Business Analysis: Whitbread disposes of its past but its future is far from guaranteed

The move marks a milestone in the transition of a company that started out at the cutting edge of beer production and is now dominated by cheap hotels, restaurants and coffee shops.

Having moved its headquarters out of Chiswell Street some time ago, the sell-off of the old brewery - now a conference centre and offices - for £55m to the Earls Court and Olympia Group is of more sentimental than financial significance to the company. It is part of one of the biggest restructuring exercises in the company's history, spearheaded by its new chief executive, Alan Parker.

"Chiswell Street has been part of the company for more than 250 years, and so selling it was not a decision taken lightly," he said. "But I'm more interested in and excited about working to create what will be the future history of the company."

His mantra when he took the helm last summer was to deliver better returns to shareholders. But the City is starting to wonder whether his plans go far enough, and whether the group as a collection of leisure assets has a future at all. One analyst, who asked not to be named, said: "If some of the businesses inside the Whitbread group do not start to improve their performance, shareholders will want to see exits from them."

Whitbread's past is still largely synonymous with beer. From when the young brewing apprentice, Samuel Whitbread started up in 1742 to the 1980s, the company and its name led the beer industry. But from the 1960s onwards, it expanded to other leisure areas, such as off-licence chains and pubs. In 1974, Whitbread launched its Beefeater family-based pub eateries, and branched out into the high street with Pizza Hut's UK franchise and TGI Friday's. By 1987, Whitbread had opened its first budget hotel, Travel Inn, and in 1995 acquired the Marriott hotel brand, the David Lloyd health club business and Costa Coffee. In 2000, it sold its beer business and four years later bought Premier Lodge, the budget hotel chain.

Mr Parker unveiled plans in November to sell off assets that would hand back £800m to shareholders and give the group more flexibility to invest in higher-performing brands. Marriott was identified for disposal, as was Chiswell Street, the Courtyard hotels brand, the German businesses, and up to 50 underperforming pubs. The sell-off is still in progress, but Mr Parker says he is happy with what remains. "I see Whitbread as a focused hospitality business. Costa Coffee is growing very fast, as is Premier Travel Inn. On the same sites as Premier, we put our hugely popular pub restaurants. David Lloyd also has great potential."

But is it enough to convince the City? There appears to be a growing unease over the benefits of keeping Whitbread's loosely connected brands in one group and a strengthening belief that breaking up the business might generate the best result. "Premier Travel Inn is the star in the group," Matthew Gerard, at Investec, said. "The market for budget hotels is under-served in the UK and Premier Lodge's identikit formula allows for rapid expansion at low cost. Instead of 6 per cent returns from the full-service Marriott hotels, Premier Travel Inn, which has more rooms per site, no food facilities and lower running costs, is generating returns of 15 per cent."

With more than 29,000 rooms and growing, Premier Travel Inn accounts for nearly half the group's operating profits. Like-for-like sales at the division were up 8 per cent over the first six months of its financial year.

But the rest of Whitbread's assets are struggling. A downturn in consumer spending has hit all its businesses - customers have been lapsing membership at David Lloyd, and TGI Friday's and Pizza Hut have seen lower footfall on the high street. Like-for-like sales in the high street restaurants division were down nearly 2 per cent at the interim stage. Sales at Whitbread's pub restaurants, which include the Beefeater and Brewer's Fayre brands, slumped 1 per cent. With rivals such as Mitchells & Butlers, behind the Harvester and Toby carvery chains, reporting strong results, more is afoot in Whitbread than can be blamed on poor consumer sentiment.

There is also no shortage of buyers interested in Whitbread's assets, which makes some in the City believe that hanging on to them is foolhardy. Private-equity businesses in the health club sector are rampant for consolidation. Esporta, owned by Duke Street Capital, is likely to be interested in David Lloyd. Hungry pub groups are also snapping up pub restaurants.

Mr Parker refuses to countenance a break-up and instead has placed new management in to the divisions to kick-start performance. Mr Gerard warned: "If some of the businesses continue to underperform their peers, there will be growing pressure on the board to review its corporate structure."

Whitbread has adapted its identity a number of times but it is possible the next phase of its history could see it disappear, if all divisions are broken up and sold off. The return of cash and new management may have bought Mr Parker some time, but unless there is real improvement in trading, Whitbread's days may be numbered.

Brewing up a history out of London's slums

When Samuel Whitbread chose Chiswell Street as the site for his expanding brewing empire, the area just north of the City of London was a slum. Dosshouses lined the streets, filled with gin-swilling vagrants sleeping on straw and fending off rats.

The building of what became Britain's biggest mass-production brewery would transform the area, bringing in other merchants and clearing out the tramps. Business at the brewery also benefited from a public health scare at the time.

A report in 1791 suggested cheap gin was causing the deaths of large numbers of adults and children, leading to a law restricting its sale. The public switched to beer, seen as more wholesome beverage, and Chiswell Street introduced a steam engine to increase production and meet the rising demand.

In 1787, the brewery was even the subject of a royal visit from George III. By 1796, the year of Mr Whitbread's death, the premises had secured their place at the forefront of the brewing industry, producing more than 200,000 barrels of beer a year.

After taking full control of the brewery in 1765 through buying out his original partner, Thomas Shewell, for £30,000, Mr Whitbread died a millionaire. His son, also Samuel, followed him into the business and also to Parliament, where he carried on his father's cause of fighting the slave trade. But he was prone to depression and committed suicide in 1815.

Bottling was introduced at Chiswell Street in 1868, after which Whitbread beer became a national brand. Under the leadership of Colonel Bill Whitbread in 1948, the company listed on the stock market. Beer continued production at Chiswell Street until 1976.