As a new year approaches, Lebanon’s hospitality and tourism sector is limping along in a dismal socio-economic situation — severely sprained but not broken.
According to the latest statistics from the Ministry of Tourism, the number of tourists entering the country during the first 9 months of 2013 is down by 10 percent from the same period in 2012, itself a poor year for tourism. The biggest drop in numbers was from the Gulf Cooperation Council, though there was an overall drop across all nationalities. With an unstable security situation fueled by the war in neighboring Syria, Lebanon is no longer the blossoming vacation destination it once was.
While hotels are obviously the most negatively impacted sector, most other hospitality dependent ventures have suffered as well. Some areas typically frequented by tourists are almost deserted, although a few are witnessing a boom in their local market clientele. Owners of Lebanon’s hospitality venues have been tested in 2013, with only the most seasoned professionals passing unscathed.
Turnover from restaurant purchases at the country’s two main fruit and vegetable markets — a measure used by the Syndicate of Owners of Restaurants, Cafes, Nightclubs, and Patisseries (SORCNP) to assess performance — is down by half from 2012 and by 40 percent at the main liquor distributors.
Even among those restaurant and bar owners still making a profit that Executive spoke to, many experienced a drop in revenues and footfall. “There is a difference between making money every night when the country is stable and making money only on weekends and holidays, which is what is happening now,” says Rabih Mockbel, founder and chief executive officer of Mockbel Holding, which operates a string of venues on Uruguay Street in Beirut. Although Mockbel reports a profit, their margins have dropped 40 percent from 2010.
Here, there & nowhere
Fawzi Ghantous, the food and beverage (F&B) operations manager at Found’d, which owns Downtown, DT, So and The Gathering restaurants, reports a 7 percent decrease in overall profits and a 30 percent drop in turnover but points out that they are better off than many venues which have had to close down rather than incur further losses.
Paul Ariss, the head of the SORCNP, says while many established venues have felt the noose tighten and some clubs in Beirut are operating only on weekends, the situation is much worse outside of the greater Beirut area. “There is certainly a big problem in the mountain areas such as Bhamdoun, Aley and Faraya, and many did not even open this year. In Aley, only around 20 of the almost 80 venues there opened this year. The Bekaa was even worse and some of the big restaurants there lost money this year,” he says.
While it is a given that areas frequented by tourists will suffer as the number of visitors plunges, even those venues which do not generally depend on the largely Arab tourist audience were still affected by their absence: “Though we do not cater to tourists much because GCC nationals usually prefer Lebanese restaurants… those who benefit from tourism in the country spend at our venues and so we are indirectly affected by the lack of tourists,” says Ghantous.
The unstable domestic situation and the lingering global economic crisis discouraged another main hospitality sector energizer, the expat, from visiting as frequently this year, often restricting their trips home to only the major holidays, when previously they may have come for many short visits, even weekends.
“The Lebanese expat is truly the unknown soldier of our economy when you consider that we have more than 1.5 million Lebanese expats in Africa and the Arab countries alone, who spend even more than the Arab tourists when they do visit Lebanon. Our main problem is that they are not visiting as much,” says Ariss.
This drop in international demand forced those in the hospitality business to concentrate their efforts on the domestic market during 2013. “I believe in order to have a successful hospitality venture in Lebanon these days, you need to have the right concept and not be dependent on a potential overflow of customers in the form of tourists or expats,” says Mockbel.
The hospitality venue owners and alcohol distributors Executive spoke to all agreed that the best performing venues of the year were those located in Uruguay Street in downtown Beirut and Mar Mkhayel in the capital’s Ashrafieh, two areas which are generally not tourist reliant.
The local formula
“We designed Uruguay Street to appeal mainly to the resident Lebanese community and it was a success story this year,” says Marwan Ayoub, partner in Venture Hospitality which initially developed the project in the Old Municipality Building on Uruguay Street. The bars on the street generally cater to Lebanese professionals between the ages of 25 and 40 with a comfortable income.
In fact, Mockbel was so convinced of the street’s potential that, following the success of Bronz, his first venture, he rented eight additional venues in the location. Venue operators on the street and Ayoub agree that other elements which contributed to Uruguay Street’s popularity included a good security system, parking access and the backing of a developer which prevented the street from growing in a haphazard manner. “The only concern we downtown venue operators have is that what happened in the past in downtown in terms of sit-ins and demonstrations will happen again; this will truly be a nightmare to all of us who invested in the area,” says Mockbel.
According to Ariss, Mar Mkhayel is one of the few areas that has continued to expand this year as restaurant operators there have focused on concepts with good quality and low prices. Ayoub believes Mar Mkhayel succeeded because the area’s artsy vibe and refurbished heritage buildings offer a unique atmosphere.
Restaurants and cafes operating in malls have a mutually beneficial relationship with the mall operators and have also maintained a solid performance this year, says Ariss. According to Omar Zantout, general manager of consultancy firm Eaternity, Magnolia Bakery — which it brought to Lebanon in December 2012 — sees an average of 300 customers daily in Dbayeh and has just moved to an enclosed space in ABC Ashrafieh where Zantout expects even more customers.
Finally, the summer saw a surge of seasonal outdoor clubs and bars, such as MusicHall Waterfront and Garden State in addition to the weekly outdoor parties by Decks on the Beach, C U Nxt Sat and The Gärten, all highly popular among mainly Lebanese clientele looking to enjoy a cigarette in the open air. Fueled by the smoking ban and a short winter season, open air concepts such as terraces and rooftop bars are indeed a rising trend, according to Ayoub. Furthermore, Lebanese bargoers’ choices tend to be heavily dictated by trends, Found’d’s Ghantous says, explaining why some places soar in popularity while others find it difficult to reverse their dwindling numbers.
Catering to the local Lebanese customer means competing in a very narrow market with a low purchasing power. “The challenge here becomes to show who provides the best in service, drinks and food,” says Toni Rizk, managing partner at TRI Food and Beverage, adding that PR and social media are also important aspects in attracting customers these days.
Indeed, with so many venues competing for attention, restaurant operators have had to struggle to distinguish themselves, and elements such as quality, service and ambiance become even more important — factors Ghantous gives as reasons for two of their venues’ longevity (Downtown has been in operation for 25 years, So for 15).
No purchasing power
The decrease in local purchasing power has also meant that people went out less in 2013 and spent less when they did go out. Ariss speaks of restrained orders from customers who used to order the entire menu at Lebanese restaurants and of decreased profits even in the fast food and delivery operations as more Lebanese try to save money.
“Those who have money are still spending as before but those who are of a mid-income level are spending a bit less, creating a vicious circle where if one does not make money, one cannot spend as much and this in turn reflects on the venue owner. This is normal in tough economic times,” says Rizk.
As a result, some in the F&B business have bet on external success by taking their concepts abroad. But while this has proved successful for club concepts franchised to the UAE — such as Iris, Music Hall, and The One which all opened up abroad in 2013 — Ayoub sees that the market for Lebanese restaurant franchises is being tightened as Gulf nationals are “learning the franchising game and looking at other countries for fresh concepts, making Lebanese concepts less attractive than before.”
In these tough times, the hospitality sector is in need of support. Ariss says that Kafalat, which has given loans to many in the sector, has been very understanding in reprogramming or postponing payments and that the syndicate was in discussions with the government to lift penalties on the sector’s taxes. Ayoub speaks of the banking sector’s support in rescheduling loans and in the continuation of subsidies from the central bank.
Ayoub sees another harsh year of “survival of the fittest” for the hospitality sector in 2014 with some established operators falling out of the race due to their high overhead expenses. “The operations doing well due to local demand are but a drop in the sea of the hospitality sector, which is suffering,” he says.
Though those Executive spoke to are carrying on with their expansion plans and developments, nothing can compensate for the internal stability which can automatically breathe life back into the sector. “We need security and a stable economy and for the tourists to return. Something has to improve so the sector can be revitalized as it is currently not doing well overall. Many people are emigrating to the Gulf due to the lack of opportunities here and no new people are investing in the country as it is becoming very difficult to maneuver in,” says Rizk.