Too many plates on the table?

Lebanese F&B operators cope with competition amidst a narrow local market

Photo by: Greg Demarque

In a letter to his son’s teacher, Abraham Lincoln wrote that “only the test of fire makes fine steel”. Lebanon’s food and beverage (F&B) operators have been through several tough tests of fire over the past five years, including a decrease in tourism and dwindling local purchasing power. Nevertheless, they have emerged more seasoned and creative, albeit more cautious than they were in 2010 when Lebanon was experiencing its last boom.

This resilience is reflected in the recognition of Lebanon as a culinary destination in 2016, including being named the number one “International City for Food” by Travel + Leisure magazine and being featured as a top food destination by the international publication Monocle.

Despite this, the local market itself has remained largely unchanged for F&B operators.

Pack your bags and move

Predicting what street or area in Lebanon will be the new “it” nightlife and dining destination has become a game of sorts. From Monot Street in Achrafieh, to Hamra’s revival, to Gemmayze, to Mar Mikhael, to Badaro and this year to Dbayeh and Broummana, it seems that every few years a new area gets its turn in the sun.

The logic behind these frequent relocations is easy enough to understand, as Charles Frem, co-owner and founder of Central Management – which manages five bars including Central Station, Garcia’s and Propaganda Gin Room, as well as Caramel, a boutique hotel in Hamra – explains. “Operators move to new areas because eventually rent in trendy areas goes up and becomes too high. So, for example, in late 2015, an outlet of the same size with a rent of $100,000 in booming Mar Mikhael had a rent cost of $70,000 in Dbayeh – so you are saving 30 percent, which is attractive.”

Pioneering restaurateurs and nightlife operators thus move around the country, chasing lower rents and creating new destinations that, once successful, draw in other operators who also invest in the location to remain competitive and relevant.

“We are still expanding because you have to expand to survive,” says Donald Batal, founder of the restaurant management company Ministry of Food, which operates Classic Burger Joint (CBJ) and Tomatomatic, and which has opened more than four branches of CBJ in Lebanon this year.

A share of the pie

Had Lebanon’s economy been thriving, the popularity of a new area would be a welcome addition to a lively hospitality scene. But with the unstable situation in the country over the past five years – in terms of a dwindling purchasing power and fewer tourists who will go out and spend – the rise of one area often means the death of another.

According to George Achkar, the developer of F&B clusters Printania Villa and Printania Garden in Broummana, and operator of three restaurants within Printania Garden, the problem in Lebanon is that the market has trends, but no sustained growth.

“Whenever an area becomes trendy, everyone moves there and the previously trendy area withers away. Then rent in the trendy area becomes expensive, so they move to another area and so on, but that is because the market is small and there is no growth. This has been the trend for the past five years. If you had growth they would all work, but we don’t have enough people.”

Bye Bye Birdie

As such, the last quarter of 2016 saw downtown Beirut’s Uruguay Street say goodbye to Main Street, the last remaining pub on the street. What had once been a flourishing nightlife destination with around 30 bars crammed into one pedestrian ally now has only one CBJ outlet left standing.

Operators of outlets on Uruguay Street cited the anti-government protests that took place in Downtown in mid-2015, along with the subsequent closure of certain areas by security forces, as reasons for the decline of the street. But others admit that clients simply moved to the more “happening” Mar Mikhael and even Dbayeh, which emerged as a destination in early 2016.

Hamra’s Makdessi Street also witnessed a continued decline in nightlife traffic. This prompted Frem to relocate the Latin themed bar/restaurant Garcia’s to Dbayeh, and Rabih Fakhreddine, CEO of 7 Management, which manages lounge bars including Seven Sisters, Black and Feb 30, to relocate Feb 30 as well (to an as yet undisclosed location in Beirut).

Despite the bar cluster at the beginning of Makdessi Street still doing well on weekends and during happy hour after work, Frem explains that, at the macro level, the street’s nightlife activity has declined over the past couple of years. It now survives on the business of Hamra’s residents and those who work in the vicinity.

Dbayeh, darling

Hospitality streets in Beirut such as Mar Mikhael and Badaro continued a slow expansion in 2016, but it was Dbayeh that witnessed the most dynamic growth.

Talks of F&B operators launching new concepts in Dbayeh had been circulating for three years, but they finally materialized in late 2015 with the opening of The Village, a hospitality cluster project spearheaded by Venture Group.

Following that, a slew of standalone restaurants and clubs launched in the area. The long-standing Blueberry Square hospitality cluster on Dbayeh’s highway reinvented itself and introduced six bars on its ground floor, while the culmination of the year was the opening of Gardens in October 2016, a restaurant cluster concept close to ABC Dbayeh’s exterior entrance.

Putting aside the lower rents that made it an attractive region for investment, a Dbayeh expansion made sense given that the region was previously underserved in terms of bars and restaurants.

“When we decided to invest in Dbayeh, the area did not have many nightlife venues and people living there had to come to Beirut for a night out. So we saw it as a good opportunity, since it is also the midpoint between Keserwan and Beirut and attracts those in Metn and the surrounding areas,” says Toni Rizk, CEO of TRI Concepts, which manages gastro bars such as The Bohemian and Trumpet – which has two branches, one in The Village Dbayeh and the other in The Backyard Hazmieh.

This move to Dbayeh has opened up new markets for Beirut’s F&B operators. “We wanted to diversify our portfolio because previously all our venues were in Hamra or Downtown. We developed a new client base through Antika Bar, as its main customers are from Metn, Keserwan and even Byblos,” says Fakhreddine, speaking of the vintage Lebanese bar his company launched in Blueberry Square in mid-2016.

In comparing Dbayeh’s Gardens experience to his Mar Mikhael venue, Michel Yazbeck, the owner of Mar Mikhael’s Sud restaurant – which recently opened a branch in Gardens, along with two other concepts, La Petite Table café restaurant and Heights bar – says Dbayeh has proven to be a stronger market for their restaurants for a number of reasons.

“Accessibility is better here in that there is no traffic to reach us. Also, the project itself is an attraction in the area and gets a lot of visitors. Finally, the average age [of customers] at Gardens is higher than that of Mar Mikhael, which means they can and do spend more,” he says, citing an average bill per person for Sud Mar Mikhael at $35, compared to $41 at Gardens.

Betting on Dbayeh also proved to be a success for Zahi Rizkallah, owner of Lebanese restaurant Enab and the developer of Gardens, who says they received 30,000 visitors to Gardens in the month following its opening.

Keep it close

Such expansions into areas outside Beirut became the norm in 2016, starting with Dbayeh’s two clusters and numerous standalone venues, and moving on to the F&B cluster The Backyard, also by Venture Group, which launched in Hazmieh in June 2016 and to Printania Villa in Broummana, which opened in July 2016.

Restaurants and bars also opened in substantial numbers in Byblos and Jounieh, not just as the usual seasonal outlets for the beach crowd, but as year-round options for those living in and around the area. This growth out of Beirut is mainly meant to serve the communities in those areas, not those residing in Beirut and looking for a change, according to Batal, who has recently opened CBJ outlets in The Backyard Hazmieh, Byblos and even Ehden and Rayfoun in north Lebanon.

The success of these outlets is attributed to their convenience, both for those who don’t want to drive all the way to Beirut for a drink and for those who feel safer staying close to home when there are security incidents in Lebanon. “The political instability in the country led to a decentralization of outings, where people preferred to go out closer to home rather than coming to Beirut, and now they have a wide variety [of options] close to them, which is comfortable for people,” explains Frem.

Seasons in the Sun

Also successful this summer were the seasonal outlets such as the rooftop bars, beach bars and hospitality clusters that recently opened in the mountains. Fakhreddine says Seven Sisters, his seasonal lounge bar in Beirut’s Waterfront, experienced record sales and boasted 1,200 customers on a busy night. Meanwhile, Achkar cites valet parking figures of 900 cars per day at Printania Villa and Printania Garden, which also operate exclusively during the summer.

The appeal of summer venues lies in their seasonality, which creates a sense of urgency to visit, and also in the overall positive ambiance of the summer season. “Summer is different than winter; people are happy and want to go out every day. Plus, in our clusters, we have a mix of all types of cuisines and vibes so there’s something for all tastes,” says Achkar, adding that tenants in Printania Villa have already experienced a return on their investments because of the high turnover and the relatively low investment figure, since outdoor venues don’t require as much in terms of décor.

Once summer is over, many of these operators open a winter venue, the logic being that they retain their staff and maintain their client base for the winter, according to Fakhreddine, who opens Black in Beirut Souks the weekend after he closes down Seven Sisters. Here again, the short time that these outlets are operational encourages people to visit while they can.

Dog eat dog

Whether in or out of Beirut, and whether seasonal or yearlong, it seemed that every two weeks a new F&B outlet was opening somewhere in Lebanon in 2016, and even more are planned for 2017.

Restaurateurs and nightlife venue owners interviewed all say that would-be investors are attracted to what seems to be easy profits and don’t realize that it takes a lot of back office work and experience to operate a successful restaurant or bar. “Everybody is entering F&B because they think it makes a lot of money, but they don’t know how high the costs are. It is more than just selling food, it’s an industry by itself and a financial drain,” says Yazbeck, adding that the market will eventually self-regulate, but in the meantime, their businesses will be affected by a temporary loss of sales as clients go discover these new places.

Would-be investors are attracted to what seems to be easy profits and don’t realize that it takes a lot of back office work and experience to operate a successful restaurant or bar

F&B woes

This increased competition comes at a time when Lebanon’s F&B operators are working to satisfy a local market with an ever-decreasing purchasing power and an ever-widening scope of options to choose from.

A minimal flow from tourists over the past five years has meant that this local market has become the sector’s bread and butter, and so operators have become experts at providing Lebanese and residents with a good time at an affordable price, while still being cost efficient and at minimum breaking even.

The main problem with serving the local market lies in its relatively low purchasing power. “The issue is that while the volume is there, meaning there are still people who go out and we are all fighting over them, you don’t feel they are going out and spending comfortably anymore. The average bill is decreasing every year,” says Rizkallah, explaining that clients now prefer to go out several times a week and spend less each time rather than spend all their money on one big outing a week.

Changing habits

Not only is the average bill decreasing, but customers are also reconsidering where and how they spend their money. As such, cafés, with their variety of small dishes and an average bill of $30 or less, grew more popular in 2016. Rizkallah, who describes Enab as more of a café than a restaurant, says he has experienced 20 percent growth in Enab Mar Mikhael from last year, while Yazbeck says his café concept La Petite Table has been almost always full since its opening in October.

Clients who used to visit multiple outlets in one evening (having a drink somewhere and dinner somewhere else) are preferring to stay in one place, causing operators to try and provide the complete experience. “We are strengthening our food menu because people are eating more in pubs than before. They see that the vibe is nicer, with music and cocktails, and since they want to go out to only one outlet which has a bit of everything, we are providing them with that,” says Rizk.

Out of Lebanon

Another effect of Lebanon’s narrow market over the past five years is that F&B operators with successful concepts in the country are choosing to take them regionally, and even internationally.

This has been a growing trend for the past three years with success stories like Addmind’s expansion into Dubai with Iris, WHITE and their other nightlife and F&B venues, Burger Co.’s success in London and Semsom’s growth in New York. They have proven to Lebanese operators that they can succeed abroad with the right concept and strategy.   

According to those interviewed, a regional expansion secures a market for their brand that is not only larger than the Lebanese market, but also more stable. While the GCC countries are still the most cited destinations for growth, Egypt is also an area where some operators are looking to expand to. “Our reputation here helped us succeed abroad, especially in the last few years when the majority of tourists in Lebanon came from Egypt, so they know us well,” says Rizkallah, explaining that the Egyptians who visited appreciated the Lebanese food and unique ambiance at Enab, which they plan to replicate in their venues there.

We survived and did well at the hardest times and learned a lot about managing our business efficiently

A bright future

It has been almost five years of fierce competition and adaptation for the country’s restaurateurs and nightlife operators and, as 2017 looms on the horizon, there is a sense that it is finally time to reap the rewards of all the tests of fire they have been through.

“We survived and did well at the hardest times and learned a lot about managing our business efficiently. Now we are ready to benefit from the good times and can’t wait to take advantage of the lessons we have learned over the past few years,” says Fakhreddine, adding that his company 7 Management’s huge investments in Lebanon are a sign that they still believe in Beirut and Lebanon.

As such, many see the increase in the number of outlets in 2016 as preparation for cementing Lebanon’s name as a food destination in the future. “It’s healthy to see more restaurants open, you just need traffic and we are looking forward to that in 2017. We have been recognized on many platforms as an exciting city to visit, and I think the restrictions on coming to Lebanon will be lifted so all these restaurants and pubs will be great to attract people. And we are very well known for our amazing hospitality, concepts and service. I think we have an edge over other areas,” says Batal.

“In my 16 years in the sector, I can say that we have passed through harder times than this, although this is probably the longest stretch of economic instability. But the point is that the hospitality sector in Lebanon always bounces back. We were positive before and we remain positive now,” concludes Rizk. For the sake of all the investments made in this sector, let’s hope they pay off.

Nabila Rahhal

Nabila is Executive's hospitality, tourism and retail editor. She also covers other topics she's interested in such as education and mental health. Prior to joining Executive, she worked as a teacher for eight years in Beirut. Nabila holds a Masters in Educational Psychology from the American University of Beirut.

*

Top