Why are breweries moving into the accommodation business?

Why are breweries moving into the accommodation business?

Fast growing Scottish craft beer specialist, BrewDog, has announced plans to open a craft beer themed hotel. This would make it the latest in a long line of breweries which are moving into the accommodation business.

Of course, there has always been overlap between pubs and hotels – old fashioned ‘coaching inns’ provided travellers with much needed resting places for the night in the days when journeys with a horse and carriage would take several days to cross the country.

But once motor travel dispensed with the need for such roadhouses, pubs and breweries focused their efforts on selling drinks rather than bedrooms.
Now it seems there is a move in the other direction with many breweries expanding into the hotel business.

There are a number of sound commercial reasons for this:

1)    The UK hotel industry is very buoyant with continued year-on-year growth

The PwC hotels forecast for 2016 showed occupancy levels at their highest ever level outside London at 77 per cent while in London occupancy was at its highest for a decade at 84 per cent. And despite an £8.8bn flood of investment in the UK hotel industry last year, demand still seems to be outstripping supply.

2)    Average revenue per room is increasing

Revenue per available room (RevPAR) has seen a steady rise across the UK in recent years and is forecast to reach £122 in London and £53 across the rest of the UK this year. This makes UK hotels an attractive investment as they offer an opportunity to achieve higher investment yields than other property types. The average profit margin of UK hotels rose from 3.5 per cent in 2013 to 14 to 4.5 per cent in 2014 to 15, according to data compiled by leading financial company LDF.

3)    Breweries have been forced to diversify

The post-recession years were extremely challenging for UK breweries with sales falling by more than 500 million litres from 2009 to 2013. Sales have stabilised after a bounce back in 2014 but breweries still face a challenging and competitive environment with craft beer now taking on the more established brands. In such an environment many breweries have looked to diversify and the hotel industry is a natural bedfellow, so to speak.