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Hotels: Making the most of the mid-market hotels

07 February 2014
Hotels: Making the most of the mid-market hotels

Three-star hotels may have taken a battering, but those in the middle should capitalise on their status and attempt to offer a greater level of service and individuality than budget brands, while delivering a tempting price point. David Harris speaks to those that are making a success of it

The reputation of three-star hotels has taken such a hammering in the past five years that you could be forgiven for thinking that the sector is enduring a slow extinction. Of course, it isn't going to be wiped out, but many in this bracket are under extreme pressure.

It is already a cliché to say that the mid-market is squeezed between the brutally competitive budget operators below and the aspirational luxury market above but, like most clichés, it contains some truth. But is it over-stated? And whether exaggerated or not, why do some three-star hotels fail and others succeed? The answers matter, because they could help those in the mid-market who are fighting to save their businesses.

In the meantime, there is no doubt about the pain. Russell Kett, UK chairman of consultant HVS, says that not only has the budget sector put the mid-market under pressure, but that the efforts made by individual hoteliers to improve in response have been sabotaged by restricted finance from the banks.

Promising investment This is one reason why the deep pockets of equity firms like Starwood Capital and Patron Capital have been tempted to buy well-priced portfolios of UK mid-market operators
outright, says Kett. One example might be Starwood's purchase of Principal Hayley's portfolio of 23 city centre hotels for £360m (about £90,000 per room), along with the Four Pillars group of six hotels for £90m (£98,500 per room) and its rumoured forthcoming acquisition of the De Vere venues business.

The importance of private equity in the hotel property market in 2014 is a compliment, if a painful one: the likes of Starwood do not spend money unless there is the promise of future profit.

Hoteliers themselves see all this perfectly well, and most acknowledge the problems of lack of finance and the threat posed by budget operators to traditional three-star hotels.

Robin Sheppard, chairman of Bespoke Hotels (see panel right), says the "rise and rise" of the budget hotel has certainly been a factor in pressurising the mid-market sector.

This is not least, he adds, because investors have been risk-averse for the past few years and avoided leases in almost all categories with the exception of copper-bottomed budget operators. Recently, this has invariably meant Premier Inn.

Sheppard, whose own background is in 
luxury hotels, including the Bath Spa, Lygon Arms and Bodysgallen Hall, says the "amenity creep" of the budget sector has been another factor. Not to put too fine a point on
it, there is the danger that budget operators are not only cheaper, but offer much the same product as a three-star.
Sheppard adds: "This has meant a blurring of the lines between categories, which hasn't done the middle market any favours."

But many operators, including Bespoke, have managed to flourish against this background, so Sheppard also clearly believes that the three-star market has great potential- if it is run properly.

Jonathan Sheard, who heads Accor's brand, Mercure, in the UK and northern Europe, 
says the threat to the mid-market was obvious to Accor even before the recession.

"The whole process speeded up in 2009, but it was apparent much earlier that the budget sector was going to compete with the mid-market on the basis of both lower price and greater consistency," he says.

That said, Sheard firmly believes that a 
well-run mid-market brand such as Mercure can continue to more than hold its own.

Consultant Melvin Gold agrees. He says mid-market hotels have more to offer than their critics suggest and that "it is too easy 
to dismiss them en masse". Gold suggests that many mid-market critics are "taking probably half or more of the UK market and tarring it with the same brush".

Not that Gold denies the challenges. 
He says: "One of the big issues is that there
is a large swathe of inadequate, unbranded hotels lacking investment and direction."

Many of these hotels have already shut, and Gold's own research suggests that 40,000 UK hotel rooms have closed in the past decade, many of them in the independent unbranded sector. They range from 20-bedroom seaside operations to big city hotels, such as the 1,000-bedroom Regent Palace, once the largest hotel in Europe, which shut in 2006.

One of the three-star market's issues, adds Gold, is that the brands it does have are not always as clearly identifiable as those in the budget sector, where guests "know pretty much exactly what they are going to get".

So which are the mid-market brands? Best Western is one, although sub-brands such as Best Western Premier complicate matters because they nudge up against the upmarket sector. Both Holiday Inn and Holiday Inn Express are classified as mid-market on hotel data analyst STR's global chainscale, with
Mercure (see panel left), Ramada and Ibis also put into that category.

Then there are the mixed groups, which have hotels of various grades but include three-star. Things are not clear-cut: STR sub-divides mid-scale into "midscale" and "upper 
midscale" in order to differentiate, but such fine distinctions are unlikely to ensure guests know what they are going to get, which seems key to a secure market position. And what about boutique hotels? Are some of them 
genuinely three-star or does their quirkiness or luxury put them into a separate category?

Get the basics right It is probably just as well not to get too hung up on gradings, even if clarity helps to let guests know what to expect. Gold says that what hoteliers really need to do is "make sure their product is what customers actually want", which you might call a back-to-basics approach. In his view, this should include up-to-date bedrooms ("no swirly carpets or flock wallpaper"), a comfortable bed, decent bathrooms, good food and affable, efficient service. The fundamentals done well, in other words.

That brings us back to investment, of course, and independents in particular can struggle to find bank lending.

Gold says: "Banks, somewhat irrationally, prefer to have a brand involved, even when the brand is not putting any of its own money in."

But if independents either have their own money or do manage to find backing, they can exploit advantages.

Gold adds: "Independent hotelkeepers have distinct advantages in that many people say 'we don't really like brands', which means that a good independent sometimes gets the 
business the brands don't. But people won't go to an independent if it's not good enough."

That, it seems, is the bottom line. The 
mid-market hotels that are surviving are just doing what hotels that survive have always done: they are getting better.

Getting the design right and making the food exciting Bespoke Hotels

Robin Sheppard, chairman 
of Bespoke Hotels, says the
brand has found enormous value
in the UK's provincial mid-market hotel sector.

He says: "We have about 
100 hotels now, and there is 
quite a mix: some humble, 
some three-star, and some in 
the mid-four-star category."

Sheppard divides the hotels 
that Bespoke manages in other ways too, and says the group's roles include "helping challenged hotels to get better and quite well hotels to get even healthier".

So what are the magic ingredients? Getting the design "quirky and right, and making the food exciting" is part of it, he says. 
And then perhaps having the patience to "see where it goes". Often, all an average three-star hotel needs is "an injection of wisdom from its owners", Sheppard adds.

Among those he picks out from Bespoke's collection is the 16-bedroom Grosvenor Arms 
at Shaftesbury, which relaunched in September last year. Its refurbishment included installing freestanding baths with products by Orla Kiely, new handmade 
beds, enlarging the open spaces downstairs including a new, 
larger restaurant, and adding 
a small eat-in deli.

The emphasis on food is underlined by the recruitment 
of new head chef Neil Duffet, formerly of Lime Wood in Hampshire. He uses local ingredients - another key selling point - and the bar serves ales
from a nearby brewery.

"All this and gentle pricing is the sort of formula that can transform the mid-market," says Sheppard.

Bussing in the business MF Wells Hotels, trading as Lochs 
& Glens Holidays

If knowing your market is the key to commercial success, then Neil Wells is holding 
a strong hand. The managing director of hotel group MF Wells Hotels says its seven three-star hotels operate almost exclusively with coach holiday guests from Lochs & Glens Holidays, also owned by the family. Wells himself has worked in the hotels since he was 11 years old, and joined the family firm in 1987.

Wells says the coach business is so integral to the company that he thinks of the size of the hotels not so much in terms of bedrooms, but 
in how many coachloads 
of holidaymakers can fit 
into them. The hotels are therefore all either three-coach or four-coach hotels. The newest hotel in the 
group, the 126-bedroom Ardgarten, is classified as a four-coach hotel. The three-coach hotels have around 90 bedrooms.

The integration of the coach and hotel operations makes the group an untypical hotel company, but its occupancy figures would make the eyes of other hoteliers water with jealousy.

Wells says that the current annual average occupancy 
"is in the high 80s" (in percentage terms), which compares to the mid-1990s. There are few in the country that could boast occupancy figures that high.

The high level of business brings other advantages, too, not least that the group can almost always afford to fund its own investment. Since 2007, it has spent £19m on improving and maintaining 
its portfolio and has "not needed to borrow a penny".

More than just a bedroom Mercure

Mercure, an unequivocally mid-market brand owned by Accor, has been successfully addressing the threat from 
the budget sector for years, says Jonathan Sheard, head 
of Mercure in the UK and Northern Europe.

Its strategy has been to develop Mercure's UK hotels (there are now 74) so that the brand's "worldwide presence is locally relevant", says Sheard. Mercure has 750 hotels globally.

One of the main points of difference between Mercure 
and Novotel, Accor's other mid-market brand, is that Mercure gets 85% of its business from the country in which each hotel is situated, whereas Novotel has a much more international profile.

Sheard says that what Mercure and every good mid-market hotel should be able to offer that budgets do not is "more than just a bedroom". Mercure aims for 24/7 service and to create public areas "where our guests want to be".

In some of its more recent hotels, such as the Mercure London Bridge, the traditional reception desk has been axed
in favour of guests being greeted individually and taken to a "host" desk for a more personal and efficient check-in.

The Mercure answer to slow check-outs - a regular guest complaint in mid-market hotels - has been to effectively abolish them. Guests are now told on checking in that there will be nothing else for them to do,
and that their check-out details will be registered on their smartphone or tablet.

Emphasising individuality The Swan hotel, 
Hampshire

Branded hotels may be on the increase, 
but it's easy to underestimate the number
of independently owned and operated 
hotels in the UK. By 2030, the UK's hotel stock will be 68% branded, according to Melvin Gold's research, but that still leaves 32% unbranded.

Among them is The Swan at Alresford, Hampshire, which has been owned and run by Angela Graham since 2003. This 22-bedroom hotel typically attracts tourists at the weekend and business people in the week, and supplements this with a loyal local following in the bar.

The hotel has just upgraded its bedrooms and communal areas, which Graham says 
is something all hotels "should do in order
to keep up".

Part of the reward for that has been
a recent upgrade by the AA from two stars 
to three, but Graham says running the hotel is "hard work".

There are chain hotels nearby, and although Graham says "we can't compete with the branded hotels", she adds that 
The Swan's guests "value the hospitality and friendliness" of an independent.

In practical terms, this can mean simple things. Graham says, for instance, that if 
a regular wants the bar to stock a particular beer, she simply gets it in for them.

"They do appreciate that sort of thing, which I don't think they'd get from a big chain," she says.

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