What’s Brewing at Whitbread?
Although beer is still a popular alcoholic drink in the UK sales are still falling. They have dropped by eight million pints a day since the last peak in 1979. Sales of beer in pubs are at their lowest since the poorest days of the 1930s recession, with pubs closing at an astonishing rate of 35 a week, according to the British Beer and Pub Association. Some 44,000 jobs have been lost in the British brewing industry over the past five years and a further 43,000 are expected to go within the next five. Since 1997, 37 major breweries have been sold or merged. (The guardian 2012)
One of these major breweries was Whitbread’s. In 2001 Whitbread’s sold off their brewing and pub operations, to further diversify the company to focus on growth areas of the hotel and restaurant industry. They have now grown to become the UK's leading hospitality business after the ending of their brewing and pub-owning tradition, started by Samuel Whitbread over 250 years earlier. (Whitbread Wikipedia 2012)
Below a graph 1 illustrates the declining number of pubs in UK from 1980 to 2010. (See figure 1).
Figure 1 (BBPA 2012)
There are a number of key macro factors affecting the brewery industry that may have influenced Whitbread’s decision to exit.
One tool to analyze the broad macro-environment is the PESTEL analysis. In the PESTEL analysis environmental influences are categorized into political, economical, social, technological, environmental and legal aspects. It helps to identify how current and future trends might have influenced an organisation. (Ian Worthington and Chris Britton July 2009)
In 2001 Whitbread’s PLC began the journey to become the company they are today. They sold their flagging breweries and left the pub and bar business, refocusing on the growth areas of hotels and the coffee market. Premier Inn and Costa Coffee are two market leading businesses. (Whitbread 2012)
Porter's generic strategies are ways of gaining a competitive advantage over your competitors so that your company`s product is preferred rather than your competitors. Michael Porter formed these Strategies in 1985 in his book Competitive Advantage. He had three main general strategies "Cost Leadership" which is a no frills service, "Differentiation" which provides uniquely desirable products and services and "Focus" which offers a specialised service in a niche market. (Michael E. Porter 2004).
Premier Inn is the UK's largest hotel chain, focusing on budget hotels. In the UK they now have 619 hotels containing 47,274 rooms with 387 restaurants, mostly situated adjacent to a Premier Inn. They plan further expansion with an additional 4,200 new rooms by the end of 2012/13. There is another 6,300 rooms in the pipeline with an anticipated target of 65,000 UK rooms by 2016. (Whitbread 2012)
A Cost Leadership Strategy is a company gaining market share by attracting cost-conscious or price-sensitive customers to buy their product. This is achieved by having the lowest prices in the target market or to provide the lowest price to value ratio. This means the price compared to what service the customer receives. A successful cost leadership strategy is based on being the lowest cost producer in a particular industry, for a certain quality of product. (Michael E. Porter2004).
I believe Premier Inn is implementing the Porters Cost Leadership Strategy.
Premier Inn minimises their fixed costs by implementing a sophisticated online booking system and mobile phone booking application. Along with the hotel automated service means less staff is required, resulting in lower cost.
In an interview Jim Attwood, Whitbread Financial Controller, explains how even the little things can make a big difference to costs. He say An “Every Penny Counts” mentality permeates our people but this is always in healthy conjunction with a very strong customer focus...
David Stevenson (20 Feb 2012)
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