Budget hotels are the only ones in the troubled hotel sector that can afford to lie back a little. Prudent business budgets and the growing popularity of domestic short breaks have kept the low-cost chains buoyant, while more upmarket operations struggle to recover from a drop in overseas tourist numbers.
But a rest is unlikely to be on the cards, particularly as last week Whitbread, owner of market leader Travel Inn, entered into talks with potential buyers of Scottish & Newcastle’s pub estate. The estate includes number three hotel brand Premier Lodge.
In an otherwise grim period for the hotel sector, experts suggest there is plenty of room for growth in the budget category, despite the fact that the leading players are now competing head-on in some locations.
As the market grows, branding will become increasingly important. Travelodge, bought last year by Permira and the second-largest player in the market with 240 properties and a 25 per cent market share, last week launched a campaign highlighting its no-frills proposition with the strapline “Welcome to Travelodgic” (MW last week).
First into the budget hotel market in 1986 and number one in terms of brand awareness with 88 per cent brand recognition compared to Travel Inn’s 77 per cent (BDRC’s British Hotel Guest Survey 2003), Travelodge hopes that the campaign will boost its brand awareness even more as it battles against category leader Travel Inn. Travel Inn has 300 properties and a 31 per cent market share.
The battle to win brand recognition has become even more important in recent years as new players have joined the market, for instance Accor’s Ibis and Formule 1 brands and InterContinental’s Holiday Inn Express.
Robert Barnard, managing consultant for PKF Hotel Consultancy Services, says the low-cost sector, which represents between ten and 15 per cent of hotel stock in the UK, up from the five to six per cent it represented five years ago, still has room for growth. In France and the US, for instance, the sector has an estimated 25 per cent share of the hotels market. City centres, he claims, will be the next area of expansion for the budget hotel sector, but such a move will mean high development costs.
A move into city centres may lead to a two-tier price structure with central locations charging a premium, though still costing under &£50. Travel Inn sales and marketing director Gillian Baker agrees that city centres are prime targets and the chain has developed an urban sub-brand called Travel Inn Metro as well as a London brand – Travel Inn Capital.
As budget hotels extend their businesses to include city centre sites, they face even more head-on competition with rivals and the need to distinguish their proposition will become a prime concern.
The original definition of a budget hotel precludes room service, dining/bar areas, fitness centres and added luxuries in rooms. However, significant differences are now emerging. Holiday Inn Express, for instance, offers a lounge and bar area and the room charge includes breakfast, while Premier Lodge provides six-foot beds, television sets positioned for viewing from the bath, internet modems and quality brand toiletries in its rooms. At the other end of the scale, super economy brand Formule 1 offers rooms for &£19.95 without en suite bathrooms.
PKF’s Barnard says: “Budget brands are beginning to bolt on extras as a way of generating additional revenues. We call this ‘amenity creep’,” he says.
Travel Inn’s Baker says the sector is following a classic market development pattern, with different product propositions developing to meet customer needs. “Budget hotels fill the gap between bed-and-breakfasts and three-star properties, and now Holiday Inn Express is aiming to fill the gap between three-star and budget.”
Nick Read, brand director at Premier Lodge and a former Travel Inn marketer, argues that with prices fairly uniform across the sector, customers’ accommodation decisions are increasingly affected by other factors: “Hotel customers are becoming more sophisticated and recognise they have a choice, therefore the product offer is becoming very important. Hotels are starting to differentiate on things such as service and extra facilities.”
The pressure to offer extras, says Read, will lead to tougher negotiations on new sites and tighter control of supplier costs.
Brand awareness campaigns will also play a part – Premier Lodge has been using the Sunday supplements to get its message across with different ads targeting either business or leisure customers. All carry the strapline: “Spend the night, not a fortune.” The Sunday supplements, says Read, helps “associate us with quality”.
Travelodge’s new campaign “Welcome To Travelodgic” takes a value-for-money approach by comparing what it offers with that of full-service hotels. Sales and marketing director Simon Gregory says the brand is targeting “new pragmatists”, defined as affluent consumers choosing to live below their means when they travel and who are aware of hidden costs in room rates.
Travel Inn will unveil another campaign in November that will build on its “Your Inn For A Good Night’s Sleep” advertising. Baker says the brand “offers good-quality affordable accommodation” and its proposition is underpinned by its “100 per cent satisfaction guarantee” with immediate refunds available if customers are dissatisfied.
Loyalty schemes are also being used as a way for the budgets to differentiate themselves from one another. Premier Lodge and Accor offer across-the-board loyalty schemes, while Travelodge has one for business customers only. Travel Inn does not run a scheme – Baker says the product itself is the loyalty generator.
The chains are also targeting travellers from overseas. Accor has an advantage in this area as its Ibis and Formule 1 brands dominate the large budget sector in France. Holiday Inn Express has strong branding in its home territory the US and on the Continent, and Travelodge has opened properties in Spain. Baker says Travel Inn has no plans to launch on the Continent and that the increasing use of the internet to find accommodation helps boost brand awareness.
If Whitbread does acquire Premier Lodge, observers expect Premier’s 104 properties to be rebranded as Travel Inn, giving the chain a major awareness boost. But there is still plenty to play for and room for more segmentation in the sector – Stelios Haji-Ioannou’s plans for easyDorm, the ultimate no-frills offering where customers get a discount for cleaning their own room and making their own beds, is already on the case.