Costa Coffee chain to double in size

Whitbread could add 1,500 Costa Coffee outlets and 65,000 Premier Inn hotel rooms in aggressive five-year expansion

The new boss of Whitbread has set out an aggressive five-year expansion plan for its Premier Inn and Costa Coffee chains, raising the group's budget for new site openings by 75% to £350m.

Andy Harrison, who joined as chief executive from the budget airline easyJet last year, said he intended to exceed 65,000 hotel rooms in Britain and 3,500 coffee bars worldwide in the next five years.

The expansion is equivalent to an almost 50% increase in capacity at Premier Inn, which currently has 43,219 rooms, and a near-doubling in size of the 1,871-strong Costa chain.

Costa is racing against global market leader Starbucks in a number of fast-growth overseas markets, including China, Russia, Central Europe, the Middle East and India. Harrison expects to reach more than 1,500 overseas stores under his five-year plan and – like Starbucks – is particularly optimistic about joint ventures in China.

"We see a significant opportunity for Whitbread, building on our good returns on capital and the availability of quality sites," said Harrison. "This is an exciting and profitable plan to build on Whitbread's success and to create substantial value for our shareholders."

The plan was announced as Whitbread, which also runs the Beefeater and Brewers Fayre pub restaurant chains next door to its Premier Inns, reported a 20% increase in underlying profits to £287.1m. Sales rose 11.5% to £1.6bn in the year to 3 March.

However, the shares closed down 57p at £16.80 after the company said sales growth had slowed in the first quarter and Harrison warned he did not expect any improvement in the consumer environment for at least another year.

Whitbread has prospered throughout the economic downturn because of the value-for-money focus of Premier Inn and the "affordable treats" on offer at Costa Coffee. It has cut room prices at Premier Inn to as little as £19 a night this month to woo leisure and business travellers trading down from four- and five-star hotels.

But Keith Bowman, analyst at Hargreaves Lansdown, said that the continuing squeeze on consumer spending was bad news for leisure companies, which were also coping with higher costs as coffee and food prices continue to rise.

"While Whitbread's 'value ethos' has underwritten solid results, sales have missed estimates, while management comments highlight increasingly challenging conditions," Bowman said. He added that the results had "raised uncertainties, with investors, at least for today, voting with their feet".

Harrison said Whitbread's expansion plans would create about 2,500 new jobs in Britain. Whitbread also set a target to open another 2,000 Costa Express self-service kiosks following its acquisition of the vending machine business Coffee Nation for £59.5m last month.

The deal for Coffee nation, which has 900 self-serve counters, puts Costa in the lead in the fast-growing "self-service" coffee market, which is aimed at consumers who are too time starved to queue.


Zoe Wood and Simon Bowers

The GuardianTramp

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