Whitbread plc (WTB) Earnings Call Transcript & Summary

Welcome to today's Whitbread Interim Results Q&A session. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions] I'm now going to hand over to Alison Brittain, CEO, to begin. Alison, please go ahead.

Good morning, everybody, and thanks for dialing in to our Interim Results Q&A session. I hope you've had the opportunity of listening to the presentation and seen the slides already this morning, they went up around 7:00 a.m. Just to give you one or 2 points of the highlights, and then we will just plan straight into the Q&A, because we know that you would like to focus on the things that report to you. So just a couple of highlights. First of all, Premier Inn's recovery in half 1 was very strong and ahead of expectations, and we saw a significant market outperformance in the U.K. And then in Germany, our expansion plan is continuing at pace. The open and committed pipeline is down to 73 hotels and we have 31 hotels currently open and trading. So obviously, have just been refurbished and rebranded as Premier Inns quite a number of our acquisitions and now we're trading. In terms of outlook, the sales recovery is ahead of expectations and -- but we are cognizant of the number of uncertainties remaining. But we are confident that the like-for-like RevPAR run rate in the U.K. has now the potential to reach full recovery at some point in 2022. And many of you will recall that in April, at the full year results, we were talking about that being a year later in '23. So that's looking much more positive. And whilst we are confident on the return to pre-pandemic profit margins, we're still assessing and waiting to see a little bit on visibility of long-term inflation and supply chain and just seeing what of that shakes out to be structural and what of it shakes out to be temporary. But if you look at the longer term, rather than the short-term outlook, when we look at the longer term, in the U.K., we are going to continue to grow. We've got very great powerful competitive advantages in our scale, brand, direct distribution and a brilliant operating model and very broad customer reach. And we do think we've got an opportunity to grow at least 1/3 again in our size in the U.K. as well as optimizing the network and making additional gains through things like a Premier Plus investment. And in Germany, we are expanding at pace. We will continue to look at both organic and inorganic growth, and building the brand proposition as we've now got 30 hotels across a range of major cities. We are able to now start national brand building, which obviously will consolidate the position in Germany as a leading player. So we think we are well placed to take advantage of the accelerated supply contraction in both our markets of the U.K. and Germany in a time when I suspect there will be constrained investment upon -- amongst both the independent and budget branded operators in those markets. So that was all I was going to say as a starter. It's 10. And let's go back to Jordan and see if you can open the line for Q&A, please.

[Operator Instructions] Our first question comes from Bilal Aziz of UBS.

Just the first 3 for me, please. And the first one just on the cost outlook, please. And I appreciate it's too early to guide into next year. But perhaps can you talk a bit about your pricing strategy now. And clearly, at the start, it was very much about pricing for occupancy, but what sort of confidence do you have in driving ADR as a budget operator if these cost pressures are structural? And secondly, I guess, tying to that, you've announced about GBP 40 million of now cost increase with a mixture of marketing and refurbishment. And a, is that now a structural cost increase going forward? I mean, how should we think about the GBP 20 million COVID secure costs also you have right now and going forward? And then very lastly, just on competitor supply. It was referenced quite a fair bit more today. How much do you think have come out now since the summer? And relative to the GFC, your best guess right now and how this is likely to play out in number terms if you can?

Thank you for that. And let me take the first question, I'll give Nicholas the second question and then we will come back and do a double act on the third question maybe. The first one was around pricing strategies. We've got a centralized model, commercial model, which actually in times like this when it's particularly uncertain and where you're managing some degree of volatility, it's incredibly helpful to have that engine that works for us. And it's incredibly helpful to be able to set prices across individual hotels in individual circumstances and be able to sort of monitor and manage very closely what's happening with supply and demand and what's happening with pricing and fill. And so you're right that at the beginning, we started looking at an occupancy-led strategy, but we didn't apply that occupancy-led strategy across the entire estate. We very much played for levers where we have levers. So for example, in places of low demand, and they were largely at the beginning of coming out of lockdown in metropolitan areas. Then we set lower pricing until we filled. And then as we filled, the prices rose, and that meant that we were able to manage a higher level of occupancies in the market. But where we were aware that we would have strong demand or we predicted strong demand, then we were able to play a pricing-led strategy, which was about taking rate. And we knew that, ultimately, the hotels would fill behind that rate. And so we then were able to outperform on average room rate and RevPAR in -- from a rate perspective. So we're very well able to be able to tune our strategies for local circumstances and local pockets of demand and our assessment of what we expect going forward and also our read on forward bookings. And forward bookings remain short-termist, so much less long booking than we were used to pre-pandemic. So we have started to see that recover and we can see now bookings into the Easter period next year and the summer of next year, et cetera. And so we can -- we get a read on what we think demand will look like. And we think that that's going to be pretty healthy in the leisure market and still very good in the trade market. We're seeing early signs of good recovery in the white collar market. And really, it's only the international traveler market, which we're not expecting to see much of a recovery there until into next year. It's quite a small percentage of our business, as you know. So we're pretty positive about how -- our look forward, we're pretty positive about recovery. And we are positive about being able to use rate as well as an occupancy-led strategy as we move forward.

Yes. On the cost side, you're right, we're not giving -- we're very confident about getting back to our pre-pandemic margins. So we're just a little bit more setback about timing of getting there. And that's just because there's so much movement on supply chain and inflation at the moment. So we want to just see where that kind of goes to. Some of the big cost increases we're seeing at there, we've already flagged it at the beginning of October. We were public about the wage increases we are seeing in the marketplace and the fact that we've reacted to those and actually ahead of everyone else and put our site wages up overall by about 5%, which is about GBP 13 million for this year. So that was for 5 months of the year, so that would flow through to about kind of GBP 32 million into next year overall. And we'll keep very close to it. We'll watch it very carefully. We saw there was a kind of a leak yesterday about what -- where the national minimum wage to -- was as well, but we'll make sure that we retain our competitors through that as well. There's been some costs we've put into the business, which has helped drive our outperformance. So we've been trying the last kind of 6, 7 weeks, we've been 14% ahead of the market. And over July and August, we were 13% ahead of the market. And that's really been done by 2 things. One is, I think, just kind of the state of our estate is better than people and people are really looking for that quality at the moment. So we've put an additional GBP 10 million into refurbishment. And what that does is it takes us to the kind of pre-pandemic spend, and that's where we're going to continue to kind of run that overall. The second thing has been marketing, which we put in right at the beginning of the year. We put in GBP 20 million and we've just announced another GBP 10 million worth of marketing, and that seems to really be coming through, and that's both above the line digital and also to new channels, so the TMCs as well. And I think that's really helping driving our performance. So your question was, is it structural? Well, it will be structural if it keeps delivering the over performance in the marketplace. But obviously, if it isn't, then we'll have to kind of readjust from that point there. So -- but we feel very positive in terms of that's been really helping us. We'll continue to drive that kind of momentum going forward. You -- also about the kind of COVID secure costs, which we announced in April, they are hopefully, a one-off. So when COVID subsides, these will come out of the business overall. And we've got kind of cost inflation in the marketplace. It's all kind of pretty well publicized overall. So I don't think it's new news. I just think that if you kind of stand back and think, comes next to your last question, just we've got an efficiency program in place, which really we're driving because we are of scale. We've got the ability across our scale to drive technology efficiencies and process efficiencies overall. If you're in the independent market, you just don't have that to lean on overall. So do you want to touch on the Independent or...

Yes. I mean it's worth saying we normally do every couple of years, a very big network planning exercise, which we've talked today if you go back, before, where we look at the structure of the whole market, and we interrogate the level of independents and the decline of independents. And you frankly can't do that other than really systematically going through the same book and ringing and finding out which hotels are still open and trading and which aren't and screen scraping and managing through a whole variety of tools. So it is quite a big exercise, but it really helps us determine where the local supply and demand features will help us pick where we want to book hotels and also where we've got white space, where we've got no hotels, but strong demand and no competition and also, therefore, determines what the runway for growth looks like. And we're not ready to do another exercise of that magnitude until the market has settled a bit further because it will be a waste of effort if we do it too early, and we get the wrong read from it. But we will do that at some point during next year. However, on the basis that anecdotally, we were hearing about people dropping out in market and seeing some trends, which suggested to us that we were seeing already a contraction in supply and a decline in the independent market. We did do a bit of work over the last couple of months where we took a sample of catchments from across the country and looked at the network planning in those particular catchments. And we were seeing quite a -- across those catchments that we've looked at, we're seeing quite a significant reduction in independent hotel supply, where we think independents have exited or independents have moved to branded. And we've looked at where brands that have gone to independent as well and where new independents have opened. So we've looked at the whole gamut. And across that, we've seen quite a chunky reduction in the independent hotel supply and quite a decline, which, if you extrapolate it across the U.K., would bear out our case that the independent supply will come out of the market post this dislocation, and that will leave a gap for Premier Inn to have both further growth in rate and occupancy in the existing estate and also further runway for growth in the U.K. thereafter. So if you recall, back to conversations we've had in the past around what happened after the dislocation in 2008 and 2009, we saw a doubling of the dropout of the independent sector at that stage from about 1% to over 2%. And the initial study that we've done, but I'll caveat it by being quite a small sample of the U.K., would indicate that the numbers will be larger this time.

Our next question comes from Vicki Stern of Barclays.

Just firstly on pricing. Just to follow up, your comments earlier were helpful in terms of the strategy and how you're sort of working through price. But just stepping back, the sustainability of the sort of very strong pricing levels that we've seen across the market especially just in the context of the VAT rise back to 12.5% a few weeks back and 20% next year, if you could just sort of frame how we should think about that with VAT captured, too. Secondly, again, sort of circling back on the additional marketing and refurb spend. Can I sort of press you for some more granularity on how we think about the return or the RevPAR uplift on that, I guess every 1 point of RevPAR is GBP 16.5 million. So I guess you're sort of thinking the return is worth more than that, more than 1 point of RevPAR. But yes, just sort of color around that. And I suppose any comfort that there wouldn't be further increases as we look into next year, again, if that opportunity to sort of take advantage is even greater? And then just finally, on Germany, you referenced in the presentation, obviously, a slightly slower recovery there than the U.K. Just if you go up based on your latest thinking in light of that as to when you'd expect that market to break even.

Okay. So yes, I mean, on price, I think we're quite confident at the moment that we will see increases in prices across the market and that we will be in a very strong position within the market. So that will be, I guess, as about as comforting as a statement as we can make at this stage. But -- and partly, that's why we are confident about the return to pre-pandemic RevPAR levels both in an occupancy -- from an occupancy perspective and the rate perspective and both of those playing through into next year. We are still expecting to have strong leisure demand into next year and strong vacation demand and strong trades demand and essential worker demand as we go into next year. So there's very few pockets of our business where we're expecting constraints, only about 10% of our business is international travel, for example. And we are expecting that to be the last part of the market to be restored. Nicholas, do you want to pick up...

Yes, just marketing and refurbs. So the marketing, it is for a brand like ours, we do think we need to be upfront in terms of in the kind of public eye on marketing. A lot of our marketing is actually kind of both the leisure, but it's also end to the B2B, particularly kind of SME, the small marketing as well, which we -- where we think over the longer term, actually, we think that's very -- that's a good market share for us to grow in particularly. So that's why I kind of look at the marketing spend is split above the line, which is both business and leisure, the TMCs, but also new channels as well in digital as well. So it is across the market overall. The refurb spend, as we said, has got us back to pre-level. So that kind of gets us back to making sure that we're taking the kind of quality of our day. I guess we're confident we'll get back to our pre-pandemic margins is what I'll say, again, Vicky, overall. And that's because we think we've got -- partly got the efficiency program to kind of take this -- cut it down, but we do think the spend will drive market share gains, which will kind of offset the kind of cost increases overall, which we know at this time. We'll put that kind of squeeze on the independent market and all the kind of other competitors overall. So we do think it will be good returning to get us back to our margins overall. In terms of Germany, I mean, what we've said before is that we think we'll -- that the pandemic has been a little bit kind of had probably a bigger impact to Germany, slower. So we were 47% occupancy over the summer and that's risen to kind of 60% in August and about 62% in the last 7 weeks. So you can see it's about 15%, 20% behind where the U.K. is currently but moving in the right direction. So for a brand, that isn't really known. We're pretty pleased with the direction that, that is going. Just remember, we went into this pandemic, I think we had 3 hotels opened in March 2020. So to get to 62% occupancy, which is where the market is, if not a little bit ahead, we think we're pretty pleased with overall. So we're looking to get to breakeven once we hit 2024 is probably where we would be. But that will depend if there are things to buy, that we have to close and refurbish in that year, which is a cost. So that would be a like-for-like business.

I think we've got to think about Germany in a slightly different way and encourage people to think about it in a slightly different way because the answer to that question, Vicki, you know is dependent on growth. And so we -- it takes around -- it's 3 to 4 years, more like 4 for a hotel to mature in full in Germany. And the difference between Germany and the U.K., generally slightly longer to mature is really about brand presence. We really had a few hotels pre-pandemic. And then although we have grown the state very strongly in the last 12 months, that's been largely through acquisition where we then closed and refurbished. And so the 30 hotels that we now have to trade essentially just really start from now trading and brand building. And so we've given a site takes 4 years to mature. We monitor, as you would imagine, every site all the time to make sure they're staying on their maturity curve and that we can see that they're improving. But the more we grow, the more we put a negative into the system, either of hotels that are early in their cycle or as Nicholas said, through an acquisition where we've closed and refurbished hotel. So that obviously changes it. So we really need to start thinking about this in terms of how are the open and trading hotels performing? And are they -- what's their contribution level and is that contribution, therefore, at the right level and the right maturity level and that's in line with our guidance? And then what is the cost of growth? And looking at those 2 things separately. And we've already invested and committed to quite a lot of capital. We're confident from what we can see in terms of what's happening in each of the hotels that we have, that we will be able to be on the maturity profile that we're expecting and that we can deliver mature returns of 10% to 14% on the capital expended, both the committed -- current committed and spent capital and going forward. And that is a material value creation opportunity. And I would also argue that the 30 hotels we have today, albeit they haven't started trading in earnest yet, but they are now ready to go and they look very good. If you're visiting Germany, you'll enjoy staying in the Premier Inn, in any of those 30 hotels. They're beautifully refurbished, and they're a great brand ambassadors for us in major cities. That platform itself, which is now a scaled platform, is quite valuable in and of itself, even though it hasn't actually started -- we haven't been able to demonstrate that because the trading really commences now. Sorry, that was quite a long answer on Germany, but I was supposed to make a couple of extra points.

So just a quick follow-up. So stepping back to when you first entered Germany, I suppose the market -- the setup of the market is a bit more sort of business trade for SKU. Is there anything about how you look at that market opportunity post-COVID with sort of business travel headwinds being more pronounced, perhaps the measure sort of changed at all?

You're right. There have been some changes, and we don't yet know whether any of those are structural or temporary and particularly things like trade fairs and whether there'll be a move -- a different move and mood. However, if you do go back to the basics of the market that we talked about, the market is 1/3 larger than the U.K. in total anyway, and it's got an enormous amount of both leisure around the business travel in that market. And the level of budget branded in the market is very low. The market share is very low. And the independent sector, which is very fragmented, is still the dominant part of the market and set to decline. And so the structural reasons to believe that this is the right market for us are still there. And even with a very strong growth in Germany, we'd still have a relatively low market share compared to what we have, for example, in the U.K. of a large market. So we think there's a huge opportunity to go for in Germany and a huge opportunity for growth. And we think that the fundamentals haven't changed in that regard.

I think, also just in terms of, again, the scale of the independent market, the German government has been fairly generous, kind of propping up businesses over the last year. But as that winds down, which it is currently, I think that independent market, as it is in the U.K., will come at a huge strain again.

Our next question comes from Jamie Rollo of Morgan Stanley.

Three questions, please. Just first, you haven't touched much on F&B which seems to have sort of lagged the market quite a lot clearly to a slightly different mix of internal and external there. But could you just remind us of what's going on and when that might get back to where it was? Secondly, I appreciate you can't give us explicit guidance on FY '23 costs, but what were the groups or what are the group sort of full year utility cost, please, just to give us a feeling for the increase when those hedges come off? And then finally, the scripted presentation, just noted that the GBP 5 billion to GBP 6 billion reval in 2018, was it a 4.5% to 5% yield? And that some of the recent secondary transactions are lower than that, suggesting some upside. So are you planning to revalue the property at some points? Or perhaps you can give us a holding figure or range to where you think it might be valued at the moment.

Thanks, Jamie. I mean, yes, on F&B, we also had a huge amount of our F&B. The -- certainly, I think in terms of the return, the bounce, the bounce in accommodation has been really very, very significant for us and slightly less so in F&B. So we are, in the last few months, ahead of 2019 in a combination, but we're still behind 2019 in terms of our F&B. We recovered to a good extent, but we haven't hit yet [ 29 ] recovery. And I think probably from a market perspective, we are seeing the pub sector and particularly the value pub sector coming back as being a bit of a laggard in terms of coming back through the market, and that's the sector that we are in. So one of the big differences this year versus last year in that sector and for us specifically is the reduction and indeed, our removal of discounting. So 2 years ago, discounting was an enormous part of this market. But in order to protect the margin and to manage the inflationary pressures, the whole sector has reduced discounting, and we've removed it in its entirety. So it's not quite the same like-for-like commercial performance that you can compare and contrast quite as easily as it was. But nonetheless, I think probably we've still got a bit of work to do to see a full recovery in the sector.

Just in terms of the cost question, I think it was specifically on utilities you were asking for, Jamie. I imagine that's just electricity and gas overall. So in the pre-pandemic year, that was around about GBP 60 million worth of our costs split between that 2, obviously, electricity much higher than gas overall. Just before you apply the whole inflation to it, you got to remember, about half of that is in terms of transition costs and half of it is actually the commodity prices. We -- on the commodity prices, we're reasonably well hedged. We're about 65% hedged overall into next year overall. And I said earlier, we're pretty well hedged this year overall. The last question you had was on property. So you're right. In 2018, we did lost to devaluation. We had yields that kind of -- we indicated yields 4.5% to 5.5%. If you look at -- we've had about 20 transactions in the last 18 months in Premier. And so these are Premier Inn leases that have been sold between leaseholders -- freeholder, sorry. And particularly, that's picked up in the last 6 months overall. And I think all I'd say is we've seen London come in a little bit tighter than that -- those, but it's only a limited number of sites. It's just on a couple of sites, and they've been pretty prime good location. So I wouldn't read that too much across the estate. The rest of the states are the ones particularly in the regions in small and large towns have come pretty much in that 4, 4.5, 5 kind of region overall. So I think probably the guidance that we -- all I'm saying is that the indications from the recent transactions would support the guidance that we gave in 2008, but there haven't been that many transactions. So we'll continue to review, as you know, we keep an open mind to this. So we will -- I think what we'd like to do is like to see a higher level of transactions right across our estate before we actually consider doing a valuation to make sure that we've got proper evident points. But we just wanted to share that what the evidence is so far is supportive of that historic rate. What we don't know, Jamie, is if you'd have to give small amounts of rent-free periods, which might not 0.2, 0.3 after yields overall, but we just don't know that at the moment.

We're pretty confident -- I mean the summary is very confident in the range we've...

Correct. Yes. Yes.

Plus, I guess, you spent what, EUR 0.5 billion on freeholds and F&F since then?

Yes, it's probably about GBP 400 million since 2018. I've got it as well. Actually we've disposed of some as well actually. So it's probably about half of that actually. I can come back to you on the numbers later.

Our next question comes from James Ainley of Citigroup.

I've got 2 questions, please. First is you've upgraded your opening guidance for this year, interested to get some color about longer-term trends. And I suppose within that, it would be interesting to hear about how you're finding competition for new sites, a number of competitors, how has that trended sort of as we kind of exited the pandemic? Also, do you see any risk to those construction time lines, given supply chain issues, getting hold of kit from China perhaps? And then secondly on labor. Interested to hear what impact that recent pay rise has had on your application rates? And is that materially helping ease your labor shortage? And what might be your planning assumption for next year on wages, please?

Okay. Good. Well, just in terms of trends on long-term positions, I talked a minute ago about the fact we've done a small study of supply and independent supply and in order to sort of consolidate our view that we were starting to see independent supply contracts. And as you know, with that, it's quite hard. There's not a lot of public data, but we did -- I'll just reiterate with the study of 7 regional markets and 4 London markets. So not the biggest. So they may be a sample size of 20,000 rooms. And we found that there was quite a high percentage of independent rooms in Northampton. Now you've got a question whether they will open at some point or they just close now? Our view would be that you would be open now because it's been pretty strong trading over the last few months. And if you go into, then you'd be taking the benefit of that strong trading, and there's no reason to be closed. So we do think that there's quite -- there's going to be -- that we can already see the early evidence of the contraction in the total market. And obviously, if there's a contraction in the total market, it opens up our trading position in the short-term and our growth position in the medium term. And in terms of sites, we are still looking at our pipeline. We still have cash on the balance sheet that we can invest, and we are still in the market for filling in the gaps in our network plan, and we've got a runway of up to 110,000 rooms from the current 80,000. So that's the 1/3 again, which we are committed to fulfilling. And so we are in active discussions that we always have been in terms of filling our pipeline. And we're pretty confident about being able to do that over the life of the plan.

Just on the competition for the new sites. We're not seeing any competition from other hotel chains in the U.K. and very little in Germany as well. What you are seeing is the freehold values are staying up quite well here quite a lot of cash in the private market at the moment. So it's -- freeholds are proving quite challenging to get at the moment, but leaseholds, there's good opportunities for those in the market at the moment.

And in terms of risk to construction and development, we assess that as we go along all the time. So we're continuously updating our pipeline so you get a refreshed view every half year of what the pipeline looks like. There might be some delays rather than removals from the pipeline. You're right, refurbishments might take a bit longer because of case goods coming from China taking a bit longer, timber supply in the U.K. has been under some strain. I think people have been stockpiling timber. And so there'll be sort of pinch points like that, but there's nothing that we can't roll with a couple of months delay on a 5-year pipeline is not really the difference between progress and failure. So we're pretty confident with that. And then on labor, yes, we are seeing improvements, both in the elements of the funnel. So both in the top line application rate. But more importantly for us, even than that because we do get a quite high top line application rate anyway, and where we're seeing a real positive from the investments that we've made is in the conversion rate to people being in job. So when you go through the funnel, through all the recruitment funnel from interviewing people to right through to them physically turning up on the day to start the first shift, we're seeing much improved levels of conversion down to people being enrolled. So we're pleased with the impact that the investments made.

Our next question comes from Jaafar Mestari of Exane BNP.

Two for me if that's okay. The first one is just a point of detail really on your recovery scenarios. And one potential headwind for full year '23 that you were flagging in April was the possibility of a bounce back in overseas holiday next summer, which obviously would be a negative. I think I just heard you say you expected strong staycation demand next year. So is this just small deltas or are you seeing permanent changes in how U.K. residents take their holidays and no headwinds because of that? And just more broadly on labor as the second area and as a follow-up to the previous question. Could you talk us through that recruitment process, that funnel, in the U.K. in a bit more detail? I guess, the starting point is you have those 2,000 vacancies. How much of that is churned? How much of that is activity picking up and then you have to hire for that? How many team members have previously worked for you are you able to reach out to? How do you arbitrage between experienced staff with higher wages, but no training, et cetera, please?

Okay. Let's talk about that. So yes, I don't know that anyone, although I could get my crystal ball out, as you know, I'd like to get that out occasionally. But I don't think we can really call much about structural and nonstructural as a minute. So it is quite hard. And genuinely, although, I think you can call to a couple of things. I think even though airlines are also seeing these bookings increasing, so you would see a return -- I don't doubt there will be a return to international travel when international travel is allowed and is safe for people. And I also think there will be still a strong demand for people to stay in the U.K. So if you can forgive me for what -- that would seem to be contradictory. It's recent really. I think that the demand for seeing people going places and traveling short, medium and long term is all up and the demand for stuff is down. So experiences are definitely something people are feeling the need for. So it wouldn't surprise me if we have both a bounce back in international leisure travel and continued bouncing location. Certainly, for a forward booking perspective, where we have a small amount of data, not huge amounts, it is looking strong for that part of the market. So that's probably about as much as we can say on it to be fair at this time. In terms of staff, and sort of giving you some insight into labor and how it works, pre-pandemic, as you know, hospitality has a very high turnover rate and some hospitality businesses their turnover rate is more than 100%. So that means their almost the entire workforce turns over, which, of course, the entire workforce doesn't but portions of it might turn over every 3 months. And there's a lot of seasonal work and seasonal turnover in terms of running businesses that have seasonal peaks, particularly as you'd imagine, in seaside locations. We have -- historically, we've had one of the lowest, if not the lowest attrition rates in terms of hospitality. And we worked very hard at that over a number of years, and we do that through things like having decent pay rates, having pay for progression, which means people can stay in their role and still come away from the minimum wage and get pay rises by achieving certain skill levels and showing that they've got those skill levels through a formal process. We have great training and development programs, and we genuinely have no barriers to entry and genuinely no limits to people's ambition because if they've got the ambition, we can train them really up to sort of master's levels in our apprenticeship programs and they can be running large units like a large hotel at quite fast and at quite young ages. So we offer all of that. And as part of it, we also offer the security of working for Whitbread, which is an organization which has been here for over 275 years and probably going to be here for another 275 years. So there's a degree of security about that, which is appealing to staff. So we already have less churn and less attrition than our competitors. And during the pandemic, we kept hold of a lot of our staff. We did the right things in terms of topping up pay when people were on furlough. We gave people shifts, we kept in communication with them. We looked after their physical and mental well-being and they had a sort of recognition bonus last May as a thank you for having dealt with everything that was done before. And as we went into the summer this year, we put in place a retention bonus for all of our hourly paid workers who are going to be working through the summer and into the autumn and to make sure that we retained our well-trained staff because that is key to delivering a great service for our guests. And that retention bonus stood us in good stead in terms of maintaining our experienced staff base. We have, however, had to -- have to recruit, and we still -- we have ongoing about 2,000 vacancies at the minute. We always have vacancies. So -- and we always have what you might consider to be quite a high number of vacancies because of that and things move around in hospitality and seasonal changes happen. And therefore, there are vacancies. And bear in mind, we are a national business with 830 hotels. So the -- whilst there were occasionally, there are pockets of areas with higher demand which might end up being London and Southeast often, because we're national. That vacancy rate is spread over a very large number of units over a very wide geography. So actually, it's manageable in terms of being able to open hotels and operate as a service. And during the pandemic, one of the changes we made was to move people onto more flexible working contracts. And that means that we can flex hours up and down and people can work longer at periods of peak demand and then slow down or less hours during the lower demand peaks, and that helps us also manage the business. So that just gives you a sense of the flexibility of the labor model. In terms of the funnel we take in applications, we recruit people. For some roles, we prefer to have experience, but for no role do we make experience mandatory because we have no barriers to entry and we can train people with the skills that they need for doing the jobs both immediately and for a career in hospitality with Whitbread. Hopefully, adds a little bit of color on the labor.

Our next question comes from Richard Clarke of Bernstein.

Just 3 questions for me, if I may. So firstly, the upgrade of the U.K. new room guidance, just wondering where that kind of roughly extra 1,000 rooms is coming from? Is that conversion? Is that some stuff being pulled forward? How have you found the extra 1,000 rooms? Secondly, just looking over in Germany. I appreciate it's just 1 quarter, but the 3 million hotels open and committed is the same as it was at Q1. Are you seeing any sort of slowdown in the organic growth? And maybe just a broader question of the 47,000 rooms, how many of those do you think would be organic versus acquired over that period? And do you need to acquire more to kind of get the hockey stick growth you've talked about in the past there? And then lastly, the government put out a sort of press release last month saying companies have been returning furlough payments, government support. Are you seeing any political pressure to return any of the support you've received through COVID?

So I do the first one. Just in terms of room guidance, we've upped 3,500 before from 2,500 to 3,000. I mean, obviously, what we saw last year is when we slowed the building of our hotels where we could do down just because we're going to preserve cash. And we just pressed the button to accelerate that again. What we didn't know is how quickly we'd be -- that would kick back in again. So we were quite cautious in terms of -- well, in terms of what we thought, in terms of how they would get back on site and with the supply chain issues, if that would take longer than it would do normally. Actually, we found -- actually, we've been able to kind of accelerate those back to normal levels at the moment, maybe even a bit slower than normal, but that's really working. So it's just a switching back on the hotels that we could have built back on again overall. So that's what those are as well. In terms of Germany, 73 hotels, you're right, we were 73 hotels. I mean, I think because we've gone from [indiscernible] to 73 over the last 18 months. So you're right, from Q2, it's been -- I think we've kind of added one and one fallen off actually is what's actually happened. So it's been -- the focus has really been on getting these hotels over and getting them ready, getting the refurbs ready, and that's been a huge kind of effort for the whole of the team. So as I said earlier, we're seeing -- we're probably seeing a slowdown in freehold opportunities, and that's where we've really been trying to focus to get some of our freehold up in Germany, and that has been difficult but there are some good leaseholds coming online. So that isn't a barrier to us at the moment. So I think it's just a temporary pause over the summer to be quite honest.

Yes. And as said, the important thing is we've had the teams massively focused on getting the hotels that we've acquired ready to trade as Premier Inn and we've probably done that faster than we could possibly have imagined doing it, very good planning on behalf of the team as well as some excellent execution. But that has been the focus, having acquired them was to get them managed and ready to trade as Premier Inn -- properly as Premier Inn as opposed to having to trade them under their old brands for a period of time. And that's what we've asked the team to focus more of their time on than new acquisitions. And in terms of other acquisitions in the market there, we're pretty confident that over time, we will see the same structural decline in the independent sector in Germany, and that will open up other opportunity for single site acquisition or just open up opportunity for new build acquisition because there's a gap in the market. And we're also confident that we will see some further acquisition opportunities at the right prices because, as you know, we're keen to make sure that we maintain our discipline in relation to returns on capital. So we expect that there will be some good opportunities for growth on a nonorganic basis. And then finally, you asked if we had any political pressure brought thereon, and the answer to that is absolutely no. And probably for a good reason. And we're a business of indeed the whole of hospitality, where we were mandated to close our business in the interest of health across the U.K. And we did so and manage that position, as you would expect. And that's the support that was provided by the government was for businesses exactly in our position. And everybody, all parts of our stakeholders, gave support during that period. The government was nearly one, the shareholders were another. And we worked with suppliers and even our teams have to work in extremely difficult positions during the period. So across the stakeholder group, the government are one of many who have supported the business. And there's been no suggestion pressure or even question of returning that. What you should also know about Whitbread though, which is not the same across the whole industry, is that we pay and collect an awful lot of tax in normal times. So again, if you were -- the government looking at a business that you wanted to support during a period of enforced confinement, we would be it because when we bounce back, we bounce back to profitability quickly, and we were in the top quartile of taxpayers -- of corporate taxpayers in the U.K. in terms of paid and collected taxes. And so the money will be repaid through the tax role pretty quickly, but we're not planning on it being repaid any other way.

Our next question comes from Alex Brignall of Redburn.

Just two, please. So first one on RevPAR. I guess, this is asked a little bit on. I'm just trying to work out the driving factors behind leisure staying strong. I guess if I look at Germany, their outbound travel was much stronger in the summer and consequently their domestic travel was weaker. So obviously, the U.K. was weak outbound because there were restrictions. So that's going up next year seems logically to suggest that domestic travel would be weak. And I think in Q1, you talked about your lack of exposure to measure markets, meaning you weren't that exposed to, but clearly starting from a strength that it's kind of gone into everywhere. And I sort of worried that if that leisure travel drops off in those areas, and again, the same impact what we felt across all hotels. So just your broad comments on what you expect for next year, predict in the context of Airbnb claiming that they're going to be taking a lot of staycation demand. And then the second one is on market share gains. You're making a lot of reference to the numbers that I think are driven by RevPAR. But if I look at supply and demand, which demand I think is on your slide, which is the 2.5% number, which has dropped from 7.5% in March. Obviously, the market share gains have been decelerating quite quickly in the last few months, even Q3 on H1. So I'm sort of wondering where you think that will level out? And then if I look at FTR supply numbers in your Q2 supply growth was about 3% for FTR in the region, it was also 3% and overall U.K. hotel supply accelerated to 2% from 1% a few months ago. So supply is now coming back. And I guess that tallies with the reduction in your market share gain. So I'm just trying to work out where you think that levels out.

Right. Okay. Lots of complicated questions in there. Just in terms of...

So I'll start with the last one. Yes, you're right. So back in -- if you look at March and April, when the market was pretty close, our market share gain was about 7%. And that's because we were fast at reopening. And we always kind of said that, we were the fastest in reopening. Since then, it's kind of fluctuated between 3% and 4.5%, depending on business and leisure mix that's gone through it. So that's where that's been. That's -- so I wouldn't call necessarily a slowdown. I just said March and April were just incredibly good. We were so fast in opening overall. So we haven't given an indication of where we think it would be. Our market share has been up at a peak at about 11%, is hovering around 10%. We went into this pandemic with about 7%. What we said is we said we never expect to hold up at the 10% over the period of time because our competitors will -- they will try and open their hotels up again. And as you get inbound travel coming back in again, which is only about 10% of our sales, they will get a bigger share of it. So I think it will be -- you'll see volatility in that. But what I think we won't do is we won't definitely go back down to the 7%, and we will continue to keep good market change from pre-pandemic levels overall. In terms of the supply coming into the market, I mean, we've seen hardly any supply coming into the market except for us, over the last 6 months. You've had a bit of from some of our nearest and dearest competitors that already have space in the ground, but we're not seeing many new signings coming up overall. But I'd refer back to the independent.

Well, even on that, they remember how this works, technically how this works. Same for us why we got so many rooms this year. We did -- we held back -- we cut costs last year and held back finishing sites last year because we were in a period of very great uncertainty in the initial lockdown. So obviously, we've battened down the hatches on some of the cost and bought-down refurbishments. And then this year, we've opened up for that again. We have been finishing sites that have been started. You see 35,000 rooms, and we restarted our refurbishment program in earnest as well. And what you will find and certainly what you saw in following the recession in 2008, '09 is people have to finish what they started. There's not really a choice but to get something back, even if the return profile of what you put into them at that point is going to be much lower than when you commissioned it. Because it takes 3 or 4 years to actually get the land, do the planning commission and put the spades in the ground build and top that hotel. And that's either a developer that's doing that for you as a brand or you're doing it from freehold if you're us, particularly. So those things do get finished and they do come on to the market, and we can see those because you know what got planning permission. You know what's being built and you know what, therefore, is going to come. But what you get is not a lot of new commissioning this sort of period. And so in 2 years' time, you get a real loss of all supply coming into the market because nobody started anything. Nobody's commissioned anything. And we -- as we said earlier, we can see that because, again, we aren't seeing other people bidding for sites against us, for example, in the hotel market. They might be bidding for other use but not hotel use. So we can see that supply will get constrained as we go forward. And on top of that, what we can already see is the decline of the independent sector is going to speed up. So on that area, the supply will contract. And so even if staycation demand stays year-on-year, the same or is it sort of marginally down because it was so big, it was so enormous last year, there'll be also reduced supply in the market that can take that demand. And therefore, we are expecting to see a strong -- therefore, a strong domestic travel position next year.

I think in 2009, what you saw is -- you saw very little -- the independents held on for about 18 months. And you saw people keep on building hotels throughout the years because they contracted. It wasn't until 2011 and '12, '12 probably that you really saw the pain comes through. The difference this time is it's a small sample I referred to. But if you're seeing the independents coming out at the peak levels that they came to back in the financial crisis. So they're coming out at 2%, 2.5%. That's double what they were coming out at in a normal year. So we're already seeing that. And I don't -- and I think we're also seeing some of those branded players who may have even signed contracts, trying to get out of them. And we've had some of them come our way as well. So I think it will be similar to 2008, 2009, but exaggerated.

If I could just ask a follow-on one just on that. I guess, do you know what's happened to the independents because the OTAs that obviously sell to the independents always talk about them closing when things go bad, but then they change hands at lower prices and come back as hotels. So it kind of goes back to that supply just comes back? And then maybe on ultimate -- and then on ultimate supply...

May be.

Okay. Then on ultimate supply, do you sort of give any value to the level of growth that Airbnb has seen and the other OTAs talking about vacation rental taking a huge step forward? I guess I'm just trying to work out other places that our launch can go.

Yes. So just on that -- so the prior point you made, yes, I mean sometimes they come back, but we didn't see that on block they ever come back really, and that we've had a 1% reduction in independence for the last 15 years. And post the 2008, '09 recession, that went up about doubled to 2% reduction. So they don't really come back in that there is an ongoing reduction in that part of the market, which is a structural decline. And it's the area of structural growth for us, and we're expecting that to go faster, not slower, structurally as we're moving forward from here. So yes, so they might say it comes back. But overall, it drops 1% a year. And you can see that evidence year after year after year. So that's one thing. On Airbnb, we look at Airbnb, and you probably know as part of our network model that we do, which is a proprietary model, but we -- and we deliver every couple of years and we do an update intra-year. And we look at how much demand we think Airbnb will take out of the market. So when we are looking at our own runway for growth, which no reason to spoke is going to be less than the runway that we've previously talked about, which is 110,000 rooms. We have taken into account what we think Airbnb will do within the market and how much supply they can bring out of the market. So we do model that part of our own work to make sure that we're not misleading ourselves into thinking that there are growth opportunities that aren't there.

Our following question comes from Tim Barrett of Numis.

I'll keep it brief. A couple of questions on the 7-week period. 81% occupancy feels very strong, given that you've still got a London -- depressed London market. And could you give us a rough split if you don't want to give specific numbers? And then last 7 weeks in food and beverage up 11%, maybe naive, I've always tended to think of that as correlated with occupancy. So that's telling us that third-party sales are down quite materially. I just wondered what -- how you're planning to win that back. and what you're going to do with pricing now that VAT has gone up somewhat?

So I'll just do the London. So this is the last 7 weeks of the year that we said -- the last 7 weeks, sorry [indiscernible] last week, we said that sales accommodation sales were up 7.9%, and strong occupancy as well. So we've seen occupancy in the regions up above 80% and London in the mid-70s overall. So still pretty strong. And you've seen, of that mix, you see the regions up around about 18%, 19% total sales and London down by about 20% overall. So London, you can see it's a little bit softer, but coming back.

And on the F&B, I mean, we're very strong in breakfast, you would imagine, for F&B activity and sort of the pub restaurants that we have. Less so for dinner, but I think, from memory, and I don't have the numbers on to me, but my memory is something like 25% sleeper-diner ratio for dinner. It's more like 50% for breakfast. And then obviously, no lunch whatsoever that we do, do from hotel guests. So -- and that's their incentive. In terms of the proportion of people who stay with you, who dine with you, that's how that works out. And really dinner -- for F&B profitability dinner's for one. And so you can tell that actually quite a lot of our dinner activities does rely on local consumption, local market participation. It's not all a question of the people staying with you in the hotel. And that's been the case. I mean, these numbers haven't changed post-pandemic particularly, they've been pretty much the same. But there is -- there has been a difference in discounting. As we said, we haven't discounted at all, whereas we were always running discounts of 50% off mains or 30% off mains. And so to some extent, margin has held up. And to be honest, I think most operators are expecting to see prices pass through because with the inflationary pressure plus the VAT change, it's not really possible to absorb all of that. And so I expect overall that there is a sort of rising cost of eating out that you're seeing and the value pub sector that you can therefore tell why the value pub sector finds that the most difficult place, because the other end of the spectrum, people have got a lot more appetite [indiscernible] for higher prices where in the value end, it is tougher. So we are looking at a range of commercial levers to pull, as you'd imagine, to increase our covers and increase marketing activity and to manage the menus to get to the best possible trading outcome for F&B. But it isn't been an easy part of the business to manage at the moment.

I'm just conscious of time. I don't know how any -- I think we have got time for one more.

Our final question comes from Joe Thomas of HSBC.

It is just one, because everything else has been answered. I just wanted a bit more visibility, please, or a bit more granularity, I suppose, on business demand. The extents to which your thinking has moved on that to what extent it might be impaired. And also, of course, related to this, any -- the early impacts of the travel management systems and what being on them is brought to you.

Okay. So yes, in terms of where we are, we predicted the leisure ban. We got it probably bouncing even higher than we predicted. The trade demand actually stayed much more robust through lockdown than we'd anticipated, but it gave us a really good occupancy level that was above our cost of trading occupancy during the lockdown period. And that stayed resilient and robust. So we're not concerned about that element at all. And then on office workers, we have seen demand returning. And I guess if you look at things like the London numbers, you'll probably be surprised by the occupancy level in the mid-70s. And clearly, in September and October, that's not all leisure travel or weekend leisure travel, that's core business demand in London coming back. So we've been -- we thought that, that is -- has been encouraging would be the way I describe it. Early, early encouraging signs it, albeit that lots of it remains shortly. I mean business travel is more shortly than leisure anyway, but it's sort of super short lead now. And we have been quite thoughtful about what will happen in the winter. Last year, we had a lot of exuberance in hospitality. And then we were the cautious one saying we think we're locked down again in winter. And of course, we did lock down again in winter. And so we're just cautious about whether or not that demand will dissipate during the winter months or whether it will stay -- will stay open across the U.K., and it will stay. But we've been more heartened by its demand and that probably was ahead of our expectations as well. In terms of activity, we've done a lot of work during the pandemic on improving our systems and our business booker tools, for example, and improving our business booker tools. And that's more the midsized players, the small and medium-sized players. And we've seen a very large increase in take-up of Business Booker from those sized businesses. Again, that goes to trade person demand holding up and some of white collar holding up. And during the period, we've also signed up a lot of travel management companies. So we did a lot of work with travel management companies, which, as you know, is demand we can't receive from anywhere else. But that has -- I don't think that's come to fruition yet in that until white collar demand comes back in more earnest than that travel management company business won't kick in. But when it does, we've laid the groundwork for us to be able to participate in that market in quite a strong level. So we're still waiting on the fruits of that but we think it will come through. And if it's not this year, it could be next year given the boost. Great. Well, that concludes the session today. Please reach out if there's anything we haven't covered that you'd like to know about on one to one. We're around and the teams are around to take calls. And wishing you all the very best of a good week. Take care.

This concludes today's call. Thank you for joining. You may now disconnect your lines.