’re very much in the driver’s seat right now if you can do a deal that moves something from a distressed asset to something that can compete,” he said. Mr Scriven doubts that, in this market, the company would have trouble finding even traditional locations for expansion.