Budget
Hotels - UK
Strengths
and Weaknesses of Budget Hotels in UK
Strengths
Commercial trade-down
Although the overall number of business
travellers has recently fallen, budget hotels have benefited from companies
looking to them as an affordable option during these tougher economic
circumstances. In May 2009, Travelodge chief executive Grant Hearn went as far
as to say that: “FTSE 100 companies [are] switching from the Hiltons and
Marriotts of the sector as firms realise there is no need to spend a fortune”.
Return to roads
The drop in fuel prices since 2008’s
extraordinary high, coupled with reduced spending power, has made the car the
economical choice for many journeys, benefiting the roadside segment of the
budget hotels market. Car ownership has steadily increased since 2004 (although
sales of new cars have been badly hit).
Competition drives innovation
Competition in the sector is continuing to drive
innovation. Significant savings in future could come from innovations such as
‘modular build’ methods and self check-in – and for the consumer, technological
advancements such as the Travelodge iBooker application make for greater
convenience and ease of use.
Key consumer demographic future
It is ABs and C1s that are forecast to undergo
the fastest growth of any socio-economic group in the 2009-14 period. This is
good news for budget hotels, with over eight in ten ABs and just under eight in
ten C1s having stayed in a budget hotel at some point, making these consumers
the most likely to have done so.
UK tourism holds up in market share terms
Although media reports of a 2009 domestic boom
are (so far) proving wide of the mark, it is overseas holidays that are
suffering during the year. Mintel estimates that overseas holidays will drop by
4.8% in volume terms from 2008 to 2009, meaning that domestic tourism will make
up 48% of the overall market – its highest level since 2004.
Weaknesses
Fall in inbound visitors
2008 saw the first fall in inbound visitor
numbers in seven years. Although spending held up over the full year, the
biggest fall in volume came in the last quarter of 2008. The decrease has
continued into the first quarter of 2009.
One-night barrier
There is a real reluctance by many to consider
budget hotels for longer stays; Mintel’s exclusive consumer research shows that
only just over one in ten consider them good for a multiple night stay. Between
three and four times as many consumers agree that they are OK if it’s just for
one night or that they tend to use them just for one night for a specific
occasion.
Lack of differentiation
As with other budget sectors, price is the main
driver in the market, with Mintel’s brand analysis revealing that customers are
most likely to search simply for the best deal at any given point – operators
suffer from low levels of differentiation by consumers.
“As for favourite brands it really depends which
has the best deal using search engines.”
-25-34-year-old ABC1 male
Recessionary impact
Despite some mitigating factors (trading down,
domestic tourism not doing as badly as overseas trips) the sector is not immune
from the wider economic malaise. For the 13 weeks to 28 May 2009, market leader
Premier Inn saw like-for-like sales fell 7.9%, while revPAR fell 9.6%.
Leisure reluctance
Consumers continue to regard budget hotels as a
bad choice for holidays, being unwilling to consider the provision of simply ‘a
place to sleep’ enough when they are on these breaks (see the Competitive
Context chapter of this report for more details) – a factor that constrains
operators’ chances of taking advantage of holidaymakers looking for cheaper ways
to take a break.
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