How pubs are challenging hotels with new lodging offerings

Several pubcos, including major PLCs, have in recent years built up large lodging platforms across the UK, typically serving more regional markets and often competing with the major budget-branded hotel chains.

What guest profile can pubs with rooms attract, how can pub accommodation capitalise on the still buoyant staycation market, and what synergies can be found between bar snacks, beer, and bedrooms?

What benefits can rooms bring to a pub?

Sophie Johnson, senior operations manager at Brakspear, a pub group with 128 bedrooms across seven pubs, says pub accommodation diversifies the revenue stream and, in Brakspear’s experience, drives food and beverage revenue.

“We find that the majority of our guests who are staying with us will also dine in our restaurant,” she says, adding that rooms are also more profitable than the F&B side of the business, with a 90% gross profit margin (GP). While the revenue split is dependant on the site, accommodation can bring in around 40% of revenue in some of Brakspear’s larger sites, and around 30% for its smaller sites.

“Whether it’s a pub with rooms or a hotel with a pub on the ground floor, either way what we do know for certain is that people spend more time in the ground floor space with an inn or pub model than people tend to in hotels,” agrees Sean Donkin, managing director of the Inn Collection Group.

The group, which has 29 ‘pub hotels’ with 1,300 rooms, was bought by the Harris Family Trusts, one of the founders of Bourne Leisure, and Kings Park Capital earlier this year. Donkin says the food and beverage operation covers the costs of the site with the bedroom revenue making up the profit.

For the Coaching Inn Group, which has 32 pub hotels with nearly 1,000 bedrooms and was bought by the fast-expanding RedCat Pub Company in July, chief executive Kevin Charity says the company’s growth in this space was partly about availability of sites.

“The coaching inns, which are usually around 20-30 bedrooms, tended to get ignored by a lot of the pubcos and some of the bigger asset investors because they didn’t know what to do with them,” he explains.

Although for the Coaching Inn Group F&B remains the bigger earner, bringing in around 70% of revenue, Charity says it’s the mix of all three elements that “works so brilliantly”.

A pub with rooms is not a hotel

All three operators agreed that, while a pub with rooms operates slightly differently to a pub, a pub with rooms can’t be operated in the same way as a hotel and staff need to be multiskilled to support the entire business.

“The hotel sector is prohibited by the number of rules that they have and the lack of cross-training,” says Donkin.

“You do need people who are willing to do a bit of everything,” agrees Johnson.

While Charity says the business’s best inn managers have come from the pub or restaurant sector, Johnson says Brakspear has found more success in candidates with hotel as well as pub and restaurant backgrounds.

“We found that people who were just pub managers struggled a bit with the hotel side because it is very multi-faceted and you do need a different set of skills to be able to oversee a larger venue,” she says.

For the accommodation side to sites, Brakspear and the Inn Collection Group don’t have dedicated reception desks – guests are more likely to check-in behind the bar or another trade area, and from Donkin’s perspective checking in should take no longer “than it should to pour a pint”. Coaching Inn Group’s approach is more varied, and Charity says it’s about “doing the right thing for the site”.

No one rule fits all

The operators also approach events differently – Johnson says events are a huge part of Brakspear’s business and a third of revenue at its Egypt Mill pub in Nailsworth, Gloucestershire, comes from weddings, events, and parties.

The Inn Collection Group, meanwhile, is the opposite: “We focus on three revenue streams: food, booze and rooms, and disregard everything else outside of that,” says Donkin. Event space is instead utilised for F&B or additional bedrooms.

The Coaching Inn Group falls somewhere in between. “It’s about covers, it’s about numbers, and if we’ve got a function space with less than 100 covers, I’d rather look at that and see if we can turn it into a main eatery as part of the main food and beverage offer and sacrifice that,” says Charity.

“But a good wedding will turn a good week into a great week, and it makes a big difference.”

Community events can also have a huge impact on some sites. Johnson says that while the average daily rate (ADR) across the estate is £125, some of the group’s Gloucestershire properties can demand anything around £400 to £1,000 around major Cheltenham Racecourse events, depending on the room. She emphasises the importance of revenue management reacting to the market to get the best rate possible.

Keeping on top of the margins

Charity says that the days are gone where pubs would be perceived as an inexpensive option and could not command premium rates. “If they’re getting something lovely, they don’t mind what they pay as long as they feel they’re getting value for money,” he suggests.

He explains that, in the markets in which it operates, the Coaching Inn Group is “always the most expensive in town” for drinks to match its premium quality. “Not by much,” he hastens to add, “20p a drink, if necessary 50p”.

The Inn Collection Group, says Donkin, does not have a standardised menu across the estate due to the attention this would need on margins. He emphasises the importance of paying attention to fluctuating food and drink costs. “If you’re not going to do that, you’re going to see your margins erode,” he warns. “If you’re not really on top of it, you’re going backwards.”

When it comes to the multitude of challenges the hospitality sector is currently facing and how this is impacting the pub sector, Johnson’s focus has been on efficiencies in the kitchen while still maintaining the quality and guest experience. “Our main risk to the business is the kitchen and making sure that it’s fully staffed,” she admits.

The Inn Collection Group, meanwhile, has purchased a couple of small hotels in the Lake District which it uses for staff accommodation. “It might not be a home, but it’s certainly better than a hotel room,” explains Donkin. “What you give your team you get back.”

Charity, meanwhile, is more positive about the industry’s staffing issues and believes the “mass exodus” the sector has seen over the last two to three years is over.

“People who fell out of love with the industry have now gone [and] people are starting to think changing jobs isn’t the wisest thing at the moment,” he suggests.

Man’s best friend

One trend for pub investors to be aware of is the increase in dog-owners post-pandemic resulting in guests wanting to bring their furry friends away with them on staycations.

“Dogs are a huge part of our market now. Probably 10% of our guests bring a dog,” says Johnson. She explains that Brakspear has always accepted dogs on-property, but now investment decisions are being made with this in mind, for example furniture and flooring.

“The premiumisation that you get from those guests is huge,” agrees Donkin – while the Coaching Inn Group’s Talbot hotel in Malton, North Yorkshire, even has its own dog concierge.

All those quoted in the article appeared on stage at the Annual Hotel Conference held in Manchester between October 3 and 4, in a session called: Raising the Bar: Pubs Pulling Hotel Guests.