Potential abounds for Sochi’s tourism industry
04 FEBRUARY 2014 7:17 AM
Preparations for the Winter Olympics in Sochi, Russia, included creating from scratch a hotel industry of global standards.
When was the last time the Winter Olympics were held in a beach resort destination with subtropical climate? It seems like a contradiction. However, other than the existence of an established beach destination, climate and the mountains, enormous efforts have been required to make an Olympic event possible in Sochi, Russia. Not least of all, it required updating an antiquated tourism and transport infrastructure, completing mountain installations and creating from scratch a hotel industry of global standards.
What has changed in the hotel scene in Sochi over the last three years, and what is ahead of it? Probably more changes than over the last 50 years combined.
Save for Moscow, Sochi today has by far the largest concentration of new hotel rooms and global hotel brand presence anywhere in Russia, according to research compiled by Horwath HTL. Sochi is the only city in Russia where you can walk to thousands of new hotel rooms and apartments within 20 minutes from one another.
According to Horwath HTL, more than 9,000 hotel rooms will have opened by the start of the Olympics or shortly after under either global or regional brands. This represents a combination of franchised, corporately operated or third-party managed hotels. This addition of 30 hotels is mind boggling when compared to the single internationally branded property existing prior to the influx of the new hotels opening over the last 24 months, but typically over the last two to four weeks.
The brands include Azimut Hotels and Heliopark, representing locally established chains; Golden Tulip; Park Inn by Radisson; Radisson Blu; Mercure; Swissotel; Marriott; Capella Hotel Group’s Solis; Tulip Inn; Hyatt Regency; Pullman; Rixos; and eventually Courtyard by Marriott, JW Marriott and Extreme (the first ever sports hotel under the known media brand in a ski destination opening post-Olympics).
A number of the properties are operated by Interstate Hotels & Resorts under franchise agreements or without brands. The diversity is compelling, yet representing a cross section of opportunistic branding selections and solutions for a variety of reasons.
Sochi is a destination with two peak travel seasons: summer and winter. Any resort destination envies such potential anywhere.
What is widely referred to as Sochi consists of three distinct communities. Sochi, the established seaside city with its own concert hall, theatre, parks, cultural attractions, cruise ship terminal, marina and port facilities, is Russia’s best-known summer beach and health resort destination.
The coastal zone of Adler and Imeretinskaya Lowland is the transportation hub and the newly built sports and entertainment center of the destination. With the exception of the airport, the entire infrastructure was built here during the last five years, including fast-train connections to Sochi and the mountains; sports facilities such as the Olympic stadium, ice hockey and figure skating arenas; new holiday villages; globally branded hotels; apartments; and shopping and entertainment districts, featuring Russia’s first theme park.
Finally, the mountain cluster 40 kilometers (24.6 miles) from the beaches with ski lifts, mountain installations, and a host of newly built globally branded hotels ranging from mid-market to luxury positioning comprises the third community.
Few mountain resorts can boast a global airport with fast-train or highway connection within a 30-minute reach of the ski lifts, the beaches and rich cultural traditions. This Black Sea coast resort is also home to diverse southern cuisines, locally grown fruits and vegetables, and a mix of cultures dating back to more than 1,000 years. While all of these attributes further reinforce the enormous potential for tourism, the focus to date has been solely on the completion of the Olympics-related infrastructure and facilities.
It is imperative to point out, however, that the collection of world-class sports facilities, modern infrastructure, brand new hotels, mountain and conference resorts, and skiing facilities is simply not enough for success. The challenges to make it a success are as enormous as the potential.
The potential abounds
Russia, the CIS countries and the former republics boast a massive and emerging market size of 280 million people, the majority of which only speak Russian. The comfort in traveling within a Russian-speaking environment is an advantage in this region for a long time to come. With minimal exceptions, this same market has no alternative in Russia, certainly not of this scale, capacity and modernity when it comes to beaches, skiing, mountain activities and now world-class sports facilities with established and further developing air accessibility. Enormous potential exists. This potential needs to be developed and coordinated to be exploited.
The mountain developments for the Olympics were in private ownership so planning and development started soon after winning the hosting rights for the games. However, the coastal cluster has waited for years to “find” takers. To incentivize investors, the state has built the infrastructure and provided the land for development. The hotels and apartments, part of which built as vacation real estate for sale, are adjacent to the sports facilities, the country’s only western-style theme park, and, post-Olympics, the largest shopping center of the destination, a convention center and the brand new Formula 1 circuit that will host the first F1 event in Russia during October.
The owners of the public facilities are the federal and regional governments. The majority of hotels, attractions and real estate developments are in the ownership of the country’s largest interest groups. Given the ownership structure, the likelihood of finding the solution for creating the necessary platform to influence the required decision making is very strong. Thus, the ability is only a matter of will to bring about the necessary conditions for Sochi as a destination to succeed after the games.
Sochi’s winning gold is that it’s practically handing over brand new infrastructure, and hotel capacities for a tourism destination is a massive impetus for generating supply-driven demand. The hotels alone, however, are lost without the support of a city tourism organization, convention bureau, destination management companies, travel intermediaries and airlines.
Sochi’s airport is privately owned. It has the capacity to handle twice as much volume as it does today. Airlift is a key to success for Sochi, and it would seem reasonable to assume that economics will prevail in creating the conditions that will generate the necessary passenger volume to earn more fees as opposed to being an obstacle to growth.
What are the requirements for Sochi to succeed?
- Safety is taken for granted.
- Sochi is not “left behind” with the Olympic Games over, and the federal and regional governments are committed to the conversion of main Olympic facilities for the long-term benefits of the destination, which is completed to the level of landscaping commensurate with any resort of this calibre.
- The airlines and the airport will foster tourism development by helping to make Sochi an easy-to-reach destination year round by domestic and regional scheduled and charter flights.
- The Sochi brand is properly built up and promoted aggressively on the success of the Olympics.
- An organization is established with full responsibility for the development and promotion of tourism as an independent professional body, staffed by experienced professionals with global destination marketing and tourism management background.
- The convention market already knows Sochi. With the new facilities and the country’s largest concentration of brand new hotel rooms and accommodation facilities, the unique year-round climate will reinforce its attraction as a venue for large national and international events.
- Due to the available facilities gaming has a significant potential subject to its authorization by the government to further enhance year-round visitation and attract global markets even in the event that the existing strict visa regime remains in place.
Winning gold in the case of Sochi is not an achievement, but the obligation to take on the responsibility of continuing to build on this new foundation. The hotel sector is there to lend a hand, but to fill rooms year round requires a lot more than what exists in the forms of bricks and mortar in Sochi today.
The tourism industry backed by vision, leadership, professional drive and common sense has the ability to make a difference. Sochi could even be referenced as a sample of tourist destination development inspired by the hosting of global sporting events. If achieved, the successful redevelopment would not only reflect positively on the regional economy but also become the source of pride and positive energy—large doses of which are required daily in today’s Russia.
Marius has built his hospitality industry management and consulting experience in Canada with leading hospitality companies. He has been involved in more than 400 projects, including a wide range of project feasibility assessments for hotels, resorts, serviced apartments, youth hostels, golf courses, convention centers, spas and vacation ownership. Marius specializes in due diligence, acquisition and disposition strategies, valuations of single assets and portfolios. Marius has been instrumental in completing many “firsts” in Central and Eastern Europe and Russia when it comes to branding, guaranteed management contracts, franchise deals and lease agreements. Recently, in addition to being one of the principal shareholders and managing director of Horwath HTL Hungary and Horwath HTL Russia, Marius has included the brokerage of hotel real estate and related corporate finance activities through HTL Capital Advisors, a new global venture of principals of Horwath HTL.
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