Giant steps

11 June 2004
Giant steps

David Thomas, chief executive of UK hospitality giant Whitbread, believes he is a rarity among FTSE 100 company bosses because next week he will see out his seven-year contract in full, leaving the company in rude health.

"A good leader plays to his strengths, compensating for weaker areas through the right people. Ultimately, people want to believe in leaders" David Thomas
Sitting in the boardroom of Whitbread's City of London headquarters, Thomas, 60, is at ease. After all, he is the man who in 1997 was given the task of boosting shareholder returns by improving the Whitbread offering and attracting more customers - and he succeeded. When he took the reins, after a term as managing director of the company's restaurant and leisure division, Whitbread still had extensive brewing, pub and off-licence interests. Today it is an operator of family-friendly restaurants (Pizza Hut, TGI Friday's, Out & Out), coffee bars (Costa), leisure clubs (David Lloyd Leisure) and hotels (Marriott and Travel Inn). The company's turnover for the year to 4 March increased by 4.8% year-on-year to £1.8b (before exceptionals), while pre-tax profit hit £211.7m after a 4.6% increase. Impressively, this is part of a sustained effort by Thomas and his team, yielding five consecutive reporting periods of double-digit growth through its network of 2,000 locations and workforce of 65,000. "I guess I have a good batting average," he jokes in response to the figures. Whitbread's decision to turn its back on its heritage when it disposed of its brewing and pub estate was prompted in part by a "red card" from the Government at the end of 1999. Having already seen its tied pub and brewery business broken up by legislation at the start of the decade, Whitbread sought to expand its remaining pub estate by buying the managed estate of Allied Domecq. This was an attempt to drive growth in a market where alcohol volumes had remained static for most of the 1990s. However, the deal was referred by the Office of Fair Trading to the Monopolies and Mergers Commission, a clear warning, in Thomas's view, to desist and leave the field. "At the end of the day we had to make a hard business decision," says Thomas. "The danger was that if we didn't move with alacrity, the ship might have sunk." So the decision was made, and in May 2001 the sale of its pub company, off-licences and brewing interests netted £3b, £1.1b of which was returned to shareholders. The company hasn't looked back since. Travel Inn has expanded and become a financial star for the company (helping to offset a mixed performance by Marriott), while Costa Coffee has managed the not inconsiderable feat of reaching number two in a fiercely competitive sector. Even British institution Beefeater, celebrating its 30th anniversary this year, has seen a renaissance in its performance following a successful refurbishment programme and changes to the menu. "I'm very proud of our financial performance and the great team of people that has been built up here. It's very satisfying," says Thomas. "I've learnt something every day in the job, both positive and negative. I think you have to be prepared to challenge. Just because something has been done a particular way for 250 years doesn't mean you have to keep doing it that way." The cut-throat world of supermarkets - "where you have to fight for every food sales pound" - was his testing ground until he joined Whitbread in 1984, aged 39. "I realised early on in this job that you can't solve every issue, and you can't be afraid to delegate. A good leader plays to his strengths, compensating for weaker areas through the right people. You should never think you can do everything, but you should always have confidence in yourself. Ultimately, people want to believe in leaders." Whitbread is currently musing over a sale-and-leaseback approach for its Marriott hotels and possible sale of its 11 three-star Courtyard by Marriott hotels, with capital expenditure to be concentrated on its Travel Inn and David Lloyd Leisure businesses. Thomas believes his successor, Alan Parker, currently managing director of hotels, will inherit a company broadly perceived as moving in the right direction. So expect organic growth and acquisitions, and underperforming brands to be jettisoned if necessary. Further international expansion is also on the cards, with eight Costa Coffee franchises operating outside the UK already and David Lloyd launching in Continental Europe, aided by partners in Spain and the Belgium/Luxembourg area. Although changes to the licensing laws and the spectre of a smoking ban will have a negligible effect on Whitbread (its Pizza Hut restaurants banned smoking last summer and its other sites are mainly family-orientated or health-focused), Thomas suggests that one growing headache for Parker will be the ever-increasing burden of regulation, something Whitbread has struggled to keep in check. "There's been a plethora of regulation introduced since 1997," says Thomas. "It means we have to continually find ways of improving our productivity to reduce our cost base. We can afford specialists to keep us up to date with the changes but, if this continues, it will surely stifle entrepreneurship in this country." Whether we drown in red tape or it all goes up in flames due to an outraged smoker's cigarette remains to be seen, but these will be challenges for Parker starting this summer. So why isn't Thomas staying on with the company, if he's been so successful? "I've always believed that a chief executive should not move to company chairman," he says. "I certainly don't want to be an albatross around my successor's neck." However, don't expect Thomas to disappear from the scene, no matter how cagey he is about future projects, as he's a trustee of People 1st, the newly launched Sector Skills Council for hospitality, leisure and tourism, and a requirement for this is a role within the industry it represents. Asked what he'd like to be remembered for during his tenure at the top, he is sincere in his reply: "For transforming the company in a way that ensures it is at the heart of modern-day life." Whitbread CityPoint, One Ropemaker Street, London EC2Y 9HX Tel: 020 7606 4455 Web: [ Brands: Travel Inn, Marriott, Brewers Fayre, Brewsters, Beefeater, Out & Out, Pizza Hut, Costa, TGI Friday's and David Lloyd Leisure Employees: 65,000 Turnover 2004: £1.8b Pre-tax profit 2004: £211.7m
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