How to create a Hotel Chain in Ukraine

Present article includes analytical and practical product of building a Greenfield hotel chain including procedure description of organization and realization of hotel investment project.

When the hotel turns from lifework into a kind of assets and commercial property, there will be necessity of professional management and integration of hotels into a hotel chain

Due to estimation of most experts national chains make future of hotel business. Today clients desire uniqueness. Each country is reach in history, ethnic flavor but unfortunately we do not much value these. The first question foreigners ask about Ukraine is why Ukraine has so little of national. Every hundred meters objects reminding of Leonardo da Vinci and Mona Lisa can be met in Kiev: business centers, beauty parlours, SPA, restaurants, pizzerias, etc. Foreign names express style of the facility, in contrast banal imitation is observed in Ukraine. Most of Ukrainian hotel names sound like Olympic Pantheon. Such names are borrowed from the names of famous cities. People try to make Venice or Rivera in the country with millennial history, in the country which is 39-th according to number of objects of World Heritage together with such tourist attractive countries as Italy, Germany, Poland, Slovenia and much higher than the Netherlands, Czech Republic, Austria, Belgium. Ukraine has 70 thousand of historical and cultural objects that represent the monumental works of art that start dating from III century B.C. And these are not the only advantages that Ukrainian people can be proud of.

In the centuries-old history of hotel business there are several people owing to whom the empire of hotel chains was created. They are Caesar Ritz, Conrad Hilton, John Willard Marriott, Isadore Sharp.

1.  Location

Location is one of the most important factors while hotel development. Building of upper and midscale hotels is reasonably supposed in the city center, closeness of the exhibition centre demands congress hotel. It is absolutely clear that building such hotels in the mountains or on the roadside is absurd. Among the most popular hotel locations are the following: city center, business and exhibition centers, hotels included in multifunctional complexes, resorts, airports, suburbs, highways, roads, etc.

Location should be determined on the basis of market analyses and ensure successful commercial development. Location varies depending on a hotel class. For example, luxury hotels should be located in the districts close to the places of interest, malls and cultural areas which are popular among rich guests. Business hotels should be located close to a downtown or business center. Low price, budget hotels are mostly located near utilitarian districts (e.g. airport, bus station).

In the history of hotel business there is a number of contradictory examples, when the choice of location for hotel construction would seem unpromising but contrary to all rules gave rise to the new hotel empire. The most impressive example is luxury hotel chain Four Seasons, founded by Canadian businessman, the son of Jewish migrants from Poland Isadore Sharp in 1960. First hotel was opened in the Red-light district in Toronto in front of headquarters of Canadian leading television company. This neighbourhood helped new business to make a progress: the most popular daily show on СВС was broadcasted from the Four Seasons Steakhouse. This show existed 13 years, all stars who lived or visited Toronto were its guests.

Location is a basic factor of the hotel success. Nevertheless other factors that influence economic efficiency should be considered. Ability to meet successfully market requirements is fundamental for future viability of the object. Development of the project for investor should be based on the following:

  • Market analysis & Marketing research
  • Marketing concept
  • Feasibility study, business plan
  • International management company

Location can meet many requirements – demand, visibility and accessibility. Though the cost of rent, landscape works, supply of communications and other preliminary expenses may be too high. In exactly the same way investment into reconstruction of already existing property may influence payback of the project and thus become unreasonably high in comparison with expected profit. That’s why while analyzing the construction site and preliminary preparation investor should take into consideration all the factors in complex, particularly:

  • Cost of  land rent
  • Approval burden by Government
  • Site logistics
  • Fees of consulting company
  • Design work
  • Construction
  • Furnishing and equipment
  • Contractor fees
  • Loan disbursement  (in case of necessity to attract investment)

 

2.  Professional Team

After implementation of objective, real researches and analyzing of feasibility study investor has an opportunity to make strategically right decision of economical feasibility of project realization. Process of preproject preparation and project organization includes marketing concept, project, work papers and draft design elaboration together with all the preparations to start construction. It is necessary to select the group of specialists for realization of these steps. It consists of:

  • Specialised, professional Hotel Consulting company
  • Management company (operator)
  • Architects/engineers/designers
  • Construction company

3.  Professional management

Hotel chains are operated by hotel operator, which provides marketing services, booking, tax optimization, staff training and the most important thing is that operator works according to unified standards of services. Owner of the project has an opportunity to choose one of the ways of hotel operation: to create his own or to hire a professional one.

Creation of one’s own management company (MC) demands considerable costs, because the owner needs:

  • Select and train staff
  • Organize the process of hotel management
  • Control professional level and effectiveness of work of the staff
  • Connect hotel to different booking and reservation systems
  • Develop and arrange strategy of hotel sales and promotion – on the domestic market and worldwide
  • Development of organizational and financial model of business structure
  • Tax optimization, etc.

All these actions demand considerable costs and do not guarantee achievement of high work efficiency due to absence of experience. The most important factor that determines the choice of hotel operation is economic indexes which depend on the way of operation.

4.  Branding & Naming

Using brand image for promotion of the hotel product on domestic and international markets has a great impact on the history of establishment and development of the hotel chain. Creation of hotel chain is impossible without branding (development and creation of brand, its launching and promotion) and naming (creation of original name).

One of the leading American marketing specialists Peter Doyle describes brand as “A name, symbol, design, or some combination which identifies the product of a particular organization as having a substantial, differentiated advantage”.

Compulsory condition of successful brand is observance of corporate identity. Corporate identity is the basis organisation image. Components of corporate style are: name, logo, corporate colors, slogan, etc. Corporate style is used almost in everything: in interior and exterior design of the hotel, in selection and creation of furniture and equipment (appliances, furniture, textiles, (décor and in advertising for sure. Corporate identity of a hotel is examined on the basis of several functional aspects: design, marketing and management (corporate culture). There are many young and progressive designers in Ukraine, but their common mistake is absence of marketing researches. Hence, there is no local hotel in Ukraine with recognizable brand and is competitive on the international hospitality market.   

5.  Franchise Organizing

After successful opening of the first hotel you may think of further development of your business.

Hotel concept should be tested in the real conditions with identification and correction of all remarks in the work of a system.

Answers for the following questions should be given: 

  • Concept development: target group, quality and list of services, designer and style decisions, list of additional infrastructure
  • Marketing, advertising, construction standards, sanitary-and-epidemiologic, fire prevention decisions
  • Tax optimization, etc.

The second step towards franchising is preparation of franchising offer, agreements and full documentation package. The most effective way will be application to consulting companies, which provide legal services as well as have practical experience in cooperation with international chains, as far as they will do the work efficiently and will take into account experience of the other franchisors in the sphere of hotel business.

In the process of franchise organization a number of mistakes may be made, which may cause not only the loss of time, but financial damages and impossibility to sell a franchise.

Drawbacks of hotel chain organization in Ukraine

Many local management companies declare themselves as hotel chains and offer franchise. The most common mistakes of such companies are:

  • Absence of hotel chain development strategy
  • Absence of unified brand (hotels of the one chain have different names, class, absence of corporate style, etc.)
  • Absence of professional management team

Some hotels announced mass media their intention to create chain and implement franchising plan, even without functional website which can be applied for more than one hotel. Corporate site has no easy-to-use navigation enabling visitors to navigate the site easy and find comprehensive information about opportunity of franchise purchase.

As of today the following hotels: Amadeus Club, Premier Hotels and  Accord Hotels,7 days, Visak, Otrada,  Reikartz Hotels & Resorts, Domashniy Uyut, Donbass Palace, etc.

Typical mistakes in the process of hotel chain creation in Ukraine

Current development of hotel business goes the other way in Ukraine. First appears the wish and idea to create the hotel, then figments of imagination such as: “My hotel will be the best”. After this new and unique product appears, which cannot be classified and profitability of which cannot be predicted. Due to wrong procedure of project development and implementation and unprofessional approach hotel business work not according to the principle “Hotel works for investor” but “Investor works for the hotel”. It is necessary to determine hotel object in demand for the particular market only on the basis of market research and analysis of current and potential competitors.

What should one know for hotel chain creation?

Hotel business is very specific and has a number of peculiarities that may be simply unknown for developer. Professional designers or architects who specialize directly in hotel development and construction with international experience are very rare in Ukraine. As a result such common mistakes as discrepancy between hotel location and class, equipment of the hotel in a rough-and-ready or late selection of management company and staff that causes increase of construction cost as well as increase of hotel payback.

It is impossible to avoid such mistakes in the hotel development without help of professionals – specialized consulting companies.