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Outlook of the hotel chains development in Ukraine (published by National Hotel Executive)

Hotel services sector is presently one of the most dynamically developing in Ukrainian economics. Unsatisfied demand on various hotel services gives excellent opportunities to independent hotel chains - they can enter the Ukrainian market successfully and thus implement the strategy of strengthening their influence in the hotel sector. Some peculiarities of certain market sectors make it impossible to provide single evaluation of the market trends – in order to make such an evaluation, it is necessary to analyze the state of every single sector of hotel services in particular. The list of potential participants of the Ukrainian “hospitability industry” market depends on quality of such analysis carried out by hotel business representatives. At present a strong tendency of foreign hotel chains filling in Ukrainian market niches may be observed. Will this tendency stay relevant in the future? Are there any possibilities for the Ukrainian national hotel chains development?

In order to answer these questions, a thorough market analysis should be carried out, including the investigation of all the possible variants of market actions and situations which may stimulate the development of Ukrainian national hotel chains.

There is only one originally all-Ukrainian hotel chain today - Premier-Hotels, consisting of 6 hotels. It has been created disregarding usual strategies – the chain unites hotels situated in large industrial and cultural centers of Ukraine which differ greatly in their conception and range of services. Due to the peculiarities of each hotel the chain doesn’t face any problems concerning the product’s commonality. Besides, talking about market positioning and brand recognition, such a unique cooperation doubles competitive advantages. All the chains hotels are also united under a single reservation system. Nevertheless, it is difficult to define Premier-Hotels as a full-fledged hotel network as its hotels are functioning in different segments and under different trade marks. The appearance of such a formation can be explained by gradual satiety of the luxury hotel market, as well as by well-known international hotel chains’ coming to Ukraine. In such circumstances independent hotel networks face the necessity of cooperating with each other and making up common business-strategies.

Nevertheless, gradual evolution is the most natural way of development, representing actually the strengthening of market influence of an already existing company. The five-star “Donbass Palace” chain’s entering hotel markets of Kyiv and Yalta illustrates the tendency of Ukrainian companies’ consolidation at the hotel services market. For the first time in the history of Ukrainian hotel business the Donetsk hotel “Donbass Palace” entered “The Leading Hotels of the World” association. In November 2005 this hotel won one of the most prestigious tourist business contests - “World Travel Awards” - and was acknowledged as The Leading Hotel of Ukraine, as well as The Leading Business Hotel of Ukraine in 2006. The company is now considering the possibilities of building 5-star hotels in large Ukrainian cities under a single “DP” brand (“Donbass Palace”). Besides, the chain’s developing beyond the Ukrainian borders is quite possible. As for the first class hotels, it is necessary to mention that it is this very division that determines the sector’s high dynamics. Such special attention of hotel businessmen to luxury hotels can be explained by the fact that after the break-up of the USSR there has been no hotel in Ukraine which could meet European 5-star requirements. At the same time the demand for high quality services has been swiftly growing; it is the result of funds’ redistribution, being at the same time stimulated by the fact that more and more foreign tourists come to Ukraine.

While expanding its influence in the certain market, a company – potential hotel operator - may decide either to realize construction projects or to buy already existing hotels in order to reconstruct them afterwards. Which way to choose highly depends on a particular situation: sometimes the hotel reconstruction and staff retraining may cost more than a brand new full-scale project. The strategy of development stays the most relevant for the 2-3 star hotel sector, as this very sector of Ukrainian hotel market stays thin and is represented mostly by low quality hotels with a poor range of services. Domestic travellers (going on a business trip to another city or having a holiday) are the target segment of this sector. Facing no competition, enterprises of this hotel market sector tend to underestimate their clients’ needs of high quality services. Creation of a single hotel chain (through buying and reconstructing already existing small and middle-size hotels) with general range of high quality services provided may not only make the company a nationally important chain, but also make it dominant in the market. Today, the absence of business activities in this sector gives chance to international hotel networks to fill in these market niches. As the most profitable luxury hotels sector isn’t far from satiety, the majority of the hotel operators are about to get deeply interested in the small and middle-size hotel market (with frugal range of services provided).

The principle issue for potential Ukrainian national hotel chains is to develop their market in regions. The Kyiv hotel market is now close to satiety in the sector of 4-5-star hotels. The Ukraine and Poland’s possible receiving the privilege to host Euro Football Championship in 2010 may be the deciding factor in this issue. If so, about 10 luxury hotels will be built in Kyiv, in which case entering the market will be possible only through mergers. In the middle-class hotel sector Kyiv companies are rather active in raising the level of their services as to correspond to European standards.

As for regional hotel markets, they are far from satiety and have quite different demand rate. The demand for luxury hotels is higher in large cities and resorts. In many cities customers mostly prefer middle-class hotels; this fact depends on the income differentiation of the region.

Having determined the target market sector, a potential national hotel operator will inevitably face the problems of brand recognition and effective management. In case of sufficient financing and clear understanding of the necessity of professional help these issues should be entrusted to consulting companies. However, if financing is limited, the company will have to deal with these matters on its own, considering them to be of primary importance. For example hotel Otrada, which was declared as a hotel chain, faced numerous obstacles while trying to promote its chain of boutique mini-hotels – there were problems concerning chain development strategy, which was made up without professional support. The effective management problem isn’t new to Ukrainian companies – the change-over from administrative methods of management to market ones was not easy, and it sometimes happens that Quality of Service management has to deal with the chain development as well. This drawback is peculiar not only to management, but to hotel owners as well.

In order to achieve maximum efficiency, the management system of Ukrainian hotel business should be based upon strategic vision and foresight. This vision is to be the basis of the company’s policy, representing common aims and terms of relations which are to ensure the structure’s viability and development. So as to achieve all the aims set, the owners of the hospitality industry companies should first of all understand the necessity of their management ensuring strict organizational structure where all the responsibilities and duties are to be distributed among the staff according to their profession skills. The outsourcing of professionals and companies also proves to be very effective as it stimulates reorganization of key functions and responsibilities of the staff, as well as their due efforts, determines the staff’s accountability and ensures working up chain development strategy.

Issues concerning government relations are still quite complicated for Ukrainian companies. Such issues as hotel registration process, allotment of land for construction, numerous compulsory procedures at the fire prevention and sanitary-and-epidemiologic institutions, the process of obtaining all the necessary approvals and certificates, etc. can be considered the most “tricky” ones. Everything concerning the services standardization is also complicated due to the discrepancies of the Ukrainian and the European standardization systems. These numerous difficulties slow down hotel chains’ activities; however, it is a situation when a Ukrainian hotel chains may use its advantages of knowing the peculiarities of the national legislation.

In conclusion we can say that the creation of a national hotel chains in Ukraine isn’t something unreal. Moreover, some companies are now trying to realize such projects. In the luxury hotels sector Ukrainian chains will face high level of competition not only in prices, but in quality as well, and only correct and professional management can help to triumph over numerous rivals, preserving an individual brand. The appearance of a Ukrainian national hotel chain is most probable in the middle-class hotel sector, as this market niche is not completely satisfied, being at the same time very promising. In such case hotels will probably be situated mostly in regions, being connected by a common conception. In any case, the Ukrainian hotel chains development will indicate the Ukraine’s coming to the world hotel market at a principally new level – if some time ago Ukraine was considered just a number of new capacious markets, the appearance of its national chains today may signify the coming of a new full-fledged market player.