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Whitbread looks to new markets as sales soar
The owner of Costa Coffee is seeking growth through bigger stores and expansion overseas
As Whitbread prepares to pass the baton from CEO Andy Harrison to his successor Alison Brittain, the leisure giant remains in prime health.
Her move from retail banking to running hotels and coffee shops may not seem a natural career progression, yet Whitbread clearly has faith in the Derbyshire lass as she will join the FTSE 100 company in September, three months earlier than expected.
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Harrison has helped Whitbread’s stock market value soar from £2.5 billion to almost £10 billion during his five years at the helm. Brittain does have some relevant retail experience as a member of Marks & Spencer’s board, and it is also worth remembering that Harrison was CEO of EasyJet before he took the top job at Whitbread.
In the 13 weeks to 28 May 2015, Whitbread grew sales by 4.3 per cent on a like-for-like basis. Driving that performance was Premier Inn, its affordable hotels chain, which achieved a 6.3 per cent like-for-like sales increase in the period. That is a solid performance given a slowdown in the London hotel market.
Whitbread's Costa chain is omnipresent on UK high streets and has extended into motorway service stations and even its own drive-through stores. Having overtaken Starbucks in 2010 as the UK's biggest coffee chain, Costa certainly hasn't reached saturation point yet. Sales in the brand's first quarter period grew by 5 per cent.
Costa faces competition from independent coffee shops, which Whitbread finance director Nicholas Cadbury admits is a threat. The group is looking to mitigate this by introducing new ranges of food, more drive-throughs and bigger stores.
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What's interesting to anyone studying the company's financial results is the subdued performance of the restaurants business, which includes the Beefeater Grill and Brewers Fayre chains. It barely registers any sales growth. Some have suggested that it should be sold off as the lacklustre (albeit steady) performance significantly lags the rest of the business, yet it has strategic importance within the group.
The restaurants arm serves to prop up Premier Inn, which lacks its own food service capability. The restaurants are typically located next door to the hotel and share the same customer base.
There's long been market speculation that Whitbread will demerge Costa into a standalone business. The company has acknowledged the potential for such action, but has always said the international operations first need greater scale.
That seems a long way off, given the difference in profitability. In the financial year to 26 February 2015, Costa's UK arm made £131.4 million profit versus a mere £1.1 million profit from the international business.
