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Franchise in hotel industry of Ukraine (published by National Hotel Executive)

There is paradoxical market situation currently in Ukraine. Demand for hotel services is much higher than market can offer by all the indexes and forecasts. Hotel real estate market in Ukraine shows extremely low supply rate along with deficit of good quality rooms together with high booking rate.

Many factors influence hotel industry today. The main one is lack of experience in development of hotel projects. This business is not attractive to Ukrainian investors because it is capital-intensive (payback period can be up to 15 years long depending on project, hotel quality and market situation). Running business in hotel industry also requires considerable knowledge and experience which Ukrainian developers don’t have. Another factor that influences hotel industry in Ukraine is low number of rooms in the mid-price segment.

Still hotel industry in Ukraine is very dynamic one showing high growth rates in spite of all the factors. Tourists flow increases by 19-25% annually. About 19 million foreign tourists have visited Ukraine in 2006 which is 7% higher comparing to 2005. In the first six months of 2007 tourist flow increased by 27% and reached 9,5 million visitors point according to data of Ukrainian State Tourism and Resorts Committee. That is 2 millions higher comparing to the previous year.

Growth of the hotel industry dynamic can be seen in table below*:

Overall living area and number of rooms (2000-2006)

 

Year

 

 

Number of enterprises in hotel industry

Number of rooms

Overall hotels’ living area, thousands of sq. meters

2000

1308

51012

949,1

2001

1258

49966

947,9

2002

1254

51107

977,0

2003

1218

50412

997,8

2004

1192

50414

1012,2

2005

1232

51686

1072,4

2006

1269

53646

1120,0

*According to the data of Statistic State Committee

Construction and reconstruction projects in the hotel industry (2005-2006)

 

Year

Number of building projects

Number of reconstruction projects

Overall

 

2005

165

334

499

2006

290

359

64

Several years in a row Ukrainian hotel industry market was waiting for international franchise professionals entry. It was expected because franchise is the fastest methods of organization and developing any hotel project. As the result there are many international companies with well known brands are already in the market or about to enter it. They are Radisson, InterContinental, Hyatt International, Hilton, Sheraton Hotels & Resorts, Marriot International, Accor Group, Hilton, Magic Life, Rixos, Kempinski Hotel & Resorts, Continent Hotels & Resort, Park Inn, Orbism Rival Hotels, Comfort Green Hotels Holiday In, etc..

International hotel chains can enter Ukrainian hotel market, because they have good development opportunities such as:

  • Organization of youth football (soccer) UEFA championship in Donetsk in 2009.
  • Conducting annual meeting of EBRD in Kiev in 2008.
  • Conducting finals together with Poland in 2012. Hosting cities are Kiyiv, Donetsk, Dnipropetrovsk, Lviv, Odesa, Kharkiv (opt. Ivano-Frankivsk
  • “No visa entry regime” for citizens of EU, USA, Switzerland, Japan, etc.

Official law “Providing of preparation and conducting in Poland and Ukraine of final tournament of Europe championship UEFA 2010/12”.

At the present moment there is one national hotel chain “Premier Hotels” that consists of seven 4-, 5- star hotels in different cities of Ukraine. And managing company “Premier International” represents “Premier Hotels”.

In July Austrian investment fund “Sparkassen Immobilien” which belongs to German financial group “Erste Bank Group“ has declared plans to build two 5-star hotels in Kiyiv. Some 4-star hotels will be build in Kiyiv, Lviv, Kharkiv, Dnipropetrovsk, Donetsk and managed by Marriot (has 2,9 thousands hotels in 67 countries).

New 5-stars hotel Hyatt Regency Kiev with capacity of 234 rooms has been opened in September 2007. Executives of Hyatt International declared its plans to open one more hotel under its brand.

Rezidor company (brands Radisson SAS, Regent, Country Inn, Park Inn and Missoni) became significantly more active in the Ukrainian market. It manages 4-stars hotel Radisson SAS in Kiev. Rezidor has also signed an agreement to manage 5-star hotel Radisson SAS Airport Hotel Kiev (Borispil International Airport) and agreements with developer companies “Dubl W” and “Nedvigimost Stolitsi” (NEST) on management of hotel Radisson Paradiso Big Yalta which is situated in Mishore (South region of Crimea). Besides Rezidor declared intentions to build hotel chain Park Inn in cities with population more than 500 thousands people. Yuliya Sayenko (chief architect of Dnipropetrovsk) says that company Rezidor plans to build two 3-4 star hotels in the city. Rezidor Hotel Group consists of 302 hotels with overall capacity more than 62 thousands rooms in 47countries.

In the nearest future new hotel Hilton should be opened on the Taras Shevchenko boulevard in Kiev.

            

Accor Group (biggest European hotel chain which consists of 3,8 thousands hotels in more than 100 countries, it owns 26 trademarks: Sofitel, Mercure, Ibis, Etap, Formule 1, etc. ) plans to enter Ukrainian market. It made an agreement with investment-developer company “XXI Vek” on management and share holding in building 13 hotels. This international hotel management company will manage four 5-stars hotels in Kiev with overall capacity more than 1000 rooms and nine more 3-star hotels in the cities where EURO-2012 will be conducted.

It is well known that international hotel chain Inter Continental enters Ukrainian market in the nearest future.

Turkish hotel chain Rixos actively developes its business in Ukrainian hotel industry with its hotel Rixos Hotels Prikarpatye.

International hotel chain Kempinski Hotels&Resorts is in the negotiation process regarding building several 5-star hotels in Kiev, Kharkiv, Yalta and Odessa.

German hotel management company Magic Life which manages all-included hotels in 6 countries (Tunis, Egypt, Greece, Turkey, Bulgaria, Austria) also consideres entering Ukrainian market

Sheraton Hotels & Resorts, Continent Hotels & Resort, Rival Hotels, Comfort Green Hotels, Holiday Inn, etc. are also looking into Ukrainian hotel industry.

“Demand generates Supply” is market-rule. It was stated in the 7th International investment forum that increase in tourist’s appeal of Ukraine and as the result increase of demand for hotel services defines situation in Ukrainian hotel industry as one of the most promising in Eastern Europe. International franchise companies certainly will set up new standards of running hotel business but in turn they are expecting comfortable conditions for foreign investors such as perfection of legislation, infrastructure development, increase in tourist services quality. But the main idea is reliable partnership, because some international brands that enter easily many other markets in the world face failure in the first attempt. The main reason for such failures is misunderstanding rules of organizing business in Ukraine, lack of reliable Ukrainian partner or dealing with companies that do not realize how business in Ukraine should be organized and developed. At the end I would like to wish companies that potentially will sell franchise in Ukraine to study experience of their colleagues so that their numerous but uncertain attempts will become successful. I also wish Ukrainian businessmen to learn about franchise and fully understand what it serves for.