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Bed tax: Hearn's way

11 May 2006

Grant Hearn is a son of the UK hotel establishment, with no time for elitism, snobbery or stuffy traditions. He is also a passionate rugby fan without a trace of the rugger-bugger stereotype. As we sit down in his plain office-without-a-view at London's Travelodge Covent Garden, he crams a lot into an hour, talking about his campaign against the bed tax, cost-cutting growth strategy, fighting the competition, and what he calls "a revolution".

Although his delivery is calm and measured, Hearn is not shy of making grand statements. He refers to the growth of the budget sector since he took the helm of Travelodge in 2003 as "a total regeneration of the hotel industry in this country".

Travelodge has played the key role in making hotels more approachable and affordable to the paying public, according to Hearn. In 1990 just one in five people stayed in hotels compared with one in three in 2005. Another consequence of Travelodge's rise has been to expose the tired and dilapidated state of much of the country's hotel stock.

During the constant search for new sites - a new Travelodge opens once every nine working days - he is appalled by the condition of many hotels.

"We find carpets so worn the pattern's no longer visible, ceiling tiles missing in corridors, domestic fire alarms in bedrooms. This has got to stop," he says, with rare exasperation.

He particularly hates old hotels, and in Britain most have been around for more than 100 years. The rest were built in the 1960s, when hoteliers took advantage of Government grants of £1,000 per room, which resulted in a trend for tiny bedrooms.

Hearn reckons the three- and four-star sector is redundant in many cases. "There are only 10 cities in the UK where four-star hotels can survive. Too often we know there's no one to open the door for you, no one to take your bag up, and room service only when the coffee shop has a spare minute. All these things are replaced by an extra sewing kit as a panacea to the guest," he argues.

Anyone who has paid more than £100 to sleep in a shabby market-town hotel would tend to agree. And this is where Travelodge and the budget sector have really scored: in taking away share from the vast, unbranded midmarket sector where choosing a hotel is a lottery.

Childhood trips
Hearn, perhaps surprisingly, is steeped in the UK hotel business. His father, Dennis, worked closely with Lord Forte for more than 20 years and was on the board of Trusthouse Forte. Hearn remembers childhood trips visiting Little Chefs and Posthouses up and down the country.

Yet he holds no reverence for "the mystic art of hotelkeeping" - something by and large irrelevant to the Travelodge modus operandi. He draws inspiration from how supermarkets and budget airlines operate, and keeps an eye on US business strategies. He remembers hearing ex-Honeywell CEO Lawrence Bossidy give a speech - the first time he heard cost cutting explicitly described as a growth strategy. He sees Travelodge as a retail business, selling bednights in the same way Tesco sells groceries and Ryanair sells flights.

After holding management positions at Marriott and Hilton, Hearn found real happiness in the budget sector, first with Travel Inn, and now Travelodge. "We have no pretensions. We don't have to deal with any prima donnas in the kitchen or in the hall. We are what we say we are."

A lot of that happiness also comes from having total control over a brand for the first time in his career. "Because we are independent we can do things like the bed tax campaign and we can set the agenda for ourselves, and I think we've started to set it for the rest of the industry as a result of that."

Under Hearn, populist marketing campaigns have kept Travelodge in the headlines. The Pop Idol-inspired Busker Idol was a search for the most talented street performer. Tabloid reports that Celebrity Big Brother winner Chantelle would become the face of Travelodge didn't come true, but succeeded in keeping the brand on the public's lips.

This populist approach is all part of dispelling the idea that hotels are only for a certain class of people. "Why should it be only one in three people using hotels? Why not two in three?" he asks. "We have to be approachable. We have to get over these barriers that hotels are only for posh people. So we've done things which popularise us and focus on our potential customers."

But growing the overall market doesn't prevent Hearn from launching hard-nosed assaults on competitors. When Travelodge leafleted a rival hotel's car park asking customers "Are you being ripped off?" some felt it was a step too far and called it unethical.

Hearn echoes the word "unethical" with a quizzical laugh. He's unrepentant. "My defence is: if you want to do something about it - well, offer something better. I want people to be more competitive with us, too. The more competitive we are with each other, the better we'll be at marketing ourselves to customers and growing the overall market."

He feels the hotel industry has failed to move with the times. "For too long it's been run like an extended gentlemen's club, and I've never been happy in that environment."

This lack of dynamism came home to Hearn when he found himself the only hotelier to actively fight the proposed bed tax. Like his rugby hero Brian Moore, it seems Hearn has the fighting spirit, and opposes any threat to Travelodge, particularly its ability to offer prices as low as £10 a night.

He disagrees that the budget sector has more to lose than others from the proposed additional 5-10% on room rates. "It's a real threat to independent operators - as bad for them as more competition opening. Also, the big giants have got to stop being complacent and thinking ‘Well, we're mostly asset-light now we've only got franchises.' They've got to get out of that thinking and fight this."

Travelodge is the only company to set up a petition against the bed tax, collecting more than 50,000 e-mails from customers. Hearn also fully endorses Caterer‘s campaign, recognising that operators would prefer to sign the petition of the sector's leading trade magazine rather than that of a competitor. "Not everyone likes us, for one reason or another," he smiles.

Is there more we could do to make sure a bed tax never becomes law? "You should be writing to your local politician. And the MPs who are responsible for resorts such as Blackpool and Torquay should have their cages severely rattled to get after the commission and say, ‘You are posing a real threat to my constituents.'"

Pushing down costs is a cornerstone of Travelodge's growth strategy. Hearn reckons that hotels have traditionally not been good at tackling costs. "It's all boom and bust. Costs are only tackled when sales start declining - and the chocolate biscuits come out of the room."

But in the budget sector, managing costs is an everyday activity. "Staff may think you're doing it because you're in trouble. We explain that it's all about how many rooms we can offer at £26 or less. Let's get excited about being tight. The more we save, the more we can put into reducing prices and advertising."

Last year Travelodge saved £2m from its laundry costs and is set to save another £350,000 this year by improved procurement, discouraging guests from using all four towels, and counting laundry items in and out of hotels.

Travelodge offers £500 awards to staff who come up with money-saving ideas. Examples include a Croydon hotel powered by a windmill on the roof; using more MDF instead of hardwood; and not putting electric doors in hotels with fewer than 100 bedrooms. Hearn says that the cost of £45,000 to build a room enables Travelodge to offer prices from between £10 and £85 per night.

If a hotel is full every night, typical yield management would say put the prices up, whereas Travelodge would look at opening a new hotel in the same location. "We've found ways of building more cheaply. Fundamentally, we believe affordability and approachability is what is needed to grow our business, rather than more service."

So how much more can Travelodge expand in the UK? By the first quarter of 2007 it will have more than 20,000 bedrooms and the company is on track to deliver 32,000 bedrooms by 2011. New openings this year include Heathrow Terminal Five, London Waterloo, Covent Garden (right next to the existing Travelodge) and Fort Dunlop in Birmingham. Statistically, the UK budget sector currently represents less than 10% of the total hotel market, compared with 12-15% in France and 15-18% in the USA.

Whatever happens to Travelodge's ownership, Hearn has made it clear he wants to stay. Private-equity owner Permira is reported to be likely to sell Travelodge this autumn and is in the process of getting advice on the best way of realising its investment. So far, no decision has been made on whether there will be a sale, flotation, recapitalisation or secondary sale to another private-equity investor.

Whatever the decision, Hearn intends to stay and fulfil his ambitions: "We have a pipeline unmatched in UK history. This is a great business with a great team. It's clean, very focused, with no distractions."

Hearn on…

  • Management style I tend to manage by giving a lot of praise and keeping people going that way. If I'm unhappy about something, it has more effect, because I'm happy most of the time. When growing up, praise was very minimal, and you were kicked more than anything else.
  • Motivating staff We know we can't offer the very best pay and conditions so we want to go beyond that in terms of the culture of our people. We recognise that people may not want to spend the rest of their lives with us. But one thing we offer particularly is the ability to get promotions very young.
  • Luxury-budget It's a misnomer - clearly a way of getting funding from the City, because budget is the only attractive thing these days. If you spend £80,000 on a room, you won't be able to sell it at budget prices.
  • The typical Travelodge customer Me. I prefer it to four- and five-star hotels; but at the same time I can say my favourite restaurant is the Waterside Inn, because they have different purposes. We mix and match now. We have a better understanding of the intrinsic value of things.

Grant Hearn: CV

2003 CEO Travelodge

2000-03 MD Hilton UK & Ireland

1997-2000 MD Travel Inn (Whitbread)

1995-97 COO Marriott UK (Whitbread)

Status Married, with one son and two daughters

Home Thorpe, Surrey

Interests Rugby, modern art, politics

Favourite…

  • Holidays Travelodge Durham; the South African bush
  • Food Shellfish
  • Restaurant Waterside Inn, Bray
  • Music Hard-Fi; Bloc Party; Café del Mar compilations
  • Film Amélie
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