Famed in the region as a holiday reprieve and named one of the top 10 cities in the world to visit by the New York Times in 2010 — the same year that more than 2.1 million visitors came to Lebanon — business in Beirut’s economy has always relied heavily on its hospitality and tourism sectors.
The drawback of a hospitality-driven economy is that even soft blows can do much damage. As Rabih Saba, managing and founding partner in Venture Hospitality, explains, “Security is the key word for hospitality. It is not the regional insecurities or even the internal politicians’ conflicts that hurt our sector the most. What people ultimately care for is their personal safety — so as long as the streets are safe, our business will be relatively unaffected. The danger to us is when the conflicts influence the streets.”
Food and beverage sector left hungry
The conflicts certainly hit the street this year, with protests blocking roads, mass kidnappings and sporadic armed clashes, among other things, which all helped contribute to Gulf states issuing warnings against travel to Lebanon.
“2012 started even better than the previous year until May, when the drop kick-started with the closures of the airport road,” says Mario Haddad Junior, owner of Sushi Bar and Falamanki, among other establishments. “Depending on the outlet, we are somewhere between 11 percent and 19 percent below last year, which constitutes a substantial decrease, but not a major loss.”
While there are no official numbers regarding revenues for this sector, those in the field estimate losses in revenue to be around 30 percent, across the board, when compared to last year. A significant number of venues closed down, including the world-renowned Buddha Bar and Duo in Downtown.
The reason? Simple. The almost total absence of tourists and expats this summer. According to Hady Fadel, corporate marketing manager at Boubess Group, which incorporates leisure industry companies such as spas, restaurants and hotels, the group’s venues in locations more reliant on tourists saw less activity and profits than those frequented by local residents. “Our restaurants in Ma’arad Street [Downtown Beirut] depend to some extent on the Arab tourists, and these were more affected by their absence this summer than our other outlets such as the ones in Zaitunay Bay or Hamra Street, which generated major profits,” says Fadel.
Haddad adds that, “It is not only the absence of the Arabs’ personal spending in the restaurants that caused our losses; it is their general spending in the country and those people benefiting from them and in turn spending in restaurants. Because of this lack of income this summer, Lebanese who went out spent less. This shows you how much the hospitality industry relies on tourists and specifically the Arabs.”
Toni Rizk, managing partner at TRI Food and Beverage, also pointed to internal unrest as a contributing factor to losses in the sector: “There were many nights where people were scared to go out because of the internal skirmishes. The losses in profit incurred then cannot be made up for, since what’s gone is gone. The biggest example of this scenario is the bombing in Ashrafieh and the events that followed, which pretty much diminished the Adha break activity we were expecting.”
And, even if profits are made during the winter festivities, they will not be enough to make up for losses amassed throughout the year, says Marwan Ayoub, founding and managing partner at Venture Hospitality.
The smoking ban
The third quarter of the year saw the introduction of the smoking ban in all indoor venues, which many in the hospitality sector see as the straw that broke the camel’s back. While it is too early to tell the exact effect of the ban, many operators view the timing of its implementation at the end of an already weak year as ill advised. They also object to the lack of exceptions made to venues which are smoking based.
“The smoking ban also hit a lot of people hard, namely those who recently invested in nightlife venues or cigar and nargileh [water pipe] lounges, and are now being asked to change their entire concept,” says Haddad. “Exceptions exist even in Europe and the United States; for example in Las Vegas you can smoke in the casinos, but here you can’t. In the end, restaurants will adjust but it is mainly the little bars, the cigar lounges and nargileh places that will suffer under this ban.”
Leftovers of 2012
This year the food and beverages sector in Lebanon was kicked in the teeth. “Today, the broad title for the industry is ‘survival of the fittest’,” says Ayoub. “Starting a couple of years after the [2006] war and until the year 2010 there was a boom in this business where the demand was bigger than the supply, and so almost all venues worked. These days are gone and nowadays if you don’t do your research well and open the right concept in the right area you will not last.”
Haddad also believes that those who entered this business in an immature manner will be naturally selected for extinction. “In this business, you have to love it and have a passion for food to stand out from the rest. Otherwise, and especially in these tough times, you will not last,” he says.
Boubess Group, for example, is a multi-branded and multi-regional hospitality company and so, according to Fadel, it was still able to record growth this year. Zaitunay Bay restaurant owners who have other venues in the country say they have recorded profits this year in comparison to their other venues, though they had forecasted much better for such a project.
Cautiously optimistic for 2013
Despite the tough times, all operators interviewed by Executive have plans to open new venues in 2013, though they appear to be proceeding with caution and are not as aggressive as previous years. “With the current climate, I am not comfortable spending so much money on the originally planned Italian restaurant in Mar Mikhael and we will work to make permanent the market food concept that is there now [where the Junkyard pop-up restaurant was located],” says Haddad.
According to Rizk, “If the regional situation continues like this, we will be facing a bigger crisis as tourists continue to avoid Lebanon and overseas expats fear visiting. Already, the high tourist season in Lebanon is shrinking with barely a productive week of festivities in the winter and a month in the summer, especially with Ramadan now in it.” Yet Rizk says his company will continue with its expansion plans, though with caution, as to not expand means “being left behind and having others take over our market share.”
Some operators have plans to venture out of Beirut to areas such as Dbayeh or Antelias as the rent in the capital has become too high. Others are working on innovative concepts that will coax the Beirut residents out once again.
Fadel sums up Boubess Group’s outlook for 2013, and that of the food and beverage sector: “The situation around us will not stop us from further diversifying our portfolios because throughout the country’s history there has been turmoil, and things have reached rock bottom often.”
“But sooner or later, things get back to normal and so we use this downtime to find good opportunities and when the market picks up, we will be ready,” he adds. “We need to be positive and move on with our expansion strategy.”
Hotels in 2012
Hotels are another arm of the hospitality sector which has witnessed one of the worst declines in their business in years, with the number of tourists entering the country at 1.18 million as of October 2012, down by roughly 16 percent from the first 10 months in 2011, an already weak year for the sector.
According to an Ernst and Young study, room occupancy in Lebanese hotels in the first two quarters of 2012 saw an increase of 11 percent as compared to the same period in 2011. Pierre Achkar, head of the Syndicate of Hotel Owners in Lebanon, explains that, “The first six months of 2012 did indeed see an occupancy increase in comparison to the same period in 2011 but this does not mean hotels were performing that well. The first half of 2011 was a bad period in that year, before our government was formed, and we had internal instabilities.”
Achkar adds that this increased occupancy in the first half of the year is only true for hotels in Beirut, as the city has managed to position itself as a corporate tourism destination for international conferences and general business events. “Hotels outside of Beirut did not see any of their customary activity in the first six months of 2012 because these hotels usually fill up with tourists from neighboring countries who find them cheaper than Beirut hotels, and are more likely to have vacant rooms,” he says. “These tourists, who are mainly Jordanians, Syrians, Iraqis and Iranians, did not come this year. Seventy-five percent of Jordanians usually come here by car and this was impossible in 2012, and the Iranians come here as part of their religious pilgrimage to Syria which they obviously did not do this year,” continues Achkar.
Gulf Arab countries warning their citizens against visiting Lebanon was considered the final blow for the hotel industry. “Saudi Arabians are the biggest spenders in Lebanon and losing them, and the Arab Gulf tourists in general, impacts our entire economy,” says Achkar, adding that due to their proximity to Lebanon and their love for it, Arab tourists are irreplaceable in Lebanon, as was proven this year.
The toll till today
“Hotel occupancy has been going down since the Arab tourists’ ban, and we were hoping for increased activity during Adha, but the bombing destroyed the season. The situation is very bad now, and Beirut hotels are running at 32 percent room occupancy. This leads to a hungry competitive market which decreases room prices to attract guests, but the whole situation is a losing one,” explains Achkar.
Amidst these dismal times, it is the low budget and boutique hotels that crept ahead. While representatives from higher-end hotels interviewed mostly admitted to a drop in room occupancy, those from lower-budget establishments said they were working at an average of 60 percent occupancy this year, and were generally satisfied with their activity, compared to other hotels. “We mainly get European and American tourists who want to explore the country on a budget and though we did have a lower occupancy than last year, we are still performing relatively well compared to the pricier hotels that cater more [to] the Gulf tours,” said a manager from Napoleon Hotel in Hamra.
With the overall significant decrease in visitors, hotels in the country have developed crisis management plans to cope with the situation which include closing down floors or their less popular restaurants, giving their employees unpaid days off and not hiring any new staff.
The future’s uneasy occupancy
Rana el-Khoury, general manager of Le Gray Hotel, describes this challenging period as one of survival, yet she says she still harbors hope for the future, based on the complex Lebanese market. “It is necessary to reduce costs to cope with the consequences of such a delicate situation we are currently experiencing,” says Khoury. “In the meantime, maintaining a superior service quality and competitiveness are key to meet any sudden improvement in the market. Given the complexity of the Lebanese market, improvement can occur overnight, as seen in May 2008 with the Doha Agreement; occupancy rates jumped back then from 30 percent to 90 percent within one week.”
She adds that another challenge is maintaining and keeping ready their trained employees who are getting discouraged by the current situation: “The departure of such skilled talents, increasingly discouraged by the lack of prospects, could cost the tourism sector in Lebanon. Consequences are difficult to turn around.”
If regional trends persist, 2013 does not promise to be a better year and hotels may be looking at an even bigger crisis than they are facing now: “If the situation stays like it is, especially with the Gulf Arab tourists’ ban, then we have no hope,” says Achkar. “While hotels will not completely close down, due to their inherent land value and such, they will continue to run at low occupancy, and return no profits.”
