Dusseldorf For more than 20 years, the Munich hotel chain Motel One enjoyed the reputation of being the king of returns in the German hospitality industry. An incredible 29.5 percent of the turnover was left behind as pre-tax profit in the last year before Corona, in just ten years the number of rooms at the budget provider has grown two and a half times, while equity tripled to over half a billion euros between 2012 and 2019.
But for two years now, the string of success has not only been affected by the corona restrictions, which have robbed the proud company of market share and a third of its equity. It is even more thwarted by the market entry of a rival that has hitherto received little attention, which now makes Motel One fear for its established customers in its home country of all places.
The attack came from England, more precisely from the London budget chain Premier Inn, a subsidiary of the publicly listed gastronomy group Whitbread. “There should be 300 to 400 houses in this country in the medium term,” reports Germany boss Michael Hartung to the Handelsblatt about the expansion plans. The supervisory board in London decided this a few days ago.
The accommodation provider, which is the market leader in its British homeland with 850 hotels, amazes even experienced industry experts with its pace of expansion. “No hotel brand in Germany is currently growing faster than Premier Inn,” says Moritz Dietl, Managing Director of the Munich consulting firm Treugast.
Top jobs of the day
Find the best jobs now and
be notified by email.
The company, which started in Germany in 2016, had just six locations immediately before the outbreak of the pandemic. Today there are 40, the most recent of which have just opened at Alexanderplatz in Berlin, at Munich Airport and in Mannheim. Another 38 houses between Flensburg and Garmisch, says Hartung, have been secured through fixed contracts, including projects at Dortmund Central Station and in the center of Duisburg.
Attack on Motel One
By the time it opens, Premier Inn will have surpassed its Munich competitor, Motel One, which currently has 58 hotels in its home country and just ten more German projects in the pipeline.
They still don’t want to know anything about an imminent setback for their own business. “There are now many hotel chains in Germany,” says a spokeswoman on request, “nevertheless, we have proven to be very good.”
This assessment could soon prove to be overly optimistic, because Premier Inn has the staying power to handle cut-throat competition. In August 2018, the British parent company sold the coffee house chain Costa Coffee specifically for the German expansion.
The deal with Coca-Cola filled the company’s coffers with the equivalent of 4.3 billion euros and has secured a net cash position of over 140 million pounds (164 million euros) to date – despite the corona crisis. At the same time, Whitbread raised an additional capital buffer of over £1 billion via three bonds. A further £850m is available to the group through unused credit lines.
Premier Inn in Germany not only used the enormous fortune to take over 30 hotels and build new ones. In cities like Berlin, Hamburg or Frankfurt, the British are usually undercutting Motel One by 15 to 30 percent when it comes to hotel rates – and are accepting an expected pre-tax loss of 60 to 70 million pounds in Germany for the 2022/23 financial year (until February).
The effects of such discounts can already be seen in room occupancy. For the first quarter of 2022, Premier Inn in Germany reported an occupancy rate of 41 to 51 percent, while Motel One had to make do with 30 percent. Only from around 60 percent, which many hotels are now hoping for after the corona easing, do the companies write black numbers.
The Premier Inn properties are largely similar to the successful Motel One model. Instead of the house color turquoise, which Dieter Müller once personally prescribed for his accommodation, the British keep their hotels in crimson throughout. Both companies give their two-plus and three-star hotels modern lounge areas and trendy bars. The rooms are functionally furnished, but still offer an attractive design in a limited space. Motel One offers room sizes of 16 square meters, Premier One often gives guests two to three square meters more, but like its Munich competitor does without wellness areas and restaurant meals other than breakfast.
Still enough space for both competitors
“It was foreseeable that Motel One would not remain alone in this overnight stay segment forever,” commented Loyalty Expert Moritz Dietl on the new competitive situation. However, the market still offers enough potential for both companies, especially since they differ in their range of products.
Premier Inn relies even more than Motel One on an “asset-heavy” strategy. 56 percent of all hotels are owned by Whitbread, a quota that is also being aimed for in Germany – even if a new hotel with 200 rooms in this country costs an average of 30 million euros.
The stated aim is to take advantage of the advantages of mass in view of Premier Inn’s brisk expansion. “At best, the hotel construction works like a Lego set,” says Michael Hartung, who used to work in the real estate business at Bilfinger Berger and Metro.
Expansion from the Lego kit.
(Photo: Premier Inn)
For example, Hartung has bathroom cells for the hotel room prefabricated by the metalworker Stengel in Ellwangen, who up until now has received such orders primarily in shipbuilding from the Meyer Werft shipyard in Papenburg. Bed frames, mattresses, mirrors, hair dryers, TV sets and other items of equipment are pre-packaged in a collection container to speed up the redecoration of hotel rooms. Premier Inn calls the concept “room in a box”.
The Premier Inn manager responsible for development has all of the building technology shipped into a 40-foot container. “Ventilation systems, pumps or power switch boxes are prefabricated in series, and the entire container then just needs to be docked to the building,” says the 61-year-old, describing the planned time savings.
In order to avoid expensive delays in the construction of hotels or in the renovation of houses that have been taken over, Hartung also made another investment: “We rented a warehouse near Frankfurt where we keep important building materials and furnishings in stock.”
Accordingly, Motel One can hardly count on Premier Inn slowing down the rate of expansion in the near future. “By March 2024 at the latest, we will have at least 100 open or at least contractually secured hotels in Germany,” promises Hartung.
More: Motel One suffers more from Corona than the competition – and loses market share