By Karen Peattie

HOTEL and restaurant group Whitbread has warned that annual costs could rise by as much as £30 million as it invests heavily to attract staff in a challenging recruitment market and a stronger-than-expected recovery in trade, particularly in London, following the end of pandemic restrictions.

Whitbread, which owns the Premier Inn budget hotel brand and casual restaurant chains Beefeater and Brewers Fayre, said in a first quarter trading update that UK demand was ahead of its expectations, with first-quarter accommodation sales 31 per cent ahead of pre-pandemic levels two years ago, and 235.6% ahead of a year earlier when restrictions affected trading.

Like-for-like accommodation sales were 21.3% higher on a two-year comparison. But total UK food and drink comparative sales were still 4.3% below 2019/20, Whitbread added.

Alison Brittain, Whitbread’s chief executive, said: “The strength of Premier Inn’s recovery in the UK continues to be ahead of expectations with a particularly strong Q1 performance that is well ahead of pre-pandemic levels and we continue to significantly outperform the market.

“This outperformance is driven by a number of factors, including our commercial and operational focus as well as the strength of our brand and operating model, our direct distribution, national coverage, and accelerated independent supply contraction.”

Shares in Whitbread rose by about 5% yesterday morning as the group revealed it had beaten forecasts and benefited from a recovery in the travel sector.

The group said that given a tight labour market and a focus on “maintaining its market-leading position, we plan to invest additional costs of £20m to £30m in labour, refurbishments, and IT in FY23,” adding: “However, our high levels of occupancy and continued strong sales performance mean we remain confident in our continued margin recovery in the UK.”

Its hotels market in Germany has also recovered more strongly than expected since the lifting of pandemic restrictions and Premier Inn occupancy levels were 64.7% in last four weeks of the quarter. The German estate now stands at 40 hotels, the group said.

“In Germany, our open hotel estate now stands at 40 hotels, with a further 38 hotels in the pipeline,” said Ms Brittain. “The quality and prime location of our hotels are proving highly attractive and are driving high customer scores.

“The trading performance of our more mature hotels in the two months post the lifting of Covid restrictions only reinforces our positive view of the significant opportunity in Germany.”

Whitbread, which last year launched its Bar and Block Steakhouse brand – an informal, all-day dining restaurant format with a focus on high-quality steaks –said it was around 40% booked up for the second quarter over the peak summer season.

Ms Brittain noted: “This impressive Q1 performance, together with improved visibility into Q2, gives us increased confidence in delivering a strong first half and remaining ahead of the market for the rest of the year.”

At Hargraves Lansdown, equity analyst Matt Britzman said: “Premier Inn owner Whitbread is fully capitalising on a consumer that’s getting back out and about despite a cost-of-living crisis.

“UK accommodation sales remain well ahead of pre-pandemic levels and crucially performance is ahead of the broader market. That’s testament to the Premier Inn brand and a price point that’s accessible to consumers in tough conditions.”

But he cautioned: “Tight labour supply across the hospitality sector is throwing some mud in the mix – Whitbread’s expecting a £20-£30m rise in costs as servicing the higher demand means attracting and retaining staff that have the bargaining power to push for better pay.

“Still, margins in the UK are expected to rise throughout the year as the group’s ongoing cost-saving programme and higher sales should help to ease some of the pressures coming from cost inflation.”

Charlie Huggins, head of equities at Wealth Club, warned that with “storm clouds gathering for the UK consumer, with bills rising at their fastest rate for decades, Premier Inn, the UK’s largest hotel chain, is potentially exposed”, adding: “Hotel stays are one of those things that can easily be cut in tough times.

“So far, demand seems to be holding up, but how long can that last if pressure on household budgets doesn’t abate? Only time will tell, but I’d expect Premier Inn to be more resilient than most of its competitors.”

Shares closed up at 2,727p.