Tourism consumption must correspond to infrastructure investments
What’s happening in the hospitality industry and where is it headed in the future? What are some of the transformations that have changed this line of business? What is it about Moscow’s brand that attracts tourists? These are the questions Capital Ideas Deputy Editor-in-Chief Elena Egorova asked one of the most famous hotel industry professionals in Russia – Konstantin Goriainov. Mr. Goriainov is the Vice President of Interstate Hotels & Resorts in Russia and the CIS. The company is a global leader in hotel, resort, and congress center management in countries all over the world.
Konstantin, a professional translator with a PhD in Economics, started his career in the hotel business with Metropol Intercontinental in 1993. He has an impeccable professional track record, working in management positions for famous international hotel brands such as Marriott, Lotte, Holiday Inn, and Hilton. Mr. Goriainov has also worked in the public sector – he was the deputy head of the Department of National Policy, Interregional Relations and Tourism of the city of Moscow, then deputy head of the Department of Sports and Tourism of the City of Moscow. He is familiar with all aspects of hospitality and is the indisputable authority and expert in the hospitality business.
Konstantin, Interstate Hotels & Resorts is an independent hotel management company. How did it enter the Russian market, what makes it unique, and what are its competitive advantages?
Interstate Hotels & Resorts is a major independent international operator with headquarters in the US. It was founded over 50 years ago. In the early 90s, the company started to enter the European market, including the Russian market. In 2007, we opened our first representative office in Moscow in order to strengthen our positions in the international hospitality industry. Today, we have over 100 hotels operating outside the US market. The headquarters that we report to are located in the UK. The company is managed from there, and I am the VP of operations in Russia and the CIS.
Aside from Russia, I also have hotels that I am in charge of as the VP in Kazakhstan and Belarus, and we’re planning to open a hotel in Tashkent, Uzbekistan. We intend to keep growing too.
The idea behind Interstate Hotels & Resorts is this: the hotel brands that are present on the Russian market exist all over the world, shaping hospitality culture and establishing trends for the next few decades. In terms of management, they are interested in transferring it to third parties and then using them as management companies instead of opting for direct oversight. They operate through franchise expansion and developing brand standards that may be received well by a particular market or markets, depending on where the management is.
Typically, brands like Marriott, Hilton, and Intercontinental have the same standards everywhere. They may be managed by third parties, and in this case Interstate is a major partner of brands like Marriott, Hilton, and Holiday Inn — these brands trust Interstate with hotel management all over the world.
What are the differences between the American and European hotel management systems ?
There are two main schools of hotel management: European and American. The last couple of decades saw them merge in terms of corporate cultures and services that are offered on different markets. The American school has always been geared toward making a profit, while the European school is primarily about established traditions and hospitality. Money is secondary. European companies focus more on taking into account the national and cultural nuances of the countries they operate in. American brands have strict service standards.
The hotel industry is a rapidly developing sector with a lot of potential, and it brings in big profits. Why does it make sense for tourists to come and stay in Moscow’s hotels right now? Which major famous hotel brands compete for guests here?
Moscow is one of the biggest cities in the world, and it continues to grow, which is its advantage in terms of tourist flows. On average, Moscow hotels are at 70% occupancy, and this is a very good number. Moscow hasn’t become as expensive because the currency’s exchange rate has dropped, so coming here and living in Moscow hotels makes financial sense right now.
Hotels that have opened over the past 20 years are conceptually different from hotels from similar brands in the US or Europe. They’re not as good in terms of design. Moscow’s hotel market is very young, which is a big plus, and this means that the quality is better in terms of structural engineering and equipment — the things that we, as guests, call intangible services.
But there are tangible services as well. The guests come to the hotel, they like what’s there, they can touch the furniture, dishes, and bedding. In terms of tangible services, Moscow’s hotel market is at a higher level than what you see in Europe or the US.
What is the Moscow hotel market’s potential for domestic tourism like?
The market is not as diversified when it comes to domestic tourists. Domestic tourists only appeared on the market recently, maybe in the past 5-7 years. Prior to this, 90% of guests at expensive, brand-name hotels were foreigners. They could afford what we call the hard currency price — at least $200-300 per room, which is what they are used to. Russian citizens took a long time to come to the understanding that tourism is not just coming to see your relatives in Moscow, staying with them, and going home after a visit to the Tretyakov Gallery and Gorky Park. For many years, that’s what domestic tourism in Russia looked like.
The standard of living in Russian regions has improved, and people can afford to spend money on staying at a hotel — if not a 5-star hotel, definitely a 3-star hotel is something almost everyone can afford. Plus, the way people obtain information is different now. All hotels, and brand-name hotels in particular, promote themselves online. There is e-commerce now, which has significantly affected the market and the price.
Moscow has enormous potential on the domestic market in terms of attracting guests, because Moscow is the capital, a big city. Almost everybody wants to come here at least once. The city has changed. It has become more interesting and eventful, and there is a lot to see here. So there will be more and more hotels, and Moscow has nothing to worry about for many years in terms of demand.
Moscow Marriott Royal Aurora
Right now, the accommodations and additional services are less of a priority for tourists. People prefer to use the money they’re saving on hotel costs for entertainment. In Russia, almost 80% of tourists opt for this format. These aren’t just students, entrepreneurs, and people on business trips — the list includes foreigners as well. How do luxury hotels, which is the category of hotels your brands belong to, operate under these conditions?
This has always been the case though. Tourism is something that we can give up if the issue is daily living expenses. But the luxury market typically exists without fluctuations — it’s more of a lifestyle. People who live in the luxury world are never so short on money that they can’t pay for a hotel, it’s not an immense sum of money for them.
Luxury brands retain clients through habits: the older people get, the more they’re inclined to follow certain rules that they’ve established over the course of their lives. They’re used to specific furniture, service, treatment, and even to specific carpet and curtain colors. It’s very difficult to change this.
If we’re talking about the 80% who might want to save money on hotels and spend it elsewhere, these are typically younger people under 35.
The luxury segment is primarily made up of people over 35. Very few people would think of staying in luxury hotels before they reach this age. But this eventually has to change, because they want to maintain an image. If a person is wealthy and has a serious business or their own company, they have to fit in with their environment. In terms of social standing, they have to opt for a specific segment of hotel services, because they have to hold meetings and make Instagram posts.
The people who stay in your hotels are mostly foreigners. Which countries do most of the guests come from?
There aren’t that many luxury hotels in Moscow, there are a dozen or so that come to mind. But each brand will have more of their own guests. For example, Kempinski (a German hotel chain) hosts more Germans. But international brands with no ties to specific countries host more Americans, so probably about 50% of all guests are Americans, Germans, and there are a lot fewer Brits.
Tourist flows in Russia have typically included a lot of Germans, French, Italians, and Spaniards in the summer, but now the summer season has seen an increase in groups from Latin America, from Spanish-speaking countries. A lot of Chinese people come to Moscow, but they stay in budget hotels. Chinese people have always accounted for no more than 1% of guests in luxury hotels.
Which hotels does Moscow not have enough of?
Moscow generally has enough hotels, even though booking is a bit tight. Well-managed hotels stay at about 80% occupancy.
You can open a lot of hotels, but they’ll be half-empty, and then there will be complaints that the hotels are empty and investors aren’t happy.
When it comes to hotels like the Marriott Royal Aurora, which is where this interview is taking place, it has been at 90% occupancy for the past few years depending on the sales strategy. And I’m not taking into account the 2018 FIFA World Cup, which was a great success in terms of the event itself, the visitor profile, and the average price per room, which was higher than during the previous summer. But even without any events, we’re still at about 100% occupancy in the summer.
It’s not linked to event tourism?
Not at all. From May to September, hotels that manage their bookings well in terms of educational tourism will always be at 100% occupancy. Groups come in the summer, while in the winter it’s mostly business people.
How do hotels manage if there is a big event in the city?
We always plan an event calendar ahead of time, checking the dates for all events in Moscow. May 2020 will be important — it’s the 75the anniversary of the Great Victory. We know which delegations are coming, so we may turn away regular tourists for this time period, since hotels are about commerce and business.
Moscow is in the top-20 most visited cities in Europe, and tourist flows have nearly doubled over the past eight years. According to the UN World Tourism Organization, Russia will be in the top-10 countries in the world in terms of inbound tourist volumes. What is it about Moscow as a brand that attracts tourists, in your opinion?
Ratings are complicated, and I approach them positively, but with caution. They’re just numbers that can give you an idea about what’s happening in the country and in the city.
But we’re looking at the real picture, and it’s positive. Moscow is becoming more appealing for tourists.
About 7 years ago, when domestic tourism was not as developed, there were a lot fewer hotels, Moscow was empty for the holidays, and hotels were at 15-20% capacity from mid-December to the third week of January. All foreigners would go home for Christmas after December 15, so you might as well let your staff go on vacation. Some hotels closed entire floors for this period, since it made no sense to maintain them.
Things turned around gradually. Moscow’s event calendar is planned in advance. The city authorities work with tourism industry experts to set dates and niches with the lowest and highest demand for services.
There are “Moscow Seasons” street festivals, which are a staple for the city now, like “Journey into Christmas.” Now it doesn’t make sense to go to Europe for the holidays just to immerse yourself in the spirit of Christmas. Moscow is so lavishly decorated and offers such a rich cultural program that it’s better than any European city.
The May holidays used to be another period when hotels were empty. But now, there is the international festival and contest “Moscow Spring A Cappella” at this time. We host not only the participants and organizers, but also a lot of people who come as guests.
Moscow Marriott Grand
So tourists come to Moscow for specific events and festivals?
Moscow is testing festivals for now. If “Journey to Christmas” produced good results, it needs to stay for several years. There needs to be an event brand that people will come to Moscow for, regardless of when it happens.
When we talk about the whole event calendar for Moscow, then, as industry professionals, we very much hope that these won’t just be seasonal events, but recurring and annual ones. The city will have to work several decades to achieve this. I would like to see people travel en masse to specific events, like they go to the Carnival of Brazil or Oktoberfest in Germany.
So what’s stopping a major inbound tourist flow increase in Moscow?
Getting a visa. As soon as it becomes easier to get a visa, even in electronic form, we’ll see tourist volumes go up right away.
It’s important to point out that the capital has always fought for the Arab market. Moscow is an expensive city, in the good sense of the word. For people in the luxury segment, it’s convenient, safe, has a lot of attractions and shopping, even tax-free. But Arabs who had a lot of money and are interested in comfort and quality over price just would not come here.
This year, when we lifted the visa restrictions with the UAE, there was a wave of tourists from the Emirates. We were pleasantly surprised by the demand in July-August, when Arabs usually leave their countries during the heatwave. For the first time, they came to Moscow. We didn’t need any of the marketing campaigns that we’ve used for the past 20 years in order to attract them to Moscow.
Tourists from Central Europe don’t come often. These are people who travel a lot as part of their lifestyle. We’re talking about middle class or higher. The visa restrictions is the only thing that holds them back. Everybody wants to come to Moscow, everybody knows that it’s an interesting city.
What is Moscow’s tourism industry lacking?
There are some downsides. We still haven’t resolved parking issues for tourist buses. When I worked for the Moscow government, I worked on this problem personally. The Federal law “On the fundamentals of tourism operations in the Russian Federation” doesn’t have a clear definition of what a tourist bus is.
There are separate lanes for public transport, but tourist buses can’t use them, and it’s not Moscow’s fault. In order to classify a bus as public transportation, they need to obtain this status. At the federal level, we can’t take a specific definition of a tourist bus in order to classify it as Moscow’s public transportation and let it drive in a separate lane.
Moscow also doesn’t have special parking for tourist buses. There pick-up and drop-off issue is more or less set. They need to find a spot, preferably somewhere you don’t have to spend 3 hours in traffic to travel to, in the center of the city. While the double-parked buses violate traffic regulations, the drivers put tape over the plate numbers to avoid getting fined.
Moscow’s inbound tourism volumes have increased by 84% since 2010. The Moscow government is stimulating investment into hotels, taking into account potential growth in tourist volumes. Do you think the city is ready for even more tourists?
There are countries and cities who say we’ve had enough tourists, the locals are uncomfortable. Venice is a good example, it’s suffocating from tourist flows.
Moscow doesn’t have goals like this. Over 20 million tourists come to Moscow, and that’s a lot already. But London hosts 50 million. We want to catch up and outdo them, in the positive sense, and this is the right idea. Moscow wants to be first in everything.
But the key isn’t quantity, it’s quality. How do you direct these tourist flows? I’m not talking about strategies and goals. The issue is different — you need to assess the existing infrastructure, how many tourists Moscow can actually host in terms of things like road capacity and hotels. If we’re already averaging 80% occupancy with what we have, we need to keep building hotels. But the city doesn’t have the money to build hotels, while investors can plan to build something today and run out of money tomorrow. Hotels are commercial enterprises, and we have to understand this clearly.
Experts have estimated that, in 2021, after e-visa services are introduced, inbound tourist flows in Moscow will increase by 40%. This is a lot! There will be millions of people coming!
Tourism industry professionals have repeatedly brought up the issue that Moscow is an unusual, expensive destination. It’s a city that should focus not on the quantity, but the quality of tourism consumption. If we’re talking about Chinese tourists, who come to Moscow in large numbers, they actively use the infrastructure but don’t spend a lot. A German will spend as much as 10 Chinese tourists.
The city is spending a lot of money on creating services, and there need to be returns. If we target tourists who buy a pin, some ice cream, a fridge magnet, and a metro ticket, we likely won’t be able to support the entire economy with tourist flows.
This is why tourism consumption needs to correspond to the infrastructure investments and be based on the average check of a specific tourist.
Moscow Marriott Tverskaya
Could you talk about trends in the hotel business? Which transformations are changing the market? Is there digital communication with the guests?
If we consider the industry as a whole, everybody is online now, and this is a definite trend — internet booking systems, pre-ordering services, paying online. In the next 3-5-10 years, all hotels, starting with the top brands, will be completely online. Even in the room, the guest won’t have to communicate with staff over the phone.
There are already ways hotels communicate with guests digitally — there are software applications that can manage the guest cycle and services. It costs a lot of money and depends on how things change with the investments that have already been made. Brands are pretty strict about this, but approach it with the understanding that depreciation and the introduction of specific services have deadlines.
Express check-in: you can check in as a guest ahead of time, arrive, and go straight to your room, bypassing reception. All of this is the near future, and you won’t even get plastic keys for rooms anymore.
What should hotel staff be like?
Staffing is a big problem in the hospitality industry. Our line of work is tough and you need to work with the guests, but people are different, in different moods and from different cultures. The staff needs to be hospitable and stress-resilient. Even the maids and engineers who walk down the hallways and run into guests need to know how to greet them correctly and smile, maintaining an air of hospitality instead of turning away.
Is this what keeps guests coming back?
One hundred percent. American restaurateur Danny Meyer, who founded Shake Shack, developed a formula for communicating with staff that keeps them engaged and lets him implement the solutions his company needs. He talked about it in his book “Setting the Table: The Transforming Power of Hospitality in Business.”
I once went to a conference that brought together GMs of hotels and interesting people who talked about how they built their careers. Danny Meyer talked to professionals about how a business should be run.
You can never do everything perfectly. It’s something you can aspire to, but it’s almost impossible — there will always be a hole in a tablecloth or a dirty spoon somewhere. If the guard or hostess doesn’t greet the guest correctly, doesn’t smile the right way in spite of doing everything else perfectly, the guest will never return to this place.
70% is the people, they’re why we come to the same restaurant or hotel — it’s an imitation of a home, a more intimate place where you can undress and shower, not just meet someone for a drink. You need to be addressed by name, and if you’ve come for a second or third time, the hotel will know about your preferences and habits and will try to accommodate you.
Are there differences in working with guests from different countries?
When you serve foreign tourists in your hotel, you have to take into account the preferences, traditions, habits, and lifestyles of guests from other countries. For example, some people won’t stay on the 4th floor. And heaven forbid you house a Japanese director a floor below his subordinate — he doesn’t care that he has a luxury room on the 5th floor, he cares that his employee is on the 6th.
We always check which country the guests are coming from. We focus on client interaction, and quickly ask 2-3 questions to get a read on what kind of person they are. Sometimes people want to chat. This is why we have a Guest Relation specialist, who works with the guests like a psychologist and can listen to them all day.
How do you like working with expats, and what are the nuances of Western management styles?
There are people from different countries working with us — it’s a big international company with headquarters in the UK. The British are in charge of managing the company on the European market.
Transnational corporations have their own work culture, and differences between people of different nationalities aren’t taken into account, they’re blurred. There is a universal corporate culture for a brand, which develops over the years and all employees have to adhere to.
Working in an international corporation with specific sets of rules is easier. You don’t have to think about anything — you know which shoes and tie to wear and how you need to behave.
Holiday Inn Moscow Lesnaya
Your hobby is taking walks in Moscow. Which routes would you recommend to guests in the capital, especially foreign guests?
I really like going for walks. Since I was born in Moscow and spent my whole life living in the center, on Ostozhenka, I like the routes that I associate with my childhood. This is Old Moscow, the part of the metro from Park Kultury to Smolenskaya, down the Garden Ring to Biblioteka Imeni Lenina. I like Old Arbat and the adjacent streets. I walk to Gorky Park often, and take a long 10km route to Luzhniki.
I really like Luzhniki, it has a unique atmosphere. For me, it’s the sports park of my childhood. It should be interesting for tourists as well.
I also like walking along Komsomolsky Prospekt. This part of Moscow is very dear to me.
Recently, VDNKh has gone through a lot of changes — it’s not just a park with pavilions, it’s a historical location that has been sensibly updated.
I think Zaryadye Park is unique for tourists. I come there to see who has come to visit Moscow and where they came from.
Is Moscow comfortable for foreign tourists?
Moscow has become a new city in the past eight years. Tourists are always worried about safety first. If you look at the ratings, Moscow is one of the safest destinations in all respects. We don’t have neighborhoods where you can’t be out in the street past 9.00 pm, the city is clean and well-lit, there is law enforcement everywhere. This isn’t comparable to what we see in Europe.
Moscow is very comfortable for tourists: we have a developed infrastructure, quality services, an extensive public transportation network, security. Hotels are at high capacity, which means that guests are coming. And let them come for different reasons — business, educational tours — we’re ready to welcome all of them.
When the visa process is simplified at the federal level, Moscow will have more new tourists. But even right now, Moscow is better than many European cities in all respects. Moscow is the best city in the world.
Note from Capital Ideas:
In 2021, foreigners will be able to obtain e-visas to visit all regions in Russia. The list of countries where citizens will be able to get visas online will be approved by the Russian government after it’s prepared by the Ministry of Foreign Affairs. It will include EU countries, China, Japan, South Korea, as well as Schengen area countries that aren’t part of the EU. New Zealand will likely be on the list as well. Canada, the US, and the UK will most likely not be on the list.