Caucasus • Armenia Tufenkian Heritage Hotels: …growinginclusivemarkets.org/media/cases/Armenia...Rural Areas homeland, Armenia. Tufenkian’s first entry to Armenia was in 1993

Caucasus • Armenia

Tufenkian Heritage Hotels: Enhanced Employment Opportunities in Distressed Rural Areas Prepared by • Manuk Hergnyan Reviewed by • Aline Kraemer Sector • Tourism Enterprise Class • Large Domestic Company

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Case Study • Tufenkian Heritage Hotels: Enhanced Employment Opportunities in Distressed Rural Areas

Executive Summary The Tufenkian Heritage hotel chain is a group of luxury boutique hotels in Armenia, located in Yerevan, Sevan, Dilijan and Lori. Tufenkian's goal is to introduce guests to the rural countryside of Armenia - an undiscovered tourist destination. Each hotel, located within a village setting, features luxurious rooms designed by renowned Armenian and international architects and furnished with valuable paintings, furniture, and renowned Tufenkian carpets handcrafted by Armenian weavers. The explicit objectives driving Tufenkian are the creation of a strong, profitable brand for top quality hotel services, the development and promotion of Armenia as an attractive tourist destination and the revival of depressed rural areas through the creation of income-generating opportunities for the rural population. Tufenkian also invests in the capacity building of rural communities and continuously improves the environmental sustainability of its business operations. The evolution of Tufenkian Heritage hotels started with the carpet weaving business founded in Armenia in 1993 by a famous Armenian Diaspora member James Tufenkian, who started a successful luxury carpet weaving business in Nepal in 1988 with growing sales around the world. The carpet weaving business in Armenia employed over 1,000 Armenians in poor areas. In 2001, James Tufenkian opened his first hotel in Yerevan (Avan Villa Hotel), which had two initial objectives - an effective sales channel for Tufenkian carpets to wealthy Armenians and tourists, and ethno-cultural tourism development. Soon after the opening of the Avan Villa, Tufenkian opened three other hotels in remote rural provinces in Armenia. Tufenkian hotels started a new era for Armenian tourism development, as they contribute to the development of poor rural areas by employing local staff and by improving the areas’ infrastructure. Presenting these regions as tourist destinations also promotes Armenian culture to foreigners, which is reinforced by maintaining an Armenian design for the hotels. The number of customers averages 3,000 annually with an average occupancy rate of 20%, while during the busy summer season it reaches up to 80-90%. The hotel chain employs 174 workers, out of which 108 work in rural area hotels (90% local employees). Tufenkian currently employs about 40% of the population of the Tsapatagh and Dzoraget villages. Every month Tufenkian infuses 16,000 USD into the rural economies by paying their employees salaries. The company overcame the low level of skills of its employees by training them according to international standards. Tufenkian was able to attract the attention of the government and local authorities to the potential of tourism development in rural areas. A variety of actors - namely Tufenkian charity vehicles, including Tufenkian Foundation and several charity programs, Armenia Hotel Association, local authorities, the rural population, and government and international organizations - influence the development of Tufenkian hotels. Despite the number of challenges faced, Tufenkian hotels’ business is continuing to grow, with plans to open hotels in several new locations in Armenia. By making the first move in an undeveloped area, Tufenkian is creating opportunities for others to come in and continue development in cooperation with them. Any investment

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activity undertaken by Tufenkian aims to encourage local investors to enter the remote but culturally rich areas of Armenia.

Introduction In every Tufenkian hotel guestroom one can find a welcome note from James Tufenkian, the founder of the hotel chain, stating “…Armenia is my ancient homeland and I am proud to share it with you. It was my vision to create Tufenkian Heritage Hotels in order to provide you with a taste of our rich culture.” Tufenkian Heritage Hotels in Armenia is a network of boutique hotels, traditional restaurants and tourism facilities that strive to provide visitors with a truly Armenian experience. The primary vision of the company is to preserve Armenian cultural heritage, reawaken Armenian traditions that were forgotten during the Soviet era and to drive the economic development in remote, deprived areas. Founded by James Tufenkian, these exquisitely designed hotels introduce visitors to Armenian heritage - rich in tradition, architecture, art, historical monuments, picturesque landscapes, and authentic cuisine. Most visitors are business travellers, adventurous honeymooners, active seniors, cultural and ecological tourists, families and world travellers. With several new hotels in development, the Heritage Hotel Chain currently consists of four Hotels - Avan Dzoraget Hotel, Avan Marak Tsapatagh Hotel, Avan Villa Yerevan Hotel and old Dilijan Complex. Tufenkian Heritage Hotels are a member of the Tufenkian Group of Companies, which focuses on creating luxury products and contributing to its surrounding communities. The business portfolio of the Group includes artisan carpets, boutique hotels as well as preserves prepared by local companies and marketed in the US.

Armenia Armenia is a small country (29,800 sq. km) located at the crossroads of Europe and Asia, bordering Azerbaijan, Iran, Turkey and Georgia. Armenia's population is 3.2 million with a moderate annual natural demographic growth rate of 0.35%. The capital city, Yerevan, is home to one third of the total population of Armenia. The next three largest cities are Gyumri (pop. 147,000), Vanadzor (pop. 105,000) and Abovyan (pop. 45,000). The gross domestic product per capita was 3,684 USD in 2008. A devastating earthquake hit the northern part of Armenia in 1988, leaving thousands of people without housing. The collapse of the Soviet Union, war with Azerbaijan over Nagorno-Karabakh in 1992-1994, as well as the transportation blockade by Azerbaijan and Turkey resulted in a shortage of basic necessities and power supplies, unemployment and massive emigration, widespread poverty, income inequality, as well as massive ecological damages. Recovery started in 1994 with the end of the war and implementation of a stabilization program backed by international development institutions. With the growing

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private transfers and investments from the Diaspora and recent emigrants (approximately 1.3 billion USD in 2008), the country experienced the fastest economic growth within the CIS and CEE in 2000-2008, averaging 10% annually.1 Poverty in Armenia is still widespread and inequality is also a concern. Almost half the population lives below the national poverty line, which is set at 21 USD per month.2 Approximately 17% of the population is considered extremely poor, living on less than $12 a month.3 Rural people are particularly vulnerable - 35.9% of the Armenian population lives in rural areas, and the poverty level in rural areas is higher compared to the national average as well as the poverty level in urban areas.4 Overall, 31.1% of the rural population lives under $2 a day.5 The country's poorest people are concentrated along the nation's borders, in mountainous areas and in earthquake zones. Agricultural activities make up 41.3% of the total income of rural households.6 The level of hired work is gradually increasing (27.8% in 2007 versus 20.0% in 2004), while the share of income from self-employment is decreasing (by 8.7% between 2004-2007).7 Though weather conditions have a significant influence on agriculture, less developed physical and financial infrastructure (roads, communication, irrigation system, rural processing and storage facilities, etc) are among the key obstacles for progress and a huge hurdle for poverty alleviation. The poor rural habitants have very limited access to agricultural assets and financing and they also suffer from the absence of efficient wholesale markets. Tourism is one of the most promising economic sectors in Armenia. During Soviet times approximately 700,000 tourists visited Armenia each year, of whom about 600,000 came from the Soviet Union. After the collapse of the Soviet Union, the number of tourists decreased dramatically. However, in 2008 about 560,000 tourists visited Armenia, with tourism services accounting for about 3.5% of the GDP (with an annual growth rate of 26.97% since 1998).8

Tufenkian Hotels FROM TUFENKIAN CARPETS TO HERITAGE HOTELS

James Tufenkian, born on the West Coast of the United States, is a committed Armenian Diasporan. After completing law school in 1986 in New York, James travelled to Tibet, where he was introduced to the old art of Tibetan carpet weaving. He started Tufenkian Carpets in Nepal in 1988. Soon James expanded his efforts to include his heritage and

1 Banker Armenia. www.banker.am 2 National Statistical Service of the Republic of Armenia, 2008. 3 World Bank and International Monetary Fund Statistics, 2008. 4 National Statistical Service of the Republic of Armenia, 2008. 5 World Bank Indicators DB, 2006. 6 Social Snapshot and Poverty in Armenia, Statistical Analytical Report, Armenian National Statistical Center, 2008. 7 Ibid. 8 “Industry Insights: Tourism sector”, EV Consulting, 2009.

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homeland, Armenia. Tufenkian’s first entry to Armenia was in 1993 when he decided to expand his carpet weaving business. "I felt like I had a chance to do something to improve people's lives, that it was my homeland calling," said James Tufenkian when he visited his homeland for the first time.9 Traditionally, carpet weaving was one of the most important household occupations in Armenia. It was an important part of Armenian national arts and crafts. After the fall of communism, Tufenkian worked to revive the ancient art of Oushak carpet weaving - finely textured, earth-toned Armenian rugs that had virtually disappeared during the 75 years of Soviet rule.10 Tufenkian invested over $30 million in this business.11 The business started with four employees (2 managers and 2 artisans) and grew rapidly to employ more than 1,000 people in Armenia, who were previously unemployed or were first time job seekers. The artisans were taught the necessary skills and the special Tufenkian designs in order to be able to weave quality carpets. With his carpet business prospering, in 2001 Tufenkian targeted a new segment in order to contribute further to Armenia’s economic development – tourism. The establishment of a luxury hotel chain was a natural progression from the carpet business, which was led by Tufenkian’s sense of design. The philosophy of this hotel business was the same as for the carpet business - to revitalize Armenian culture and art, to promote Armenia’s historical background with art and cultural heritage and to provide job and income opportunities for communities in deprived areas. At the same time, the hotels served as a new channel for carpet sales.

TUFENKIAN HOTELS

In 2001, James Tufenkian opened the first Tufenkian Heritage Hotel, Avan Villa, in the far northern area of Yerevan (Nork Marash region). Between 2003-2007, the company established three other hotel complexes - Avan Marag Tsapatagh, Avan Dzoraget Hotel, and Old Dilijan Complex. The choice of hotels was based on parameters that would correspond to Tufenkian’s philosophy of business - to benefit the remote regions of Armenia that have underdeveloped infrastructure and poor inhabitants with very low living standards. Consequently, James Tufenkian's choice about where to locate the 3 hotels was not a coincidence -

9 “Long In Diaspora, Armenians Return Home”, by Maria Danilova, The Associated Press, 09.06.08. 10 “Good luck to a new Armenia”, Telegraph newspaper, March 2007. 11 “Long in Diaspora, Armenians Return Home”, Radiostation interview, Maria Danillova, 2008.

Figure 1: Each Hotel’s Share in the Tufenkian Hotel Business (based on revenue and occupancy) – Source: Tufenkian Hotels

Source: Tufenkian Hotels

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Gegharkunik, Tavoush and Lori are three of the poorest regions in Armenia. In 2008, Gegharkunik's per capita GDP was 79.5% of the country average (3,684 USD), Tavoush's was 83.6% and Lori's was 71.4%.12 The aim of the hotels was to promote these regions as tourist destinations. The four hotels have a total of 84 rooms. The average occupancy rate is 20% (as opposed to the industry average in Armenia at about 40-50%).13 The average number of annual customers is 3,000. Half of the customers are foreigners, while the other half comprises of the Armenian Diaspora. “Surprisingly, many local Armenians prefer European style hotels as the authentic cultural appearance of Tufenkian hotels is not appealing to them, stating that the hotels look and ‘smell’ old,” says Aramayis Karapetyan, assistant manager at the Tsapatagh hotel. During the first years of operation, the restaurants in the hotels offered exclusively Armenian traditional beverages and meals. Gradually, due to demand from tourists, they started offering non-Armenian beverages and meals as well. Meanwhile, the carpet business slowed down and closed in 2008 due to the Armenian currency’s (dram) appreciation and the economic crisis.

The evolution of Tufenkian business activities is pictured below:

Figure 2: Evolution of Tufenkian Business Activities

Source: Author

Tufenkian Hotels' Business Model

Tufenkian Heritage Hotels offer high quality services and target the high-end segment of the market. Tufenkian Hospitality puts a strong emphasis on traditional local architecture and design. In keeping with the Tufenkian Heritage Hotels’ concept of creating lodgings that complement the surrounding environment, the appearances of the hotels are not intrusive - they blend with the natural surroundings. Tufenkian Heritage Hotels are an authentic expression of Armenian architectural heritage. Tufenkian does not put a heavy emphasis on advertising and marketing. “But in order to increase the sales during the summer season, Tufenkian organizes discount campaigns for 12 “National Competitiveness Report of Armenia”, Economy and Values Research Center, 2008. 13 “Tourism Sector”, Industry Insights, EV Consulting, 2009.

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Tsapatagh and Dzoraget hotels, offering an all-inclusive 2-day stay for 30% discount,” states Hakob Hakobyan, general manager of Tufenkian Hotels. Also, the Armenian Hotel Association distributes Tufenkian promotional pamphlets through their centre and tour agencies. Tufenkian employs direct mail marketing for the existing customers informing them about new openings and activities they organize outside Armenia. Tufenkian also organizes exhibitions in the United States to introduce people to Armenia’s touristic attractions and culture through Tufenkian hotels. The company clearly distinguishes itself from other players in the Armenian tourism market through the ways described above. While creating a profitable business, Tufenkian Hospitality also addresses human development and environmental issues. These include increased employment opportunities for the rural population, trainings for employees, income generation for the greater communities through procurement of food from local sources, development of infrastructure and preservation and improvement of the environmental conditions in the hotel neighbourhoods. Due to local supply constraints, Tufenkian Hotels can only purchase a limited amount of food from local farmers. Most of the food is supplied from Yerevan supermarkets. The main products bought from the local population are eggs and dairy products. “Locals are not able to supply enough fresh produce and dairy without interruption to feed all the guests in our hotel,” says Karen Hakobyan, manager at Tsapatagh Hotel. In Dzoraget, about 10% of agricultural products are purchased from local producers to whom Tufenkian has granted land and agricultural supplies. “The tendency of purchasing food supplies directly from the inhabitants of Dzoraget is growing, since many farmers are trying to increase their agricultural production to meet the needed quantity and quality levels for the hotel,” says Mikayel Ghalumyan, manager of the Hotel in Dzoraget. In Dilijan, some of the supplies for the restaurant are purchased from local sources as well.

The inclusive business model of Tufenkian Hotels is illustrated below:

Figure 3: Business Model of Tufenkian Hotels

Source: Author

Tufenkian Hotels

Sells to

Diaspora

Foreigners

Locals

Local produce suppliers

Purchases produce and dairy

Local staff

Tree planting and solar generators installment

Sustains the environment

Hires

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Figure 4: Distribution of Workforce

Source: Author

FINANCIAL MODEL

Another distinctive feature of Tufenkian Hospitality is its long term planning horizon. The company is committed to its long-term approach, both towards customer satisfaction and investment payback. It pays special attention to the quality of the services offered and to environmental sustainability in the local community, rather than just on making quick profits. Unlike other investments that are designed to pay back the investors in two-three years, the hotel and restaurant chain development has a seven to ten years planning timeframe (starting 2001) and includes up to six or seven properties. Currently, Tufenkian is close to the investment break-even point.

Tufenkian’s Solutions to Constraints When James Tufenkian started to implement his vision of offering luxury tourist destinations in remote areas of Armenia that enable visitors to experience Armenian tradition and culture, he faced several obstacles. He attempted to address these challenges with appropriate solutions.

LOW LEVEL OF SKILLS OF AVAILABLE WORKFORCE

One problem that Tufenkian faced at the beginning of its business was the low level of skills of the labour force in the regions. For most of the employees, this was their first job outside their homes and farms. Therefore, Tufenkian not only trains them in the skills necessary for their jobs, but also teaches them how to work in a corporate environment. All employees

receive training on a regular basis. The trainings are implemented by professionals, who hold Certified Hospitality Trainer (CHT) certifications (through the USAID-funded Competitive Armenian Private Sector project). At the beginning of employment, each employee is trained in Yerevan for one month. The coaches provide hotel hospitality trainings, catering seminars, management courses, etc. Also, they prepare the personnel for the unique Tufenkian work environment, its culture and values. The probation period is two months, during which the workers receive 80% of their final salary. The trainers visit the locations every two weeks to check the work quality

and progress. Every year, all employees are required to take a multiple choice test for quality assurance. Trainings are also held annually for current employees in Yerevan for one to two days. The training courses are organized in cooperation with the Armenian Hotel Association (AHA). Additionally, many of the employees had to stop the agricultural cultivation of their land plots due to time constraints. This constitutes a problem for male employees when they are the only earning members of their households. However, if there are three generations of males living

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in one house (grandfather, father and son), they benefit greatly from the work in the hotel as this equates to a second income stream. The motivation for local staff to work at Tufenkian hotels also lies in the assured income stream in a “white-collar” work environment. Employees receive annual salary increases as well as annual bonuses. In addition, employees undergo training in Yerevan for one month at the beginning of their employment. During that time, all living costs are covered. Besides, most employees enjoy a working environment that allows interaction and communication with foreigners, which helps in their on-the-job learning. The situation is slightly different in Dzoraget Hotel, as alternative employment opportunities exist there. Dzoraget hydroelectric station is the second biggest employer in that area, and employs about 20% of the population.

PHYSICAL INFRASTRUCTURE

As in most rural areas in Armenia, the physical infrastructure is underdeveloped after the Soviet era. For example, there was no sewage system in Tsapatagh and no domestic gas distribution system. Tufenkian thus decided to invest in removing these market constraints, building a centralized water filtering plant by which the unclean water, after being distilled, pours into the Debed River in Dzoraget. Tufenkian financed the whole project alone. The system is currently utilized by the whole village. “We face several external factors that hinder the realization of our business development. First of all, the physical infrastructure is underdeveloped which makes us close the Tsapatagh hotel during winter and early spring as the roads to the village are in a very bad condition,” says Hakob Hakobyan. Tsapatagh and Dzoraget had limited telecommunication facilities, and their natural and cultural attractions were not developed enough to provide a valuable tourism experience. Also, in Dilijan, the local physical infrastructure was run-down. Tufenkian tried to remove one obstacle by preserving Sharambeyan Street in Dilijan as a tourist attraction. This “Old Town Dilijan” has craftsmen’s workshops, small shops with traditional Armenian products and crafts, a museum, a guesthouse and the Tufenkian “Haykanush” Restaurant. Dilijan local authorities let Tufenkian rent the street area for 49 years free of charge, while Tufenkian promised to restore it. Tufenkian also planted over 600 trees in Dzoraget. Altogether, Tufenkian has planted over 1,500 trees during the eight years of its operation in Armenia. The roads to most of these locations are in an extremely bad condition. Tufenkian is trying to cooperate with the state and local authorities in order to make some improvements, but has been unsuccessful so far.

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Charity, aid projects

Provision of land for hotel areas

Tufenkian charity vehicles

Fragmental cooperation

Tufenkian Hotels Employees

Business

Support in AHA establishment and collaboration Funding

Rural Population Training

Armenian Hotel Association and USAID/CAPS

Local authorities, government

LACK OF TRUST AMONGST THE LOCAL COMMUNITIES AND AUTHORITIES

Another constraint that Tufenkian faced was the lack of trust amongst the local communities and authorities. Tufenkian had to build a relationship with them, working with the community on various projects, including projects from Tufenkian charity vehicles. The Tufenkian Foundation provided support to the local school in Tsapatagh and surrounding villages by distributing PCs, lab equipment and New Year’s gifts. In Dzoraget, the Tufenkian Foundation provided a land parcel to a former refugee from Baku, Azerbaijan to grow vegetables for supplying to the Tufenkian Dzoraget Hotel. Another NGO, The Armenian Forests, was founded in 2002 to prevent the heavy destruction of Armenia’s forests. Among other projects, the NGO focuses on the areas where the hotels are built and has planted over 1,500 trees near the hotels’ locations. This has helped Tufenkian in maintaining good relationships with the local inhabitants by sustaining green areas and paying the locals to plant these trees. This also helped to make the Armenian rural areas more attractive for tourists by preserving their natural habitats.

Actors Influencing the Business The Tufenkian Hotel business was influenced by several actors who helped to enhance the skills of local employees and in improving the relationships with local communities.

Figure 5: Actors involved with Tufenkian Hotels

Source: Author

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ARMENIAN HOTEL ASSOCIATION AND USAID-CAPS

Together with the USAID Competitive Armenian Private Sector (CAPS) project, Tufenkian Hospitality and other leading hotels established the Armenian Hotels Association (AHA) in 2006. The purpose of AHA is to improve the regulatory environment for Armenian hotels, to promote Armenian hotels nationally and internationally, and to serve as a tourism information center. The CAPS project is a five-year assistance program funded by the United States Agency for International Development (USAID). CAPS is based on a cluster approach, which focuses on improving the business environment and fostering cooperation among enterprises in a particular industry sector. The AHA, in cooperation with the USAID-funded CAPS and Academy for Educational Development (AED), has organized and conducted service training programs for the staff and management of hotels. The trainers are specialists from various countries. Several meetings have also been organized with tax specialists and consultants through CAPS contacts. The Armenian Hotel Association encourages all Armenian hotels to join in order to work actively to promote Armenian hotels and to support the development of tourism in Armenia. For Tufenkian Hotels, AHA carries out annual and semi-annual trainings for managers, administrative staff and other workforce. AHA is planning to enhance its operations by providing paid services and consulting to member hotels.

LOCAL AUTHORITIES

One of the major constraints faced by the company is the low level of support by local authorities, as well as the absence of local NGOs. “The local authorities are not eager to support us in several initiatives stating that our appearance has driven away many charity organizations from supporting the village,” says Hakob Hakobyan. However, according to some donor organizations (UMCOR and World Vision), their withdrawal from Tsapatagh coincided with the closure of their programs in the area and had nothing to do with Tufenkian's entrance.

TUFENKIAN CHARITY VEHICLES

The Tufenkian Foundation was established in 1999 to create sustainable projects. The foundation conducts various charity projects, working with the communities around hotels. Their activities have helped the company to establish a relationship of trust with local communities. The funds for the Foundation come from Tufenkian carpet businesses around the world as well as the hotel business. The Foundation has successfully completed over 25 activities in Armenia, mainly focusing on rural areas, orphanages and environmental issues, as well as areas that were ruined after the 1988 earthquake. All the programs are supervised by the Foundation’s main office in Yerevan. Unfortunately, most of those programs have been

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discontinued or suspended since the Foundation cannot provide the necessary funds for their realization. This is the result of the downsizing of Tufenkian’s global businesses.

RURAL POPULATION

In order to build better ties with the local population, Tufenkian attempted to organize open days, exhibitions and sales for local handicrafts. This gave inhabitants of the local communities the opportunity to earn money by selling their works such as carpets, toys, hand-made jewellery and pottery. However, Tufenkian was not fully satisfied with the response from the local population to its offer, due to a lack of entrepreneurial skills among the locals. Furthermore, an influx of remittances has led to a perverse situation where, according to Hakob Hakobyan, the General Manager of Tufenkian Hotels, “Many locals have very contradicting attitudes towards our business: most villagers are used to receiving money transfers from their relatives working abroad as their primary source of income. Thus, they lose the motivation to start any risk-bearing and effort-intensive undertaking. Therefore, the mentality and attitude toward these types of activities are big obstacles.”

GOVERNMENT AND INTERNATIONAL DONOR ORGANIZATIONS

The company has tried to engage the government as well as several international and donor organizations in its attempts to improve essential infrastructure (building roads, provision of gas and water supplies) in and around the hotel sites without much success. Insufficient funds have always been the explanation for the lack of government and donor engagement. The available funds are spent on “priority” areas, which do not include the remote areas where Tufenkian Hotels are situated.

Tufenkian’s Achievements ECONOMIC RESULTS

Tufenkian has been able to build a sustainable hotel chain business during eight years of operations, serving 3,000 customers annually. In 2011, the business is expected to reach its breakeven point, although it already is making an operating profit. Every month, Tufenkian Hotels pay over 16,000 USD to their employees as salaries, thereby contributing to the local economies. About 80% of Tufenkian’s employees were formerly unemployed or self-employed. Many of them were dependent on remittances from abroad or aid from donors. Apart from Dzoraget, there were no other employers present in these regions. Consequently, Tufenkian Hospitality decided to put a special emphasis on the employment of local staff, recruiting the local inhabitants of the rural areas. The company hired 174 workers and currently employs about 40% of the population of Tsapatagh and Dzoraget villages. The average salary paid to employees is in the range of $120-$150 a month, while local schoolteachers receive salaries

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of about $200 per month.14 With annual bonuses and tips, the total compensation levels for Tufenkian employees and other employees in the area are roughly the same. Also, by procuring fresh produce and dairy from 15 local suppliers in all three hotels, Tufenkian supports local small-scale businesses in rural areas. In addition, many tourists purchase products from villagers. “Many villagers are now more open for communication with visitors: They sell fresh produce and dairy to visitors and foreign tourists, they interact with them, want to learn English to be able to keep up long-distance relationships with them,” says Taguhi Boyakhchyan, the head of the local community. Tufenkian Hospitality currently experiences low occupancy rates in its hotels. The occupancy rates are around 50% during the busy periods of July and August, and about 5-10% during the rest of the year. The main reason for the low occupancy rates is the small number of tourists who visit the areas where Tufenkian hotels are located. However, the number of tourists visiting these locations is growing year-on-year.

SOCIAL RESULTS

“I am very impressed by Tufenkian business and greatly value the work I do. Actually, we didn’t have any big employer in the area, especially in our village, before Tufenkian started running the hotel. We work hard on keeping the service standards and meet all the requirements. Now I can afford many things that I wasn’t able to obtain before for me and my family,” says Vahan Boyakhchyan, security officer at Tsapatagh hotel. Tufenkian has achieved significant social results. As already mentioned, the company has recruited and trained a large number of employees from the local populations. The skills and quality of the local workforce have also improved significantly as a result of on-the-job trainings. Tufenkian has also succeeded to a certain extent in developing entrepreneurial skills within the local populations. An example is the biggest convenience store in Tsapatagh by a local family. Before the hotel was set up, they did not have any income source except for their agricultural work on a small land plot. “First, I was employed by Tufenkian as a construction worker. After the construction they hired me as a security officer in the hotel. My family and I used to run a small convenience store near the hotel but the turnover was very low. After my employment, I was able to increase the area and inventory of the shop. Currently, it is the biggest store in our village”, says Vahan Boyakhchyan. Tufenkian hotels have stimulated local entrepreneurship on a small-scale. For example, many locals now offer horse riding expeditions and hiking tours in Dilijan and Dzoraget.15 Tufenkian hotels have created social benefits for the poor by creating job opportunities and spurring entrepreneurship in the region. They have also initiated the construction of other

14 Source: interview with Hakob Hakobyan. 15 Source: Mikayel Ghalumyan, manager of the Hotel in Dzoraget.

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buildings in these areas, transferred knowledge and skills, fostered educational opportunities and expanded procurement from local suppliers. “I have noticed several positive changes after Tufenkian's appearance. My students started wearing better apparel, I see more eagerness from them to learn languages and do well in their studies. Students try to keep the school area clean now in order to be able to show it to the hotel guests. Many women started imitating the design and shades of the hotel rooms, decorating the rooms of their houses similar to them. The villagers started again appreciating Armenian design and culture,” says the local schoolteacher in Tsapatagh. Furthermore, the population in rural areas has started getting empowered. Before Tufenkian entered these areas, the people lacked information about their rights and opportunities. With Tufenkian in the picture, they have gradually learned to stand up for their rights. For example, two handicapped inhabitants of Dzoraget who were injured during the Karabagh war did not know that they were eligible for pensions. With the help of Tufenkian, which covered their transportation costs and helped them to get in touch with the right people, they were able to claim their due pensions.

ENVIRONMENTAL RESULTS

Tufenkian has installed solar collectors that account for approximately 20% of the energy used by the hotel. All Tufenkian hotels have installed water-filtering stations, which guarantee clean water supply in the area. In Tsapatagh hotel, Tufenkian installed a sewage cleaning system. In Dzoraget, Tufenkian planted over 1,500 trees in the surrounding areas and constructed a water filtering plant that is utilized by the whole area.

Future Outlook

Tufenkian is planning to build four additional hotels in Armenia that employ the same inclusive business model and value system. The hotels are going to be in Areni village (Vayots Dzor), Alaverdi (Lori), Stepanakert (Karabagh) and Dilijan. As always, the utmost consideration will be given to environmental and local community needs and concerns. However, the development of basic infrastructure by the government is needed to attract more tourists to these regions and lead to more income and employment opportunities. Tufenkian’s fourth hotel will be located in the center of Yerevan. Tufenkian is going to target the upper-scale customer segment. This will ensure improved and steadier profitability for the company, and enable it to continue running ethno-cultural tourism through its hotel chain. By making the first move in undeveloped areas, Tufenkian is striving to create opportunities for others to come in and contribute to development in these areas. By investing in these areas, Tufenkian wants to attract the attention of investors to these regions. “Tufenkian develops the most beautiful areas in the country side, with special attention to the design and architecture. The cornerstone phrases in our promotions are ‘Most beautiful’, ‘Traditional’ and ‘Armenia Re-Born’,” says Tufenkian Heritage Hotels General Manager Hakob Hakobyan.

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References

• 2008. National Statistical Service of the Republic of Armenia. • 2008. World Bank and International Monetary Fund Statistics. • Armenia Tourism Development Agency and IESC. 2001–2003. “Armenia’s Tourism

Development Initiative.” • Armenian National Statistical Center. 2008. “Social Snapshot and Poverty in

Armenia.” Statistical Analytical Report. • Danilova, M. 2008. “Long In Diaspora, Armenians Return Home.” The Associated

Press. • Economy and Values Research Center. 2008. “National Competitiveness Report of

Armenia.” • EV Consulting. 2009. “Industry Insights: Tourism sector.” • EV Consulting. 2009. “Armenia Investment Map.” • IFAD. 2008. “Rural Poverty Report.” • Personal interviews with Tufenkian Hotels’ management and personnel and the local

authorities, 2009 • Telegraph Media Group. 2007. “Good luck to a new Armenia.” • World Bank. 2001. “Armenia: Ancient Land – New Direction.” • Tufenkian. 2010. www.tufenkian.com

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Annexes Annex I: Quick facts about Armenia16 and location of Tufenkian Hotels

Official name: Republic of Armenia

Land area: 29,800 sq km (11,506 sq miles)

Population: 3,230,100 million

Religion: Armenian Apostolic (Orthodox)

Official currency: Dram

Languages: Armenian (official), Russian

Capital City: Yerevan (1.26 million)

Ethnic Groups: 97.9% Armenian, 1.3% Yazidi, 0.5% Russian, 0.3% Other

Government: Presidential republic

GDP: 11.917 billion USD

GDP per capita: 3,684 USD

16 National Statistical Service of the Republic of Armenia, 2008

17


Figure 6: Map of Armenia and Tufenkian hotels

Dzoraget Hotel Dilijan Complex Avan Villa Hotel Marak Tsapatagh Hotel

Source: CIA Factbook17

Annex II: Hotel locations

Tsapatagh is one of the 91 villages in Gegharkunik region, 130 km away from Yerevan. The village is mostly populated by Armenian migrants from Azerbaijan, who entered the village after 1988. They used to live in metropolitan cities, thus agriculture was a completely new occupation to them. There are 425 inhabitants in Tsapatagh, and approximately165 families. Avan Marag Tsapatagh hotel is located some 40 miles (65 kilometres) from the Lake Sevan peninsula. The hotel has 34 rooms and a 120-seat restaurant, the menu of which presents traditional Armenian cuisine. Most guests come for a few days stay, but many visit Tsapatagh only for the fine restaurant. Tsapatagh hotel is in operation from April – October because during the winter season, the weather is severely cold and the road to Tsapatagh is covered with ice. This is the only Tufenkian hotel that closes down during winter. Security and maintenance staff are still employed during closed season, and cleaning ladies work one day a week in order to keep the hotel clean, but other staff is unemployed during those months.

17 https://www.cia.gov/library/publications/the-world-factbook/geos/am.html. Retrieved on 26 November 2010.

18


Dzoraget is a small town in Lori region, 145 km away from Yerevan. The village is situated on the road Vanadzor-Alaverdi and is far from the regional centre by 30 km. It has 268 inhabitants and the territory is only 2.13 sq. km. The area is mountainous. Agriculture and cattle-breeding cannot be developed because of the lack of arable land. The Avan Dzoraget Hotel is located on the main road to Tbilisi, the capital of Georgia. The hotel can accommodate conventions and business gatherings for groups of up to 80 participants. During the busy season (July and August) the occupancy rate is 85-90%, while throughout the rest of the period the rate remains on the 25-35% level. Dilijan is in Tavoush region (the northern part of Armenia), approximately 100 km away from Yerevan. The population of Dilijan is approximately 13,500. Dilijan is called the "Little Switzerland" of Armenia by the locals. The Dilijan Complex is situated in the heart of the town. It is visited mainly for its restaurant. Tufenkian is planning to build 50 rooms within the course of the upcoming two years (currently, there are only 2 rooms in the hotel). Currently the construction process has slowed down because of Tufenkian’s business downsizing due to economic crisis.

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November 2010

The information presented in this case study has been made available to the company in subject to ensure its accuracy and is accurate to the best of the author’s knowledge. The views expressed in the case study are the ones of the author and do not necessarily reflect those of the UN, UNDP or their Member States.

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Caucasus • Armenia Tufenkian Heritage Hotels: …growinginclusivemarkets.org/media/cases/Armenia...Rural Areas homeland, Armenia. Tufenkian’s first entry to Armenia was in 1993

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