Hotels in Russia have plenty of room for improvement

Finding hotel rooms like this one is not always easy in Russia

There was no wi-fi connection in my hotel room in the Russian city of Rostov on Don, so I had wandered down the corridors, laptop held out in front of me, looking for a signal.

Eventually I struck luck - near the lifts. There was even a cosy sofa to sit down while working.

Little did I know that after around 10pm the lounge area turned into a waiting room for the local prostitutes - and their customers.

And while some hotel guests might find this a rather convenient arrangement, as a female business traveller, I was decidedly underwhelmed.

Especially when one Russian-speaking guest offered me a job.

No reason to improve?

Over the past year, the Russia Business Report team has criss-crossed the Russian regions, staying in regular business hotels and learning a few lessons about the industry on the way.

Doormen watching motionless as you manoeuvre heavy boxes of television equipment past them (Rostov, again). Unreliable or non-existent internet connections (Volgograd, St Petersburg). Paying extra for your filter coffee for breakfast (Nizhny Novgorod).

And then the unforgettable moment when we came back to our hotel after a long day of filming in Novosibirsk only to find that we had been locked out of our rooms.

We were told by a stern-looking receptionist that we would only be allowed back in if we immediately paid for the two nights that we had already stayed and the next three.

Handing over our credit cards at check-in clearly did not make us credible enough to get away with settling our bill at the end of our stay, as you would in most other countries.

The trouble is, there is a chronic shortage of hotel rooms in Russia, especially in the regions, and so hotels can get away with patchy service and high prices.

"When there are no hotels there is no competition, that is why currently the price-quality ratio is not fair to customers," says Eduard Fiaksel, a property developer in Nizhny Novgorod.

"The lack of competition means that existing hotels get booked up anyway and are doing OK the way they are - they don't need to improve."

Recession blow

A big investment drive in the hotel industry came to an abrupt halt when the financial crisis hit two years ago.

The combination of growing demand and high profit margins had led domestic and foreign developers and hotel operators to announce a flurry of projects - many of which were shelved when financing costs soared and bookings dropped dramatically.

Nizhny Novgorod, one of Russia's biggest cities, about 400km east of Moscow, is a case in point.

Earlier this year, we visited the OKA hotel there which had just opened its new wing with 140 rooms in the four star category.

At a cost of $40m, the owners also installed a new gym and gave the existing 1970s building a makeover.

Then the recession hit.

"We were facing a dilemma - should we continue the building process or freeze it," says Sergey Krivenkov, the OKA Hotel's chief executive.

"But we decided to take the risk."

The extension of the OKA is the first major hotel development in years in Nizhny Novgorod, a major centre of industry and commerce.

There are about 80 hotels in the city - by no means enough for a town of this size.

The regional tourism minister accepts that there is a problem.

"Our investment council adopted 12 hotel projects - but of those only two are under way," says Vladimir Seleznev.

"The problem with the others is that investors have frozen or stopped them altogether because of the crisis."

He says the administration now offers developers a zero property tax and other financial help to get them building again.

International brands

There are signs that some investors are ready to dip their toes in the water again.

In downtown Nizhny Novgorod a local developer is planning to build a four-star business hotel, part of a huge complex of shops and offices.

The hope is that it will attract one of the global players in the business, who are looking to expand into the Russian regions.

"Investors recognise that there is a big demand for hotel development in the regions," says Mr Fiaksel, the man behind that project.

"What's missing in Russia in a system of training staff for hotels and restaurants, and that's why it's necessary to attract big international brands that would manage these hotels."

The big players are most interested in the millioniki - regional centres of commerce and industry, most of which lie in the European part of Russia.

"We focus on primary markets of one million people and more," says Kirk Kinsell, president for Europe, Middle East and Africa at IHG, the world's biggest hotel company.

"We don't chase the sub-million cities. You need a demand generator, like a big foreign-owned company that attracts a lot of business travellers."

'Cyclical business'

IHG, whose brands include Intercontinental, Holiday Inn and Crowne Plaza, currently operates nine hotels in Russia and has another 11 in the pipeline, including Ekaterinburg and Nizhny Novgorod.

Mr Kinsell says it is important to work closely with the local developers.

"We're cautious when we go into a market place and check out the motivations of the owner," he says.

"Many only want temporary ownership, and we work with them to find a buyer who wants to be in the hotel market long-term."

He says they also have to make sure their partners understand the nature of the business.

"We tell them they have to be prepared that rates fluctuate - it's a cyclical business, they can't expect top rates all the time."

That is a lesson that many in the hotel industry had to learn during the past two years - the hard way.

Travellers will hope that they eventually also learn another: the customer is always king.