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Market snapshot: Three-star hotels

26 August 2005

The British Hospitality Association estimates that there are 1,516 three-star hotels in the UK and a further 142 in Ireland. The AA's estimate is not far off this, with 1,647 three-star hotels in its scheme.

Assuming an average three-star hotel has about 60 bedrooms and a room rate of between £55-£60 a night, this crudely gives the sector an annual value of about £2b within the £27b UK hotel market.

Key players

When it comes to ownership, research body Hotel Data argues that the UK three-star market is pretty much split down the middle between independent and chain hotels.

Of the big chains, Corus, with some 40 properties in the UK, is perhaps the most visible of mid-market operators, and has said it wants to become the leading player in the market.

The 60-strong Macdonald Hotels group also has a significant mid-market presence.

Trends

For many years, "three-star" has been almost a dirty word in the hotel trade, synonymous with the worst, faded image of British hotel-keeping.

The rise of the budget hotel market, with consistently cheap, clean, modern hotels eating into the market share of the older three-star stock, was widely predicted to be the death-knell of the three-star market.

Yet, argues Robert Barnard, partner at consultancy PKF, the wheels have not completely come off the three-star sector, which has been something of a pleasant surprise.

"It has not gone over the cliff as a result of the threat from the budget market," he says. "There is still a robust three-star presence in the UK, particularly in provincial towns and some of the resorts."

What has happened instead is that, largely since the late 1990s, many three-star hotels and mid-market hotel chains have striven to reinvent themselves, he argues.

"They were often traditional properties in a relatively poor state of repair, with creaky floorboards and tired décor. They have had to pull themselves up by their bootstraps because of the budget hotel threat," says Barnard.

"But they have now got themselves into pretty good shape, and are often operating at nearly four-star level or as a specialist weekend product," he argues.

Travellers who might use a budget hotel during the week for business may now be much more inclined to upgrade themselves to a three-star hotel for a family holiday, special occasion or weekend trip, he suggests.

Growth prospects

The arrival of new, more design-led, yet still markedly mid-market, operators such as Dakota, Malmaison, City Inns and even, arguably, Firmdale and Eton Group, has also helped considerably, suggests Chris Rouse, senior director of consultants CB Richard Ellis Hotels.

Such chains are now making their presence felt in the mid-market sector and changing perceptions of what a mid-market hotel should be and feel like, he argues.

Predictions are that this end of the market will continue to grow, with property agent Christie & Co, for one, forecasting continued growth and an increasingly influence spreading outside London.

Evidence of this changing perception was seen in August 2005 when Virgin's hotel division announced it planned to expand into the three-star and four-star market by the end of the year, including London, in a move away from its original five-star positioning.

Corus, too, has also been working to change perceptions of the sector through improved training, and recently launched chef and reception schools for its employees.

It has also since 2003 been disposing of under-performing hotels, or simply those that no longer fit, in an effort to make the quality of its UK hotels' portfolio more consistent.

Future

Although technically easy to define (it will have a three-star rating on the door) what constitutes a "three-star" hotel is becoming much harder to gauge, and will become even more so in the future, predicts Rouse.

In many respects, as customers become more sophisticated in how they make their choices, the traditional star-ratings system is becoming misleading and being left behind.

If a hotel is well-designed, clean, comfortable and reasonably priced, whether it is technically budget or three-star scarcely matters in the eyes of the customer, he contends.

"People would rather stay in a quality mid-market hotel than a knackered four-star one," he says.

"The star rating system is no longer adequate to cope with these hotels that are focusing on design and on funky foods and beverages," he adds.

Another change that is already being seen, and will probably continue, is the growing importance of food and beverage sales. Design-led mid-market hotels are finding they are attracting clientele who just want to come in for a meal and a drink.

"Most people operating style hotels have been surprised at how successful their food and beverage operations have been," says Rouse. "It was not uncommon 10 years ago to see food and beverage as damage limitation. But now operators such as Dakota and Eton are being amazingly successful at it."

"If you can create an identity that does not scream ‘hotel' people will love it," he adds.

There has also been a blurring between high-end three-star and four-star hotels, which is likely to continue, argues PKF's Barnard.

"There has been a kind of education process. People are becoming more sophisticated and wise to what three-star can offer," he says.

"Rather than stay overnight in a formulaic budget hotel they can choose now to stay in a pleasant three-star hotel, perhaps somewhere a bit rural, which has full service," he adds.

by Nic Paton

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