The once mighty food and beverage (F&B) sector is today falling under the weight of the current economic crisis—the dollar shortage, increased cost of living due to exchange rates, and lower purchasing power—and lack of tourists, with no respite in sight. Once optimistic F&B operators, who had always insisted that the sector was resilient enough to withstand internal turmoil, are nowadays at a loss for words when asked about the current state of F&B sector in Lebanon and its future.
The early indicators
Despite the first nine months of 2019 being good for tourism in Lebanon, F&B operators told Executive that they did not feel the positive effects, instead continuing to face the difficulties they had encountered in 2018 and then some.
Executive reported at the end of 2018 that the F&B sector was suffering from an unregulated market and a subsequent increase in competition that had negatively impacted many venues. This continued this year as well, according to Jean Claude Ghosn, CEO of Ghia Holding, a hospitality management company that owns and operates Duo and Ahwak, among other restaurants. “The F&B industry has been suffering since the end of 2017,” he tells Executive. “This is mainly due to an increased supply of F&B outlets [coupled] with a decrease in demand as local consumers’ purchasing power dwindled. Summer in Beirut used to be busy, but over the past three years the market has been expanding to areas out of Beirut. This spread the supply and—with demand [from tourists] not increasing significantly—also created a problem: increased competition with not enough market demand was the core of the problem.”
Another issue the sector has faced since 2018 is the hike in taxes for some imported foods and alcohol in June 2019, which drove up operators’ cost margins. “Our cost was rising, but we could not increase our prices because our customers were already struggling under the increased cost of living brought on by the increased taxes on them as well,” explains Toni Rizk, CEO of TRI Concepts, a hospitality management company that owns and operates Almodovar and The Bohemian, among other nightlife venues. “As a result, people were going out less, and spending less when they did.”
According to Joe Njeim, owner of Paname in Saifi Village and managing partner of Leila, a Lebanese restaurant with several outlets in Lebanon and the region, banks also contributed to the challenges the sector was facing by reducing the number of newly issued subsidized loans in 2019 to almost zero.
All of these factors combined led the Syndicate of Owners of Restaurants, Cafes, Nightclubs, and Pastries (SRCNP) to issue a statement in early October 2019, warning that 130 F&B establishments had shut down in September alone. The statement also alleged that summer 2019 was not as good as expected due to the security incident in Qabr Shmoun on June 30 which made some tourists wary of visiting Lebanon. Executive was unable to obtain Ministry of Tourism numbers to confirm this.
Although the F&B sector has been resilient to challenges Lebanon has faced in the past, overcoming the events of the fourth quarter of 2019 proved harder. “Maybe the size of the disaster was bigger in July 2006 (when the majority of outlets in Lebanon closed for two months during the war with Israel), but the difference is it was coming after several years of a very solid economy, and so of good profitability and growth for the sector,” Njeim says. “So we were able to endure those two months of losses and paid full salaries and rent. Today there is a big difference, we’ve had three previous years where the sector had been suffering from a bad economy and a low
After the last straw
The F&B sector was already suffering before the onset of the October uprising, which made withstanding its subsequent pressures that much harder.
In the early days of the uprising, when there were almost daily road closures, many F&B outlets—whether in malls, clusters, or standalones—shut down for an average of 12 days, which negatively impacted sales, according to those interviewed.
With bank closures, limits on cash withdrawals, and an absence of dollars in the market, consumers are more keen than before to hold on to their money. Even those who do have disposable cash in their hands are not in the mood to spend it, says Njeim. “You need a certain mood to spend your money on outings, and the mood on the streets today is cautious and not conducive to spending,” he says.
It is no wonder then that Ghosn says sales in his venues have dropped almost 70 percent since October 16, while Njeim places the average drop in revenues at 40 to 60 percent across the sector depending on the location (interview conducted in mid-November).
Some areas in proximity to Downtown Beirut appeared to be doing better than others—since protestors would head there for a break between demonstrating at Riad el-Solh or Martyr’s Square—but F&B operators say this is not telling of the sector as a whole. “Even if the venues in proximity to Downtown had increased activity for a week or two when the protests were at their peak, in the long run this has no real impact on their bottom lines and is not indicative of the sector,” Rizk says. “We have to think of the long-term survival and see where we are going.”
When the doors close
On November 25, the SRCNP released another statement saying that out of 12,000 F&B outlets in Lebanon, 265 had closed down over the past two months (October and most of November), a figure which online restaurant directory and delivery app Zomato collaborated. In an interview with Executive, Tony Ramy, president of the syndicate, warned that if the situation continues like this, there could be as many as 400 outlets closed in a three month period (from start October to year’s end).
Putting these figures in context, according to Zomato, 1,196 outlets have closed down so far in 2019 (mid-November)—but approximately 1,209 venues have also opened. This is similar to last year in terms of restaurant closures and openings roughly negating each other, but what has changed is the rate at which this turnaround is happening. In 2018, restaurant closures and openings only reached around 500 outlets respectively for the entire year.
Those in the sector therefore remain apprehensive, particularly in regard to what this heightened rate of restaurant closures means for the economy and the country as a whole. “Today it is about one thing and one thing only: the survivability of our operations, and the survivability of our employees,” Ayoub says. “If a sector like the [F&B] sector breaks down, it would create a high level of social chaos. It would put 150,000 people and their families at risk of losing their job, which also means being out of the national social security fund (NSSF) and not having a paycheck at the end of the month—it would be a disaster.”
Since the protests, some of the operators Executive spoke with in interviews from mid to late November say they have given their employees pay cuts across the board, while others said they have decreased the number of shifts their staff work or cut down on opening hours in general—with the knock-on effect on salaries. Some have also shuttered some branches—Ghosn has closed two branches of Ahwak in Saida and Choueifat, for example—and laid off employees.
Hand in hand
Those Executive interviewed in the F&B sector have called for support and understanding across the entire hospitality chain—and for personal sacrifice at each level—to keep the sector going. “Developers and landlords have to think rationally and accept deferred payments, or decrease rent to keep operators and their venue going,” says Rabih Saba, co-partner of Venture Group, an operator of hospitality clusters. “Local distributors also have to understand that they need to make less profit to keep the industry going. Employees have to understand that, in light of circumstances, they need to focus on retaining their jobs and on surviving this period—they need to think long term. International suppliers also have to understand that their profit is at stake if they are not more sensitive to the needs of the sector. The hit has to be across the board.” He argues that the F&B sector is at risk of a domino effect, whereby if one element in the chain chooses to think individualistically, the entire industry is at risk of collapsing.
Indeed, all operators Executive spoke to have asked for leniency from landlords when it comes to rent payments, saying that this is their biggest expense. Others have asked for support from the government through tax breaks: “In most countries, private investors are encouraged to put money in by giving them tax breaks,” Rizk says. “This should be the case for F&B in Lebanon. The government should look into decreasing taxes on the sector by lowering taxes on imported goods, such as alcohol
The list of demands proposed by the SRCNP incorporates these demands and more, for example calling for debt restructuring from banks. The syndicate has promised to lobby for the needs of the sector starting next year, if they feel that measures called for are not being taken on board.
While operators are asking for the swift formation of a government, they recognize that this alone is not enough to fix the situation that they and the country are suffering from. “Even if the government is formed today, the economic situation will take time to stabilize—and until that happens there is no purchasing power, and so no spending on F&B,” Ramy says. “When the situation stabilizes, we really need to work on the sector and have a proper tourism strategy that attracts new markets to Lebanon. There is a lot of work to be done, which includes our adjusting our prices, working on preserving our natural environment and resources—a lot of things need to be done.”
For the first time in the seven years this writer has been covering the industry, questions on future plans have gone unanswered. Hospitality operators Executive spoke to do not want to talk about their plans for 2020, and most say all future projects are on hold (with the exception of Njeim who says he will continue with plans of opening a Lebanese cuisine restaurant in Downtown Beirut in early 2020). Operators are instead focusing all their energy on weathering the current storm, so that they and their team can live to see another, hopefully brighter, day.