Pod hotels: hit or miss?

Euromonitor travel and tourism manager Michelle Grant explains why she thinks Premier Inn’s new pod hotel concept will be a hit.

"In July, Whitbread Plc announced a new brand, hub by Premier Inn. The brand marks the entry of Whitbread into the pod hotel business, where smaller rooms translate into lower costs and lower prices. The brand is aimed at city centre locations which may not be accessible to the Premier Inn brand. Overall, Whitbread hopes to reach new price-sensitive consumers looking for comfort in a convenient location.

The first outlet is expected to open in the summer of 2014 and there are five committed sites with over 1,000 rooms in total in Central London. According to Whitbread, it only commands a 6% share of rooms in Central London and so there is strong potential for the company to grow its presence in the area via the hub brand. The plan is to have 3,000 rooms open and 3,000 more in the pipeline in 2018. Although this growth plan is feasible, the brand will face competition from many different types of hotel business models as well as the peer-to-peer sharing space.

Introducing hub by Premier Inn
Designed to be space-efficient, hub by Premier Inn rooms will feature a bed with luggage storage below and a desk which folds into the bed. There will also be an en-suite shower as well as a 40-inch smart screen television. The rooms will only be 11.4 sq m in size, some 47% smaller than a Premier Inn room. The smaller rooms mean that buildings and operating costs will be 25% lower than those of a Premier Inn. The cost savings will be passed on to guests, with the average daily rate for Central London locations expected to be £100, compared to £136.27 for London hotels in May 2013 according to BDO LLP.

The brand has also been designed with technology in mind. Wi-Fi access will be free and the brand’s mobile app will allow guests to stream their content to the television as well as control lights and temperature and check into the hotel.

The brand is likely to appeal to both business and leisure travellers on a budget. The free Wi-Fi and the ability to stream your own content are important differentiators for the brand and are likely to be a strong draw for today’s digital nomads.

A varied competitive field
Hub by Premier Inn will encounter a range of competitors, including existing pod hotel brands such as Yotel, easyHotel and Tune as well as traditional budget hotel brands such as Travelodge, ibis and the soon to be launched MOXY. There are also budget hotel brands that offer style at a low price, such as Motel One and Citizen M, and hotel-hostel hybrids such as St Christopher’s Inns. Lastly, the price point of hub by Premier Inn may convince some to stay with the hotel brand rather than renting a flat from HouseTrip or Airbnb.

Whitbread executives have stated that although room size at the hub will be similar to that of easyHotel and Tune, the brand will offer higher quality at a higher price and will not be unbundling services for additional fees. Instead, the company has stated that it is looking to gain guests from Travelodge as hub has a similar price point but offers better quality. Given the compact chic that hub is embracing, more traditional budget brands like Travelodge, ibis and MOXY may not be the brand’s core competitors, but hub definitely offers a strong product for guests willing to sacrifice space for a lower price.

A relatively new threat is the entrance of brands that follow a similar strong design and low price model. One example is Motel One, which has 44 outlets in Germany alone and two in the UK, with more planned. Citizen M is another smaller competitor with outlets in Glasgow and London and two more expected in London in 2014. The launch of hub, with the strong brand recognition, scale and local expertise of Premier Inn, may spell trouble for these brands in the UK.

It is likely, however, that hub will also compete to a certain degree with hostels, especially chained ones such as Generator and St Christopher’s Inns. But, again, its relative inclusive pricing and strong brand recognition are likely to give it the edge, although these players may be less expensive.

The compact space, stylishness, incorporation of technology and central locations may also appeal to value-minded travellers who use HouseTrip or Airbnb to find reasonably priced flats in central locations."