Room at the inn

From The Publican

By Hamish Champ , 03-Mar-2008

Related topics: Company & City News

Ted Kennedy likes a challenge. An affable veteran of Whitbread's pub and hotel businesses, Kennedy is one of a growing number of executives who see a bright future in the accommodation sector.


After finding himself at private equity-backed Mill House Inns in 2000, a couple of years ago he and his colleagues were looking to buy pubs to add to a portfolio which then numbered 85 sites. These included a number of venues known as 'Top Dog', Mill House Inns - "a Beefeater Mk II, if you like", says Kennedy - and some destination food-and-drink outlets.


But while the desire to acquire was there, prices were drifting away from the group. "We saw the prices that some people were paying and we thought, well, if we're not buyers then maybe we should be sellers," he says.


Informal conversations with Punch Taverns chief executive Giles Thorley followed. "He asked us if we were interested in selling," Kennedy says. "We felt that Mill House was in good shape, but that it had reached the stage where it deserved an owner who could take it that bit further." And so the deal was done.


Both sides were happy with an 'off-market' transaction at £167m. "We were offered more, but we trusted Giles to deliver," Kennedy adds.


A new challenge


The sale reinforced his growing desire to take on yet another challenge, that of running good quality, three-star hotels, ones with a good pub and restaurant offering attached. In the final days of Mill House the group had around 20 hotels, so it was not such a quantum leap as some might imagine.


After the Punch deal, Kennedy and ex-Forte and Whitbread executive Ziya Akguneyli, backed by banker Allied Irish, bought back three sites from the pub operator. These included a Corus hotel called the Heron in Romney, near Winchester, Hampshire. Pebble Hotels was born.


The Corus site was a "leftover from the eighties", Kennedy says, but the new company had a plan.


"Thinking back to Mill House, we wanted to aim for the premium pub casual dining market, with the opportunity that an attached, smart but reasonably priced hotel would offer."


The pub arm of the site in Romney had been taking around £2,000 a week and, Kennedy admits, was fairly basic. A £400,000 refurbishment on the pub and restaurant side of the operation followed and sales are now in the region of £15,000 a week. Work has begun on smartening up the hotel.


So what's the model? "To run hotels and make a lot of money," is Kennedy's honest reply.


In aiming deliberately at the upper end of the mid-market, Kennedy and his team are going for a broader customer base that wants something a bit special. A dedicated sales team is driving midweek sales in the hotel, and Pebble is seeing strong trade from the commercial sector. "There's lots of demand for this kind of offer in this area, and not a lot of supply," says Kennedy.


So does this new focus mean Kennedy thinks pubs are 'over'? "Not a bit of it," he replies. "An operation such as Top Dog was profitable. It's just that we felt we'd gone as far as we could in pubs."


A business for all occasions


Kennedy describes Pebble as a multi-purpose business: pub, rooms, food, conference facilities and more. It is not a rules-driven operation, he says: "Ziya runs the business, I do the finance stuff. Then there's David Pepper, our resources director."


The management team "paints a vision for people and lets them get on with it", Kennedy adds.


Contrary to some observers' view, Kennedy believes the middle market is currently well placed, despite the tough environment. "The top end is feeling the pinch a bit, while the tenanted side at the lower end is facing rising costs and fewer customers."


It takes work though. "The site at Arundel, West Sussex, is coming from being flat on its back," Kennedy says, but it should hopefully benefit from being in a location that is 'under-hoteled'.


Like many an operator, Pebble wants to grow, but in Kennedy's words the group is "in no screaming hurry". "Yes, we'd like to get to around 10 sites initially," he says.


"True, they don't come cheap, but we've no-one [such as private equity backers] forcing us to grow at a certain rate. We're just warming ourselves up."

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