Hospitality in times of COVID-19: an unknown future and a dubious present

Hospitality in times of COVID-19: an unknown future and a dubious present

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With the hospitality industry in Lebanon facing its toughest days yet, Nada Alameddine, partner at Hodema consulting services, enlightens us on how restaurants are faring amid the coronavirus pandemic and deepening economic crises.

The picture is bleak. Already hard hit by the spiraling economic and financial crisis, Lebanon’s hospitality industry is now battered by the COVID-19 pandemic and the lockdown that ensued. Since the social unrest began last year, the sector has been powerlessly witnessing hundreds of shutdowns; between September 2019 and February 2020 alone, around 800 establishments went out of business. This wave is expected to continue swelling some time due to the fact that the coronavirus-induced confinement will be followed by further economic decline as the Lebanese pound’s exchange rate keeps plummeting. Even Barbar — the unbreakable flagship closed only half a day in 2005 and a single day in the 90s — has had to drop the curtain to abide by the curfew. Tony Ramy, face and voice of the country’s restaurant owners, is visibly worried for the industry and the 160,000 families it supports. “The coronavirus recession has left no industry untouched, but the tourism business is arguably the hardest hit so far,” he says. “If we take 2018’s revenues of 6 billion USD as a reference, then our losses are estimated to be around 500,000 USD monthly.” The outlook is somber. Restaurants and bars are already fickle businesses and hard to keep afloat, even in the best of times. But the abrupt drop in customer demand due to confinement has been the coup de grâce for many dine-in outlets.

Uncertainty is on the menu

As the country is gradually easing the lockdown, the stronger ones have completely – or at least partially – reopened and trying to adapt to this new normal. “The level of uncertainty in our industry is still high; we are uncertain as to what the new rules and regulations will be, and we don’t know how the new dynamics and landscape of our ecosystem will shift,” says Rabih Fakhreddine, CEO of 7 Management, the group behind Seven Sisters, Feb30, Antika Bar, Kahwet Beirut and Bait as the lockdown was coming to an end. For the less broad-shouldered, reopening could be their swansong before calling it quits altogether.

Rethinking delivery regulations

During the lockdown, some operators have decided to hedge their bets on delivery services. The Lebanese have always been regular takeaway clients, but the trend has boomed with the pandemic, making it the only way to enjoy restaurant cuisine during the two-month confinement. Now that sanitary measures have remained drastic, many people are still reluctant to dine out; some are even hesitant to order food.

Toters, the Beirut-born delivery aggregator, said it suffered from this uneasiness firsthand. Its managing director, Nael Halawani, noticed the change. During the lockdown he saw growth on the grocery front and decrease on the food front. According to him, customers unaware of the safety measures followed by the cooks and drivers were extra cautious.

Besides health concerns, the financial crisis is proving to be yet another headache for restaurant owners trying to maintain their activities. “They are suffering from both the instability of the Lebanese pound and punishing parallel exchange rates,” explains Tony Ramy. “The purchase of raw materials from suppliers is made in the dollar exchange rate of the black market; while business owners still rely on the official dollar exchange rate of 1,515 LBP in their dealings with customers.”

Outlining a rescue plan

So what’s to be done? “It is quite crucial to accept the current facts, move past the shock, avoid anger, and plan for the post-crisis era,” recommends Fakhreddine. “It seems from all current indications that our industry will be the last to reopen; we need to accept this to be able to plan our survival strategy better.” He concludes: “The industry will flourish again. It’s a matter of when and how well you are equipped to wait it out.” Tony Ramy’s ubiquitous syndicate is already standing at the ready to support fellow F&B operators. It is currently drafting an action plan along with the Minister of Tourism’s legal advisor. The syndicate is asking for support measures from the government, such as tax relief, a cut in payroll taxes and a freeze on loan repayments. “The restaurateurs are now hardly able to meet the minimum obligations of their employees on one hand and suppliers on the other hand,” points out Ramy. In statements on March 9 and 11th, 2020 the syndicate was already taking preemptive measures, when the official curfew was decreed on March 14. A website –savelebanesehospitality.com ­– has been set up as well, with a petition to support the industry. And a crisis unit has even been created, with members of the food safety companies GWR Consulting and Boecker to set up sanitary guidelines.

The new dining order

We are also witnessing various individual initiatives and attempts to find local relief schemes. One option is standing out, and that is the online delivery business. But entering the worldwide web is not an easy move. “This is a losing bet if it’s rushed and unplanned. Rushing into it with a traditional mindset is surely not sustainable,” warns Fakhreddine, who advises digital newbies to be cautious. He points out that it is “a whole world that is unknown to the fine-dining segment and other relevant traditional categories” which usually generate high margins on food and higher margins on beverages, mainly alcohol, since it provides a full experience combining entertainment, ambience and foodservice. In comparison, online food delivery runs on very thin margins, a much lower average check and deals with a new aspect of operations which is delivery logistics – with your own fleet or with delivery aggregators – and emphasizes the delivery radius (ability to deliver fast to your customers), involving a different approach to kitchen operations (prep time, rush hours, packaging, food travel and impact on quality and consistency, etc). The CEO of 7 Management’s warning is only intended for mavericks who want to try their hand at something new without careful consideration. But he agrees that there will be a shift in dining habits as we know them. Etienne Sabbagh, managing partner of Le Boeuf Hâché — the company that owns Baron restaurant in Beirut’s Mar Mikhael neighborhood shares his opinion. Sabbagh points out that the percentage charged by delivery apps, which can go up to 25 percent on sales, will sanction restaurants. “This should be decreased,” he advises, a request directly addressed to Toters and Zomato that operate across the country and have a stranglehold on the online ordering and delivery industry.

Dine-in establishments which have already set up an online ordering and/or delivery system, such as pizzas, burgers and snacks, could have a trump card up their sleeves — a cloud kitchen. In essence, a cloud kitchen is a no-dine-in facility working as a production unit dedicated to delivery and less often takeaway. “We will definitely see a rise of cloud kitchens and transformation of existing traditional restaurants into cloud kitchens operations,” says Fakhreddine. The trend has been taking over the world in the last couple of years and has revolutionized the delivery business. But again, there are two sides to the same coin. Fakhreddine warns that this will eventually clutter the market with an overflow of virtual brands. “Cloud kitchens also run on thin margins, so when such a disruptive evolution happens, you would usually note very few winners that would benefit from such a disruption.”

Ramy adds a qualification to this trend. “Such progressive projects require a huge investment and large spaces, which are not available in Lebanon nowadays.” Not to mention that these businesses have traditionally relied on busy customers ordering their lunches to their companies’ doorsteps. The pandemic may see more employees work from home, or lose their jobs altogether.

Shaping the “new normal”

Across the globe, F&B operators are racking their brains to find creative solutions. Many eccentric ideas have emerged, such as an Asian cuisine brand in the US that has switched to making sous-vide meal kits for home cooking and a fast-food chain now offering family-size take-out portions at discounted prices.

The short term is paved with unknowns; will the industry survive this pandemic? If so, will the economic crisis be the knockout blow? Lebanon is no stranger to ups and downs and instability. Like a phoenix that rises from its ashes, the hospitality sector could come out of this alive, albeit not unharmed. The name of the game has changed to flexibility and creativity. “To this end, I trust that the tourism sector will, as always, prove its high resilience and vital role in future recovery effort,” says Ramy, a wish shared by Fakhreddine. “Our industry is one of the oldest industries in the world. It is timeless.”

hodema.net

Nada Alameddine
Partner
Hodema Consulting Services

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