Whitbread has seen food and drink sales slump after it revealed its divisive decision to sell its restaurants and pivot to a hotels-only business.

The Premier Inn owner said food and drink sales fell by five per cent to £148m in the three months to the end of May, compared to a three per cent jump in accommodation revenue to £498m.

The FTSE 100 firm said in April that it plans to slash nearly 4,000 jobs, offload all of its branded restaurants and sell off a raft of freehold rights in a bid to raise £2bn.

The drastic cost-cutting programme has proved divisive with investors. Corvex Management, an activist shareholder with 11.8m Whitbread shares, dubbed this plan a “chronic misallocation of capital”.

But, announcing its first quarter results on Thursday, chief executive Dominic Paul stood by the plan, which he said the firm is “executing at pace” in a bid to “drive higher profits and returns”.

110 restaurants on chopping block

Whitbread is set to exit from all of its branded restaurants, which include Beefeater and Brewers Fayre, and operate only those which are attached to existing Premier Inn hotels.

The firm said in April that it has already agreed the sale of 51 of these restaurants for £50m and plans to offload 60 more, subject to employee consultation.

Whitbread’s total group sales grew by two per cent to £727m in this three-month period. Growing hotel revenue was dragged down by the “expected reduction” in food and drink revenue caused by the firm’s focus on a more “efficient integrated offering” at its remaining restaurants.

But the slowdown in food and drink sales has softened in recent months, after Whitbread reported a seven per cent fall in this revenue to £627m in the year to February.

Whitbread recorded three per cent accommodation sales growth in the UK in the three months to the end of May, but this was outshone by its 16 per cent sales jump in Germany, where food and drink sales soared by 32 per cent.

Derren Nathan, an analyst at Hargreaves Lansdown, said: “Whitbread continues to outperform the wider hotels market, and once the planned scale-back in its food and beverage operations washes through, this should become more apparent in its headline financials.

“Today’s figures should go down well, and looking ahead, strong bookings and the de-escalation of geopolitical tensions paint a positive backdrop.”

Whitbread lobbies for business rates reform

Chief executive Dominic Paul said his company is “continuing to press” the government for a reform to the business rates system. 

Announcing its strategic overhaul in April, Whitbread hit out at “significant increases” in the tax, which it said will contribute to £35m in additional yearly costs.

The Premier Inn owner has been scathing over the tax burden facing hospitality, saying last year it was “extremely disappointed” by the Treasury’s changes to business rates.

The government later offered a £300m business rates support package to pubs, but excluded hotels and restaurants from relief from the higher rates, which came into force in April.

Whitbread began life as a brewery in the 18th century and has been listed in London since 1948. Its share price fell 0.7 per cent to 2,380p on Thursday’s market open.