Motels are as one of modern America’s symbols along with the Statue of Freedom, skyscrapers and fast food. The average American drives his or her car across the country, often staying at small roadside inns. The country has thousand of motels. It would appear that this format has fair prospects in Russia given the extension of motorways, the dearth of inexpensive hotels, the buildup of traffic flows and tourism development. Yet the number of motels is rather modest. Why?

Experts differ in their quantitative estimations of motels in Russia but most likely their number does not exceed 1,000,” says Elena Naimanova, executive director of Motel-Service Ltd. As reported by the Statistics Committee, 48% of motels is concentrated in the Central region, 24% – in the South, 12% – in Siberia and 12% in the Northwest in addition to 4% scattered over other regions.

It will be rather difficult to find any information on motels if you set out for an automobile trip, says, from Moscow to Voronezh. What exactly can be regarded as a motel: the so-called “roadside service” where wagon drivers may lodge overnight, or a tourist-hospitality complex lying close to a highway? While in America “motel” means a motor hotel, in Russia “the motel is a roadside hotel”, a rather obscure definition. Russian motels are accommodation facilities with stark different service levels, which can certainly exasperate potential clients.

“Judging by American cinematograph, the motel is a single-story block of rooms with a separate entrance to every unit and a separate parking lot in front. It should be noted that the Holiday Inn chain was originally created as a chain of motels and set the standards for mote service,” says Ms. Naimanova. “The main distinction of Russian motels is that this business is in the making and so the service quality in most of them leaves much to be desired”. The following services are compulsory of motels in the view of Ms. Naimanova: hotel, eatery, protected parking and extra entertainments (sauna, billiards etc.).

As informed by Motel-Service Ltd, Russia has not yet developed a special star classification for motels. But because WTO has both Motels and Roadside inns in its classification, it would be advisable to bring our legislative base in line with WTO standards.

Who Builds Motels

Holiday Inn, Motel 6, Ramada and Days Inn chains have long become established brands in America. The well-known chains in Europe include Formule 1, Etap, Nuit d’Hotel and Premiere Classe. These chains owe their success to three factors: moderate prices, strict service standards and fortunate location. Not a single of these chains is represented in Russia. As noted by Vadim Prasov, vice-president of Russia’s Victuelers and Hoteliers Association, motels are built by those companies, whose business is directly related to motorways. “Motels are often part of the infrastructure around filling stations and the whole business is rather criminal,” comments Prasov.

Obtaining roadside plots requires a long procedure of project coordination with local and regional administration. If all rules are observed, construction will be extended over an indefinite period. Therefore a considerable part of the roadside structure is half-legal.

The experts believe that the given format is in demand on the market both in one-star and three-star categories. The three-star format with average construction costs of $80,000-$100,000 per room is in highest demand on the market, according to Naimanova. The recoupment takes from 5 to 8 years while construction works usually last one year depending on the project level.

One of the most ambitious plans is cherished by Douglas Consulting managing the chain of filling complexes EPetrol. The company plans to build 15 hotels along the largest motorways in Russia’s central regions including the Moscow, Leningrad, Tver, Pskov, Novgorod and Nizhny Novgorod regions. The first roadside complex Douglas Hotel ascribed 4 stars by its creators was opened in June 2005 at the 85th km of Kiev Motorway. Now construction is under way on two more motels.

Also widely known are the plans of the Moscow government to create a chain of 10 motels on the inner side of MKAD geared towards automobile tourists. They will presumably be constructed from the structures of the dismantled Rossiya Hotel. AS noted by the participants of the hospitality market, this idea was borrowed from American practice, where many motels are built from the cheapest secondhand materials.

Titul, already holding several motels under the Eurasia brand plans to build several motels around Rostov-on-Don. The company’s briefer said those inns would correspond to the three-star level. The motels near Rostov will be needed for those who stay overnight before the finishing spurt to the Black Sea coast.

As noted by some experts of the tourist market, the number of tourists getting to a holiday place on their own reaches 80%. Therefore large tourist operators may also be interested to develop their own motel chains. Thus Vladinvesttour announced the plan to develop the Stop In chain to comprise 24 motels of the combined three and two-star format.

Market Problems

The market experts point to the erosion of solvent demand as the key problem. There is no detailed marketing research or the examples of successfully operated motels in Russia. Many companies are interested to invest in this market segment with slack competition but few have the guts. The most well-known motels near Moscow are Douglas, Baltia, Jungle and Otdokhni. Douglas and Baltia are geared towards well-to-do clients. Motals of this class will hardly strike root at a long distance from the capital. The Russian road is associated with criminal elements and insecurity.

“While in America people drive their cars when on business itineraries, in this country people prefer trains or planes because of bad roads. The roads of Russia are insecure for drivers and weather conditions do not predispose to long motor travels. It shouldn’t be forgotten that Russia is a cold country where safe driving is possible only from May to September,” believes Marina Usenko, senior vice president at Jones Lang LaSalle. Her opinion is shared by Elena Naimanova. “The main hurdles for motel development are the underdeveloped road network, safety, security and infrastructural problems and the lack of chain motel projects as well as the desire of present-day investors to make short and easy money. Only when the return on investments in office and retail properties goes down true interest in hotel and motel construction will be exposed.

In the words of Mr. Prasov, the main factor is low demand for roadside inns because of their specificity. The motel is a temporary lodging hired overnight and geared towards motor tourists and drivers of wagons and trucks. “In order to plan the yield of a future motel, the investor must be confident in the sufficient numbers of potential clients,” sates Prasov.

It is for this reason that a number of motels in close proximity to Moscow are gradually re-profiled into regular hotels. “Originally they were positioned as overnight lodgings. But why stay 100 km from the capital if it is better to reach out for Moscow? On the other hand, former motels can be popular as family holiday properties,” points out Ms. Usenko.

Wagon drivers remain the main potential clients of Russian motels. But most of them are positioned as three-star accommodations, whereas truck drivers cannot pay the daily charge of $100. Most of them prefer to lodge in their cabs,” explains Prasov. Bus tourists may also occasionally stay at motels but most of them are so organized that they move from one city to another during a day and lodge at local hotels.

Format Outlook

Experts differ in their vision of the future of Russian motels. In the opinion of Ms. Usenko, for the time being the yield of hospitality sector on the whole is not impressive, to say nothing about motels. Therefore motel projects shoot ahead of time and will hardly be in demand in the foreseeable future. To improve transport infrastructure and increase the attractiveness of motor tourism, huge outlay and much time will be needed.

Mr. Prasov opines that the market might be interested in inexpensive motels where the daily charge does not exceed $50. But the Russian motel market is in the bud. On the other hand, in USA and Europe they first developed cheap motels with a limited range of services: protected parking, eateries and communications. And only later, as competition toughened properties geared towards more demanding and affluent clients sprang up. According to Elena Naimanova, motels will be in demand because of the vast Russian expanses and long extension of motorways. Furthermore driving by cars is often cheaper and more comfortable than traveling by other types of transport.

It can be surmised that the motel format will rapidly develop given the plans of the Russian government to modernize the motorways and introduce fare for using good-quality roads. Traveling by all types of transport will become more expensive while the number of car owners will further rise. All those factors will precipitate the development of roadside inns. This business might be of interest to different market players including paid roads operators or oil companies running their chains of filling stations along the national routes.