A smaller niche: Whitbread launches ‘super-budget’ Zip
A smaller niche: Whitbread launches ‘super-budget’ Zip
24 OCTOBER 2018 7:27 AM

Whitbread PLC unveiled its third hotel brand, Zip by Premier Inn, a “super-budget” concept with small rooms catered to a new kind of guest.

LONDON—Whitbread’s new brand, Zip by Premier Inn, is targeted to what executives say is a guest segment that travels on a tight budget.

“It is for customers who currently do not stay at Premier Inns, who might sleep in their vans or just drive a long way overnight to get home,” said Whitbread CEO Alison Brittain.

The initiative is characterized by small rooms—measuring just 8.5 square meters (91.5 square feet)—located in properties in non-central city locations and a completely new pool of guest, according to sources. Whitbread’s announcement comes the same week Hilton debuted its Motto brand, a “hostel on steroids” with rooms that measure 15.1 square meters (163 square feet).

The first two announced Zip hotels are a 138-room asset in Roath, a suburb of the Welsh capital of Cardiff, which will open in early 2019, and a 140-room property in Southampton, England.

“Zip is for a highly value-conscious consumer who still wants the rudiments of a good hotel,” Brittain said. “It is a significantly different offering, one with good quality, small, simple rooms for a consumer demand that we believe is underserved. This underserved market is very interesting. They do not stay at Premier Inn. For this particular sub-segment, it is still too expensive. … We think it is a big market, a billion (pound sterling) per annum market.”

Whitbread has pursued brand trials over the last six months, Brittain said, adding that Zip sites will be in unique locations and “not at airports.” She said the brand requires low land rates.

“Our (unique selling point is) budget hotels anyway, so our move would have to be into the super-budget end,” Brittain said.

Harry Douglass, associate director at advisory firm HVS, said Cardiff is a fine spot in which Zip can test out the waters.

“It is an events-led city, a good place to try out. It has a regular calendar of events in which to judge performance,” he said.

He said the brand’s room dimensions aren’t a concern.

“It will feel pretty cramped but pretty comfortable at the same time. (Whitbread) is good at designing comfort,” Douglass said, adding that he does not see how any competitor could get smaller.

“I thought Yotel and Bloc were small. … EasyHotel rooms, too, are tiny, so it is a proven concept. And with Whitbread’s financial backing they will create more comfort, but it will be very basic,” he said.

Nicholas Cadbury, Whitbread’s group finance director, said booking for Zip rooms will begin soon, with rates initially starting at £19 ($24.69) per night.

“(Zip) has a pretty reasonably sized runway and a great addition to the U.K. hotel base,” Brittain said.

Small but scalable
HVS’ Douglass said he knew (Zip) was coming but did not expect to see it debut in Cardiff and Southampton.

“I suppose they are cheaper locations to trial, before (the brand) moves to a bigger city,” he said. “Whitbread would have (been) developing this two years ago at least, long before shareholders asked for the sale of (the company’s) Costa (Coffee division).”

Douglass said that if “Whitbread subsequently find this works at this scale, room size and with this inventory, it could go into every U.K. city.”

He added he’s not sure what the construction model would be.

“Sites will still have residential values. … They would most likely be within walking distance of city centers, just, have nice environments and be close to amenities such as supermarkets,” he said. “I see the average length of stay being 1.2 to 1.5 nights, possibly only one night.”

Brand need
Brittain’s comments about Whitbread needing to find space in the super-budget space perhaps derives from the continued success of its original brand, Premier Inn.

During its half-year 2018 earnings results conference on 23 October, executives said the firm’s U.K. estate, mostly in Premier Inn, numbered more than 74,000 rooms, with a committed pipeline of more than 13,000 rooms.

In Germany, its second market with scale, Brittain said the goal was to have approximately 6,000 rooms by 2021 across 35 hotels.

Whitbread also will soon have some more cash to spend, if the agreed-to 31 August sale of its Costa Coffee division to Coca-Cola is confirmed by regulators. The deal, worth £3.9 billion ($5.1 billion), must be approved by both the European Union and Chinese competition authorities.

Brittain said those agreements are expected early in 2019, but most of the funds from the deal will be returned to shareholders.

Results showed that Whitbread’s revenue increased 2.6% to £1.08 billion ($1.4 billion), total U.K. accommodation sales growth rose 4.8%, and like-for-like accommodations sales grew by 0.2%.

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