Strategy in Action: 10 Mins of Gold Star Insights from the Whitbread CEO

Students of business strategy (and their teachers) will rarely find a better video resource than this one. In particular, it ought to be required viewing for anyone taking AQA A2 Business BUSS4 or IB Business Management…

This is a 10 minute interview with Alan Parker, who has just retired as CEO of Whitbread plc, a major quoted firm in the UK leisure sector. The interview is absolutely packed with key strategic business concepts, as Parker explains why he opted to change Whitbread from a leisure conglomerate with 10 separate divisions into one with just three main businesses. I have outlined my video notes below. The video can be used in so many ways with business students, so I’ll leave it up to you to indentify which bits you would like to focus on. One option is to simply show students the entire interview and see what they pick up!

FT Interview with Alan Parker Whitbread
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Clear plan to improve return on capital and add value for shareholders
A strategy of focus
Got rid of some big brands - through disposals
Wanted to exit capital intensive markets
Wanted to be bigger (market share) in the markets in which Whitbread decided to stay
Costa Coffee - a strategic decision to grow, but needed to achieve economies of scale to compete effectively with Starbucks
Had to create a new sense of purpose & mission

Challenges:
(1) Conglomerates had a reputation for destroying, not adding value
(2) Too much property - excess assets?

Do conglomerates work?
Yes they can work - but the internal culture needs to be focused on adding value in each business
Each business within a conglomerate needs to be focused on operating and competing effectively

Digital: 65% of Premier Inn reservations come from online

Whitbread has performed very well - share price has doubled under Parker’s leadership + shareholders have been paid £2bn of dividends
But the market is wary about the prospects for the leisure sector
Parker talks about “an age of austerity” - the UK economy is in for a tough ride for 3-4 years due to cuts in government spending and higher taxation (fiscal policy)
Hotel industry in the UK - “still full of over-priced and under-demolished hotels”!

Impact of rising input costs on demand?
Price elasticity of demand for coffee?
No sign yet of the coffee market reaching saturation, although it is highly competitive

Response to the recession:
Run the business tightly (cost control)
Aim to increase market share, particularly through marketing
Marketing was seen as an investment in the recession, not a cost

Key terms:
Conglomerate
Focus
Economies of scale
Shareholders
Mission
Adding value
Culture
Value for money
Elasticity of demand