Home Commercial Property Travelodge CEO Grant Hearn on how he built London's biggest hotel chain

Travelodge CEO Grant Hearn on how he built London's biggest hotel chain

by Asa
22nd Mar 13 12:01 am

The hotel boss talks London hotspots, handling the recession and visa rules

“No-one wants to stay in a Travelodge by choice, it’s always a last resort!” comedian Stewart Lee once ranted.

Lee’s invective may sum up the frustrations of some, but the business figures suggest otherwise.

The hotel chain, Britain’s first budget brand the biggest in London by number of rooms, was founded in 1985. How’s it looking now? Latest figures from 2011 show it enjoyed a turnover of £369.5m, a 11.4% increase on the previous year.

Travelodge has ballooned to dominate London, with nearly 60 hotels across the capital (7,633 rooms in total). It is estimated to be the second largest in the budget hotel sector, behind Premier Inn, famously advertised by comedian Lenny Henry.

The chain encountered problems in 2012 as it had to undergo a financial restructuring to make sure it could deal with debt repayments, with ownership passing to New York hedge funds Goldentree Asset Management, Avenue Capital and Goldman Sachs. Finally, in August 2012, the firm concluded the restructuring with a £75m cash injection and £55m invested into refurbishments across 11,000 rooms and 175 hotels. Travelodge also had £235m in bank debt written off and repaid £71m, reducing total debt to £329m.

Having powered through these problems, Travelodge has just launched its 58th London hotel in Bethnal Green. I’m there as CEO Grant Hearn unveils an ambitious target to build 145 new hotels across the capital. This would in theory create 4,000 new jobs, supplementing Travelodge’s existing London workforce of 1,650.

Hearn is an experienced hotelier, having joined Travelodge in 2003 as CEO. The Travelodge boss comes from a surprisingly varied hotel background, having served as MD for three years at Hilton UK and as COO of the four-star Marriott hotel chain. He sits on Boris Johnson’s London Enterprise Panel, advising the Mayor on how to increase skills and boost London’s competitiveness.

The Travelodge boss heaped praise on London at the opening of the Bethnal Green branch, saying: “The London hotel market is the strongest in the world and our target location list reflects its growth potential.

“We were proud to be the largest hotel brand in London for the Olympics, but that was just the beginning for Travelodge. London’s suburbs are the capital’s hot-spots for potential growth.  Many London boroughs have large employment clusters, and impressive regeneration proposals yet have an undersupply of hotel rooms.”

With Hearn’s London ambitions clear, I spoke to him about the hotel chain’s business operations and how he’d aim to keep Travelodge growing.

What sort of things do you look for when setting up a new Travelodge in London?

You look at things like population, attractions and all the other stuff.

I’ve been in the London hotel business now for over 20 years, and it operates like no other market. It has this constant pressure on rooms. As London gets busier, it spills out into the outer boroughs. In the past I’ve known people stay in Watford, Hemel Hempstead and those kind of places because they can’t get into central London itself.

There’s a huge number of VFR [visiting friends and relatives] – a lot of people come to visit [London], be they UK citizens or abroad. They come to visit their family and friends who live in this very large population here.

I remember looking 10, maybe 15, years ago at Bethnal Green, because the area around Tower Bridge was clearly already getting quite a number of hotels and getting busy. Rates and property prices were rising and Shoreditch was obviously the next place to think about.

How are you judging if there are too many Travelodges in an area? For example, you have three in Enfield…

We do have a formula that we work that out on; it will score a number of points depending on a variety of factors like population, commercial, leisure activity, and see what the demand drivers are for a particular unit.

When you compare budget hotels to three- or four-star hotels, we tend to build smaller units. We may end up with three units, and the combined number of rooms would possibly be the same as one four-star hotel. What we know about our business is that what makes people buy us is location, and then locale within that location – and that includes price.

You’ve got to be in the right place to start off with, and the price and overall offer gets you the customer. The fact that we’re in three different places in a borough can completely work to our advantage because we’re in the locality.

How has your experience in the Hilton and Marriott affected your work with Travelodge?

It sounds a little bit pompous but we feel we’ve played a real part in democratising hotels. In 1990, only one out of five [UK citizens] stayed in a hotel in this country. That figure is now over one in three. That coincides with the growth of the branded budget sector in this country.

We have created access for people to use hotels much in the same way that McDonald’s did in terms of eating out. We have enabled people who wouldn’t think about staying in hotels to stay in hotels. My four- and five-star colleagues always say we should be paying them a marketing fee for getting people into hotels.

Are budget brands challenging the practices of multi-star hotels?

They are, but those guys obviously have their own versions too – Hilton have Hampton and Marriott have one but not in this country. They try to compete at the complete range.

The fact that we and Premier Inn have over 500 hotels in this country means that we’re pretty dominant. It took us 35 years to get to this position so no one is going to get to that size soon.

I love this business because we can be who we are and I don’t have to deal with a lot of prima donnas, chefs and people who are all temperamental. We’re about delivering what our customers want, day-in and day-out.

In the budget sector we are much more customer-aware than we ever were in four- or five-star. It’s strange because you don’t think that, because someone is paying more for their experience [in higher-end hotels]. I spent a year on the front desk at the Georges Cinq in Paris but we’d never consider asking what a customer wanted – we always knew!  

I don’t have to deal with a lot of prima donnas, chefs and people who are all temperamental

For us it’s essentially about price. Where we’ve clearly had a bit of a problem over the last two or three years is a lack of money to invest. That has been fixed. We’re now getting a competitive product – our idea is we’re now going to be competitive and our aim in taking on Premier Inn is just to do it for less money.

Customers are not going to pay money for things that aren’t quality, no matter how cheap it is. We have to have a comparable product to them and it has to be consistent. You want to get yourself to a situation where you have customers that say ‘there’s a Travelodge, I know what I’m going to get, I don’t need to look anywhere else’.

People have to think ‘how old is that Travelodge’, and our refurbishment programme is going to take care of that. We’ll have a consistent and competitive product that would be delivered for a lower price.

We think that Premier Inn, a lot of people have said
to me that they’ve suddenly noticed how much they’re paying and that it’s no longer budget price anymore. Their average prices are higher than Holiday Inn and they’re up in between three- and four-stars in terms of what they’re charging. That’s not that we set out to do.

Budget airlines are notorious for making money on added on extras. Where does Travelodge make its money?

We do charge extra on things, but we do charge them on things that cost us money.

But do you rely on that as a revenue stream?

Ours is much more about the management approach. We do have things like a booking fee when using credit cards because we get charged by the credit card companies, we do offer people a choice of late check-in and check-out but that’s because we have to pay extra for staffing to get those things ready. We only do it when there’s a justifiable reason. Actually how we make the money is about the effectiveness of supply and demand.

You mean as long as you have people staying, you’re not relying on flogging them extras?

No. The extras for us would be the fuller a hotel gets nearer the night, we put the price up. It’s about the yield that we can get by filling the hotel. Our primary goal is to get volume in, to get to a certain level of occupancy at which we can then charge a high price. It’s not about catching people out with extras.

We do have 150 restaurants that we run ourselves but that’s only a £30m business.

How’s the company doing now?

The outlook is really good.

Any projections?

Not for next year. I don’t think anybody is projecting… we’re still in a very difficult economy. If you look at the January market figures for hotels, the market went backwards, particularly in London. We are doing better than the market, which is not a position we’ve had for some time but we’re definitely growing share. We’re exactly where we’re expected to be at this time.

Is Travelodge weathering the recession well?

No-one is recession proof. A lot of people say, ‘This is ideal for you surely?’ – but what happens today is my old companies like the Hilton and Marriott drop their prices down to our prices even though they’re four-star, so that takes away your competitive advantage really quickly. No-one has an easy recession.

We clearly had our own issues in terms of our funding which made it very difficult for us. We’ve fixed that now and we’re fixing the things that are wrong with the brand in terms of consistency of offer. As we do that, we’ll start spending more on advertising so we’re truly competitive with the likes of Premier Inn.

What could the government do to help Travelodge?  Loosening visa restrictions to get more tourists in?

We put forward a ten point plan for tourism which we put forward to Vince Cable because one of the things we’d say is we need to be in a stronger department. DCMS [the Department of Culture, Media and Sport] is not a strong department, it doesn’t have much of a voice, and we’d rather be in BIS [the Department of Business, Innovation and Skills].

The most important thing is to see what France and America have done. Barack Obama pulled tougher is heads of security, tourism and other transport services in a cross-departmental strategy team to work out how we’re going to get more visitors to America and how we’re going to go after the Chinese and the other BRIC countries.

Here? Nothing. There is a total lack of leadership and direction. The visa thing is so galling.

How can there be a situation where America, Germany and France are getting more visitors than we are? It’s all about the visas. Germany has no past relationship with China, whereas we have a historic relationship. Theresa May is worried about Chinese gangs… okay, France and Germany both have five or six times more Chinese visitors than we do – have you heard anything about Germany and France being overrun by Chinese gangs? This is nonsense!  They need to get their act together and help us create jobs.

How can there be a situation where America, Germany and France are getting more visitors than we are? It’s all about the visas

We have done pretty well in getting more hotel stock into London; 46% of tourism and business which goes on to other parts of the UK comes through London. The thing about the likes of China is the travel patterns that are set now will be set for generations. When you talk to Americans, when they do Europe, they’ll start in London because that’s how it has always been done.

If we get cut out of China now, we’re just not going to be on the itinerary now for years and years. There’s an urgency here.

To tell us they’ve done things in terms of fixing visas for Chinese business leaders, obviously it’s a step in the right direction but it’s not enough. To me, it’s such a no brainer that I cannot understand why we can’t fix this.

I’d like to see a cross-party strategy group that has teeth and does something about it. I’d like to see the visas fixed. I’d like to see a tourism minister put back in place.

[Former Tourism minister] John Penrose is from a tourism constituency, he is a real super guy and understood it.

Do you feel Sports Minister Hugh Robertson is a good replacement now that he has the tourism brief as well?

No. Not as a personal thing but with the brief he has got, we know he has always been interested in sport; we’re coming off second best at very best. I actually think it’s worse than that!  I’ve seen nothing from him, whereas we’ve had decent relationships with Jeremy Hunt and John Penrose.

The Olympics was the showcase, the four years after that is the big tourism event. To get rid of the tourism minister after the Olympics frankly defies logic on a grand scale.

We’re getting no response from government currently. We’re getting more response from LibDems in the House of Lords than we are from the government at the moment. People talk and think that’s enough.

We need jobs now, we have an opportunity now and it’s not being realised.

Vince Cable and Boris have made noises to liberalise the visa rules…

Yeah Boris gets it. If London was autonomous, we’d have our problems fixed pretty quickly! We all know that it’s not going to happen though, in my lifetime or in anyone else’s!

Where else could the government do for Travelodge?

We’re really big on employment. The curriculum should be much more focused on getting kids ready for work, prior to releasing them out of school. I’d like to see as part of that that hospitality training at least being an option at school if not being part of everybody’s curriculum, because shouldn’t we all learn the skills acquired in the hospitality business? I don’t think it’s a terrible thing.

I’d like to see more effort on education and preparing people for work and helping those who are keen to do that.

Planning is still a mess, being able to move fast. I will keep banging on about visas though. Clearly tax breaks would help.

Great, thanks for your time Grant!

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