REGIONAL REPORT:2000
SOCHI – THE CAPITAL OF RUSSIAN HEALTH RESORTS
by Ekaterina Solovova

TABLE OF CONTENTS
Summary
General Information
Economic Performance
Leading Industry Sectors
Consumer Market
Infrastructure
Travel Information
Contacts

SUMMARY

Sochi has been one of the most favored resort communities in Russia for nearly two centuries. Located approximately 1,500 miles due south of Moscow,

Sochi was founded in the 19th century. It developed as a resort city and has a fascinating history. During the Caucasian war (1817-1864) the seaside of the Black Sea was a place of battles between Russians and Turks. After the wars, coastal fortifications remained. At the end of the 19th century, hostilities ceased and a civilian population started to grow. Consequently, in 1896, the Russian government founded a town named Sochi on the seacoast. The favorable climate, beautiful landscape, and medicinal natural resources of Sochi attracted the Russian elite, who built villas and residences there. By 1913, the world renowned mineral clinic, Matsesta, served about 6 thousand people per year. In 1930 the Soviet government invested an enormous amount of money in the development of resort facilities in Sochi. As a result, numerous sanatoriums, parks and hotels arose in the city in a very short time. Soviet leaders, including Stalin, spent their vacations in there. The region became a health resort Mecca of the Soviet Union.

In the past decade, foreign countries have become open for Russians to visit as tourists, and Sochi lost popularity. However, the crisis in 1998, with its severe devaluation of the ruble, caused Russians to look again to the region as a vacation spot. During the summer season in 1999, Sochi received a reported 1.5 million visitors, which is several times more than in 1998 and about 4 times the population of the city. Tourism remains the leading industry of the city and provides growth for other supporting sectors – health care, food processing and restaurants, hotel service and construction. The existing supply of high-quality services does not satisfy the great demand for restaurants, hotels and leisure attractions of international standards. In spite of federal government financial support, the city’s infrastructure still needs significant investments and development. Many former Soviet hotels and sanatoriums with prime locations are neglected, in need of investment, management assistance, and renovation. Most investment opportunities are in the leisure/hospitality sector.

This report describes the main features of the city of Sochi, its infrastructure and economic development, and highlights business opportunities for U.S. firms.

GENERAL INFORMATION

The population of Sochi is over 390 thousand. The city belongs to Krasnodarsky Krai – one of the southern regions in Russia. Modern Sochi stretches along the Black Sea for 145 km. It is the longest city not only in Russia, but also on the whole continent. It is situated on the same latitude as the Gobi Desert and the City of Toronto (Canada). Sochi has a unique climate for Russia – the nearby Mediterranean and Black Sea make it relatively warm. The average temperature during the warm period (from April till November) is +18°C (65º F) and the hottest months are July and August. The average temperature during the winter period is quite high – about +7°C (40º F). More than 90 percent of Sochi territory are occupied by the mountains and foothills of the Western Caucasus. The area of the city belongs to a state national natural park and partly to the Caucasian State Biosphere Reserve.

ECONOMIC PERFORMANCE

Tourism and other complimentary services produce the major input to the city’s income. More visitors come to the city during the summer, thus providing more revenue to the local population and small and medium companies. Other industries, such as construction and food processing, also depend on this factor, although not so directly.

In 1998, GDP for Sochi was reported at $228.6 million (average exchange rate $1=13 rubles), 10 percent less than in 1997. The statistics for 1999 are not available yet, but according to officials, GDP in 1999 increased by approximately 30 percent since the previous year. This was possible due to the financial crisis. The ruble devaluation made foreign resorts unaffordable for the majority of Russian tourists and many spent their vacations in Sochi. The number of visitors registered at the hotels and sanatoriums in 1999 reached 1.5 million, excluding those tourists who prefer to rent private residences. In comparison, the number of visitors registered in 1998 was 569.4 thousand people. Imported products, especially foodstuffs, also became too expensive for the population and allowed local production to achieve greater market share.

The federal government considers the city of national importance and takes special efforts aimed at the development of Sochi, its infrastructure and industries. A new bill on financial support to the city-resort Sochi passed through the State Duma. According to this bill, all taxes which Sochi transfers to the Federal budget will be retained in the municipal budget. This bill will be active until 2003.

LEADING INDUSTRY SECTORS

The leading sectors of the Sochi economy are:

· Tourism

· Food processing

· Healthcare

· Construction

Tourism

Tourism is probably the most promising and developed sector in Sochi. The Soviet Government actively financed this sector, but the budget subsidy inflows decreased in the early 90’s during “perestroika”. However, the potential profits hidden in this unique city attract investors both foreign and Russian. Sochi is a lovely place for summer and winter vacations; there are 145 km of beaches, numerous hotels and sanatoriums, aqua parks, and a downhill ski lodge.

Hotel service

There are about 200 hotels and sanatoriums in Sochi. The quality of services ranges between very “soviet” and four-star international standards, such as the Radisson SAS Lasurnaya and Dagomys. Both hotels belong to the Russian gas monopoly AO Gasprom. Radisson was constructed by Turkish contractors and is managed by the U.S. operator Radisson. Another four-star Lasurnaya Peak Hotel is located 75 km away from the city center, in the downhill ski resort called Krasnaya Polyana.

Besides the above-mentioned top quality accommodations, there are lots of other hotels with prime locations and architecture. They can be split in two groups:

1. Several former Soviet sanatoriums are located in centuries-old villas. These beautiful buildings were constructed by the Russian elite and seized by the Bolsheviks for community property. Parks and fountains with sculptures surround every villa and make them extremely attractive for visitors. The most striking examples of such sanatoriums are Ordzhonikidze, Rus’, Sochi and Stalin’s villa. All these sanatoriums need renovations and interior modernization as well as improved hospitality management.

2. Many sanatoriums and hotels were built in the second half of the 20th century. The architectural style of these sanatoriums is modern and similar to one another. During the Soviet era, they belonged to different large Soviet organizations and institutions, e.g. newspapers and factories, which used to send their employees to Sochi for vacations. Now all sanatoriums are privatized and reorganized into joint stock companies. Many of them are partly renovated and receive visitors throughout the year. For example, hotel Zhemchuzhina (Pearl) is gradually renovating its rooms to international standards. The full capacity of this hotel is 982 rooms of which 44 are first class. There are 6 restaurants, 14 bars, a casino and a beach on the hotel’s territory. The management of Zhemchuzhina is looking for an investor for the further development and preparation for international certification as a 4-star hotel.

Business tourism

Sochi can be described without exaggeration as a center of Russian business tourism. Many international symposiums, conferences, exhibitions and shows are held here. Different business events in spring and autumn are a great source of income for local large hotels, which have the necessary capacity and resources. The Radisson hotel received 50 business groups in 1999, among which were such world known companies as Microsoft, Mars, Wrigley, Kodak and L’Oreal. Another appropriate accommodations for business events are Dagomys, Rus’, and Kuban. The Russian annual cinema festival “Kentavr” is held in June in the Zhemchuzhina hotel. This hotel also hosts different trade shows, such as the annual international beer fair in May.

Winter tourism

The skiing season in Sochi usually lasts from November till late May. Krasnaya Polyana near Sochi is a very popular place among mountain-skiers. The popularity of this place was proven by the fact that all rooms in the Peak Lasurnaya Hotel were reserved for this New Year’s vacation by the end of November 1999. The ski lodge was founded in Krasnaya Polyana not long ago by the local firm Alpika Service. This firm constructed ski tracks and provides all services related to this sport: equipment rental, instructors and a ski-lift. Alpika Service intends to develop Krasnaya Polyana into the high quality tourist complex with summer and winter attractions, hunting, fishing, mountain climbing, etc. Alpika Service invites investor/partners to participate in this project.

Water amusement & sports

Almost every hotel and sanatorium has a beach in Sochi. The demand for modern services and amusements creates vast opportunities for local and foreign firms. Currently there are only two small aqua parks in Sochi: on the Mayak beach and in the tourist center Sputnik. The latter is open year-round. Another profitable business on Sochi’s seacoast is the sale or rental of various types of water attractions and equipment: yachts, windsurfing and diving equipment, etc.

Sochi is good not only for recreation but also for sports training. Numerous sport competitions and championships take place here every year. Russian auto and yacht races, tennis, volleyball and chess tournaments attract thousands of sportsmen and fans to the city. Sochi was a candidate for hosting the Winter Olympic Games in 2002.

Food processing

The food processing industry constitutes more than 70 percent of Sochi’s total industrial output. Its warm climate and rich natural resources create favorable conditions for industrial development. The main products produced in the city are: bakery goods, confections, milk products, beverages, tea, fish and canned goods. Among numerous small and large food processing enterprises in Sochi, the following are the most known and successful:

· Sochimoloko (milk products)

· Sochi meat-packing plant

· Alfa (mineral water & nonalcoholic beverages factory)

· Trout farm (production and export of fish products)

Medical treatment

The unique subtropical climate, pure mountain air, and seashore provide excellent conditions for medical treatment and recreation/amusement. Besides the climate itself, there are hydrogen sulfide thermal springs, curative mud, and different kinds of mineral water springs. The rich natural resource base stimulates medical research and development: the sector produces 27 percent of Sochi’s GDP. Many special clinics and preventive medical establishments were founded in Sochi during the Soviet era and continues to the present day. Russian and foreign scientists conduct research in Sochi and develop various directions of modern medicine. Almost all types of diseases are treated in Sochi clinics and sanatoriums.

The health care system in Russia fell into decay and is underfinanced; however, a demand for high quality medical treatment from the financially able population encourages private clinics to develop and expand their activities, and Sochi is a good place for that. Examples of new private establishments in Sochi include:

· Eye Microsurgery of Academician Svyatoslav Fedorov. This is a relatively new Sochi subsidiary of the famous eye clinic in Russia. The operating room is equipped with the most modern devices and instruments. The clinic provides a five-day course of treatment with unique methods.

· American Center of Reproduction and Genetics. This center is a branch of the Chicago Institute of Reproduction and Genetics and managed by an American specialist. Wealthy women from all over Russia come here for infertility problems.

Medical treatment in Sochi can be one of the most profitable businesses in the nearest future for leading medicine companies and centers. Russian and foreign visitors, eager to combine a vacation at the seashore with a course of medical treatment, create a demand for the newest medical technologies and methods. Another favorable factor for opening a new clinic in Sochi is the availability of unoccupied capacity and highly-qualified local staff in numerous sanatoriums, underutilized because of lack of financing.

This sector also offers additional trade opportunities for medical equipment manufacturers, as underfinanced Russian domestic production lags behind foreign production.

Construction

Construction and production of construction materials make up a significant share of the city’s economy, though not as large as the above-mentioned sectors. Local production of construction materials suffers from foreign competition. However, after the financial crisis, when imported materials became less affordable, Sochi producers started to increase their sales, often using foreign equipment and technologies in production. Hospitality service development demands much renovation and construction. Turkey is the leading foreign investor in this sector.

CONSUMER MARKET

Generally, the consumer market in Sochi can be divided into two parts: prestigous shops selling primarily goods of European origin at high prices, and street vendors selling goods produced in Turkey, the Middle East or the N.I.S. There are very few renovated commercial retail spaces in the city center near old Soviet stores. Food retail is more or less developed in Sochi. There are several western style supermarkets and a branch of the Moscow sweet shop Babaevskiy.

Although Sochi is not a great market for consumer goods for the general population, companies that sell sporting goods, hotel equipment, etc. might have better luck selling to hotels. Most of the imported goods come to Sochi via sea, air or road transportation. Goods from Turkey, Cyprus, or the United Arab Emirates are usually purchased directly, whereas goods from Europe and the U.S. are bought from Moscow distributors.

Statistically, the consumer market in Sochi can be described by the following data, provided for Krasnodar Krai.

Price index: consumer prices in the Krasnodar region in November 1999 rose 34 percent since December 1998, which is equal to the Russian average price index (134.8%).

Living wage: monthly minimum wage in the Krasnodar region was 777 rubles in October 1999, less than the Russian average (1053 rubles). The ratio of the average salary in Krasnodar region (1309.8 rubles) to the minimum wage is 1.71, whereas the Russian average ratio is 1.65. This ratio denotes the positive purchasing power of Krasnodar region citizens.

According to statistical data, the average income of the population in Krasnodar region is higher in summer than in winter, as the majority of the economically-active population is involved in tourism services and agribusiness.

INFRASTRUCTURE

Transportation

Sochi is accessible from other Russian regions and foreign countries by all means of transportation.

· Air

Air connections exist with almost all large Russian and N.I.S cities, though flights are more frequent in the summertime. One can easily fly to Sochi through Moscow. There are several flights a day from the different Moscow airports: Vnukovo, Domodedovo, and Sheremetyevo-1. Flight time between Moscow and Sochi is about 2 hours. Time change in Sochi is 8 hours ahead of Washington D.C., the same as in Moscow. Visitors from outside Russia can get to Sochi through Frankfurt (Germany), Athens (Greece), Tel-Aviv (Israel), Istanbul (Turkey) and other southern countries. The international airport is situated in Adler, a Sochi neighborhood. There are numerous taxi and shuttle buses, which bring visitors to Sochi. Travel from the airport to town takes about 20-25 minutes. There is also a new modern terminal under construction in Adler, that is to extend airport’s capacity.

· Sea

The seaport of Sochi is located in the city and serves both passenger and cargo ships. There is direct sea connection with Turkey, Greece, the United Arab Emirates, and Georgia. A new trading port in Sochi is under construction.

· Train
There are three railway stations in Sochi: Sochi, Lasarevskoye and Adler. Train travel from Moscow to Sochi takes about 2 days, but this is not considered particularly burdensome for Russian travelers.

· Roads

Sochi's roads are in good condition relative to other regions of Russia. The federal budget constantly subsidizes the construction of new roads in the region. According to the city administration, the budget of the Federal Road Service in 1999 was almost equal to the city budget. There are two interstate bus stations in Sochi.

· City public transportation

The most popular means of transportation in Sochi are taxi and so-called “route taxi”. Taxis can be found everywhere at extremely low rates. The European tradition of simply stopping a car is widely popular in Russia and in Sochi. Route taxis are minivans circulating on specific routes. The charge is small and one can always reach any place in the city and surrounding districts with a route taxi.

Telecommunications

All conventional telecommunications services are available in Sochi. The major fixed-line communication provider in the city is SochiElectrosvyaz. Cellular communication is represented by the regional provider of GSM standard - Kuban GSM, BeeLine (DAMPS standard) and Sotel. Internet service is also available from a number of providers.

Office Space

Available office space in the center of Sochi is inexpensive relative to Moscow, but usually does not conform to western standards. Large former Soviet hotels, such as Hotel Moscow, rent rooms as offices to local companies. However, such offices are not recommended for foreign firms. The best option for temporary offices are business centers at the better hotels, such as the Radisson SAS Lasurnaya or Dagomys. Business centers in these hotels are well equipped and can provide visitors with all necessary business services, including conference rooms, computers, Internet connections, printing, etc. Sochi is a popular place among foreign and Russian companies for symposiums and conferences.

TRAVEL INFORMATION

Accommodation

There are more than one hundred hotels in Sochi, however, only few of them can be recommended for top business travel accommodation.

Radisson SAS Lasurnaya****

103 Kurortny Prospect,

Sochi, Russia 354024

Phone: +7(8622) 66-33-33

Moscow phone: +7(095) 255-3800

Location: by the seaside, 20 minutes from the airport, 10 minutes from the historical center of the city

Facilities: 300 rooms, including 39 deluxe, 17 suites, 4 villas, 2 presidential villas, minibars in guest rooms, air-conditioning, satellite TV, business center, conference hall, airport transfer, different sport facilities.

Rates: single room with breakfast costs $170/day from July 1 till August 31, $115/day in winter.

Peak Hotel Lasurnaya****

77 Zaschitnikov Kavkaza Street,

Krasnaya Polyana, Sochi-A, 354594 Russia

Phone local and C.I.S.: +7 (8622) 963-600, fax: +7 (8622) 963-645

International phone: 44 (181) 213-6644, fax: 44 (181) 213-6645

Phone in Moscow: +7 (095) 255-38-05

Location: 800 meters above sea level, 15 minutes by helicopter or 1.5 hours by car.

Facilities: 42 rooms, 5 villas, 1 presidential villa, minibars, international satellite communication, TV, conference hall, indoor swimming-pool and fitness center, sauna.

Rates: single room with breakfast and diner costs $130/day in winter season and $85-100 in summer.

Dagomys Hotel Complex

7, Leningradskaya Street,

Sochi, 354224 Russia

Phone: +7 (8622) 321-400, 322-40, 321-100, 321-095

Fax: +7 (8622) 321-495

Location: by the seaside in the city center.

Facilities: 365 single rooms, 41 deluxe, business center, conference hall, car rental, sea-water swimming pool and beach, casino, about 20 bars and restaurants.

Zvezdny

5 Gagarina Street

Sochi 354065 Russia

Phone: +7 (8622) 93 67 96, 93 63 01

Fax: +7 (8622) 93 67 96

Location: city center, close to the beach.

Facilities: 107 single rooms, 16 rooms deluxe, conference hall, 10 offices, restaurant.

Zhemchuzhina Hotel

3 Chernomorskaya Street,

Sochi, Russia

Phone: +7 (8622) 92 43 55, 92 20 60

Fax: +7 (8622) 92 87 97

Telex: 191222 PEARL SU

Location: by the seaside, in the city center.

Facilities: 986 rooms including 41 deluxe, 1 presidential apartments; 6 restaurants, 14 bars, casino, cinema, concert hall, conference hall, yachting, scooter rental, medical service.

All above-mentioned hotels have travel agencies that offer different tourist tours and excursions for visitors.

Restaurants

During the summertime, restaurants and cafes can be found everywhere in Sochi. One can try Georgian, Turkish or Greek food in the numerous small and large open-air cafes on the streets and beaches. During the winter season most of the open-air cafes are closed. Every large hotel has from one to 10 restaurants varying in quality and prices. Hotel restaurants are open year-round. American quality services and food are offered in the Radisson SAS Lasurnaya Hotel. The prices there are much higher than in the rest of the city, but still lower than in an average restaurant in the U.S. (about $12 for lunch). There is a Russian-style restaurant Gzhel (phone: +7(8622) 32 28 43) in the Dagomys hotel.

Besides hotel restaurants, there are several other good restaurants, located in the city:

· Sokol (48, Voikova street, tel. +7 (8622) 92 03 06): situated in the center of Sochi, this café is decorated in Medieval style with hunting accessories.

· Kanyon (Adler, 41-A Forelevaya street, tel. +7 (8622) 44 81 89): this Greek restaurant is located in the special ethnic Greek village. Besides Greek food, there is a Greek music and dancing.

· Senor Pomidor: Italian style restaurant and nightclub, located in the center of Sochi. This place is very popular among local wealthy young people.

In general, Sochi restaurants serve delicious seafood and Georgian cuisine.

Banking

The largest banks in Sochi offering services both for companies and individuals are:

· Sberbank

· Bank Sochi (only corporate clients, investments)

· Menatep

· Bank Prestige

All banks are situated in the center of the city, close to the City Administration and Moscow Hotel. Money exchanges can be found in large hotels, banks and in the main streets, such as Sovetskaya and Kubanskaya. Credit cards are accepted in the four-star hotels, but for purchases and payments in the city, cash is preferable.

CONTACTS

Sochi City Administration

Nikolai Karpov - Mayor

26, Sovetskaya Street, Sochi

Phone: +7 (8622) 92 22 77, 92 64 24

Fax: +7 (8622) 92 33 88, 92 73 00

Committee for Tourism and Resorts

(assists in organizing business events, contacts to tourist and resort establishments in Sochi)

Phone: +7 (8622) 92 65 12, 92 44 40

Fax: +7 (8622) 92 63 52

Customs

Adler airport

Tel/fax: +7(8622) 44 04 69, 49 76 93

Sochi

12, Gagarina street

Phone: +7 (8622) 99 98 69

Seaport

Seaport Administration office

1 Voikovo Street, Sochi

Phone: +7 (8622) 92 46 00

Fax: +7 (8622) 99 95 90

Municipal Communal services firm

(Controls and conducts the city infrastructure development)

Vladimir Sheyanov - General Director

15, Parkovaya Street, Sochi

Phone: +7 (8622) 92 35 40, 92 73 22

Fax: +7 (8622) 92 65 13

Sochi Chamber of Commerce

(Business contacts, organization of trade shows and exhibitions)

Vadim Levchenko - Director

15, Kubanskaya Street, Sochi

Phone: +7 (8622) 62 15 91, 62 20 31

American Center of Reproduction and Genetics

219, Lenina Street, Adler

Phone: +7 (8622) 45 00 29, 45 05 87, 45 10 87

Eye Microsurgery of academician Svyatoslav Fedorov

92, Kurortny Prospect, Sochi

Phone: +7 (8622) 97 10 20

Fax: +7 (8622) 97 59 29

Bank Sochi

40, Sovetskaya street, 354000 Sochi

Phone: +7 (8622) 92 27 21

Fax: +7 (8622) 99 93 26

SPRINT: BH SOCHI/SOCHI/SKAT

Sberbank (Sochi division)

36 Gor’kogo street, Sochi

General Manager

Phone: +7 (8622) 99 91 11

Currency Department

Phone: +7 (8622) 99 93 72

Kuban GSM

(Cellular phone service)

26-A, Sovetskaya Street, Suite 1-A, Sochi

Tel/fax: +7 (8622) 62 27 40

Email: atlas@mail.sochi.ru

Hotels

Rus

22, Polytechnicheskaya Street, Sochi

Phone: +7 (8622) 93 82 73; 69 41 96

Fax: +7 (8622) 93 82 60; 93 82 79

Ordzhnikidze

96/5 Kurortny Prospect, Sochi

Pone: +7(8622) 97 69 81

Fax: +7 (8622) 97 66 52