In Lebanon’s service-oriented economy, the hospitality and tourism sector is largely considered a beacon of strength. Its direct contribution to GDP by end of 2018 was 6.5 percent (according to the World Travel and Tourism Council) and it employs 150,000 people, the biggest employer after the public sector, per the tourism syndicates of Lebanon (the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Patisseries [SORCNP] and the Syndicate of Hotel Owners in Lebanon).
Throughout the frequent periods of regional political instability and local insecurities in Lebanon, the hospitality and tourism sector has been among the first sectors to bounce back, demonstrating its resilience numerous times. The current economic crisis, however, is unprecedented in recent memory, and is stretching the industry to its limits, according to those to whom Executive spoke.
No sign of let up
A month into the thawra (revolution), in mid-November 2019, Executive spoke with both F&B and hoteliers to gauge the impact of the situation on their businesses.
Restaurateurs told Executive they had been feeling the belt tighten since late 2017. Among the factors at play was an oversupply of venues and an increase in taxes on some imported foods under the 2018 budget, which had negative impacts on the already dwindling purchasing power of local Lebanese and increased the costs on F&B operators.
Several hotel managers, however, told Executive that they had been having a record 2019 up until mid-October, when thawra-induced street protests impacted tourism levels and hotel occupancy rates fell to single digits almost overnight.
The situation has not improved much since, despite hopes that the holiday season of December would help the hospitality sector bounce back. Georges Ojeil, area general manager of Le Gray Beirut and Campbell Gray Amman, tells Executive that the former hotel’s location in close proximity to the protests is now a curse whereas, in better days, it was an asset to be in the heart of Downtown Beirut.
Maya Bekhazi Noun, general secretary of the SORCNP, says that F&B operators were hopeful that December would bring with it some expats and an increase in nights and meals out. As such, operators who could, waited until 2020 to judge whether they would be able to sustain business in the long run or be forced to shut down. Others were not able to ride out the immediate impacts of the ongoing financial and dollar liquidity crisis. Figures from online restaurant directory Zomato recorded 108 closures in October alone, followed by a further 56 in November and 78 in December. Come January, a further 241 outlets had closed.
No call to raise a glass
Operators who were betting on a successful December to save their business were met with disappointment. Bekhazi says that although sales in the F&B sector were higher in December 2019 than they were in October or November, they were still nowhere near what is typical for a December in Lebanon. “It was a very, very shy month—not the usual festive month season at all—and we did not have the kind of activity that could make a big difference in the long run,” she says.
The main challenge the sector is facing, she explains, is one being faced across the Lebanese economy: the dollar liquidity crisis and increased price of the dollar in the unofficial foreign exchange market, which is impacting both the ability of businesses to secure necessary funds to pay importers and their bottom lines. “Today, as restaurant owners, we spend most of our day identifying which suppliers take Lebanese lira versus dollar or checks versus cash,” Bekhazi says. “Most of them are now asking for cash in dollars while very few of our customers are paying their restaurant bills in dollars anymore—and when they do it is by credit card, not cash. So, we are having to buy dollars at the market exchange rate, which can reach LL2,400 to the dollar on some days, while as restaurants we follow the official rates of LL1,515 on our POS.” She explains that restaurants cannot increase their prices by much for fear that consumers will no longer dine out, and so this is a losing situation for the sector.
Given all these factors, it is no wonder then that 241 F&B outlets closed and only 99 opened in January 2020, with a net loss of 142 outlets. The high number of closures versus openings is indicative because the Zomato compiled data (see figure below) indicates that from June to December 2019 the numbers of outlets closing versus opening have by and large equaled out. This high turnover could have been down to a variety of factors such as operators migrating from a location that is losing popularity to the latest hotspot or a restaurant owner replacing an unsuccessful concept with a new one in the same location. As such, it was not a very concerning when it came to employability nor could it be read as a negative trend in F&B.
The number of openings in January, however, was less than half the number of closures, and those in the industry predict that this gap will only get wider. This has grave implications for the sector’s 150,000 employees, many of whom now find themselves jobless, Bekhazi says. According to a February press release by the SORCNP, 25,000 employees have already been laid off since early September 2019. She estimates that an even larger figure has seen their hours—and so their pay—reduced, with some venues now closing several days a week or shutting down sections of their hotel or restaurant to cut down on costs. Ojeil says that due to the very low occupancy rates they have not been able to pay salaries in full at Le Gray and have introduced a 40 percent pay cut. “We had to do this because it is now a game of how much cash we have in the bank and how we can manage with that,” he says.
The situation is bleak, but despite this Lebanon’s hospitality and tourism sector is still managing to draw on its famed resilience to support some employees in these difficult times. Many Lebanese F&B operators have businesses in the Gulf or Levant—be it a consultancy or an expansion of their outlets—and so are benefiting from that cash flow to sustain their venues in Lebanon, Bekhazi says. They are also using these locations and the networks they have developed in the region to secure jobs for some of their Lebanese employees.
Some hotels are also benefiting from sister properties by sending their employees to work there, thereby reducing their cost and ensuring that at least some of their staff is getting fully paid. Ojeil tells Executive that they will soon be sending 10 percent of their workforce to Campbell Gray properties in Zurich, Bahrain, Liberia, Scotland, and Amman, where they will stay for an initial three-month period.
The main indicator of Lebanon’s economic crisis, namely the weakening of the Lebanese lira to the dollar, could also act as a pull for tourists, as a more favorable exchange on the dollar will work to their advantage and increase their purchasing power. This was seen in Turkey in 2018 and in Greece after 2016, where the low costs drove tourism from the EU.
With spring comes the time for summer planning, and so it would do well for tourism stakeholders in Lebanon to devise a marketing strategy that can attract visitors—and their hard currency—to the country once again. As the sector that has proven the quickest to bounce back after a crisis, the hospitality and tourism sector is best placed in terms of recovery. For Lebanon’s hotels and restaurants who can afford to wait out this period, bluer skies could be as close as summer 2020.