SUMMER BROUGHT MIXED BAG FOR HOSPITALITY INDUSTRY ECONOMIC RECOVERY
Revenue underperforms projections as operators face concerns on workforce and inflation
Revenue underperforms projections as operators face concerns on workforce and inflation
While the majority of operators met or surpassed pre-pandemic revenue for the summer season, the hospitality industry broadly underperformed its aggressive revenue projections from May. According to the most recent survey conducted by Hospitality Minnesota, the Federal Reserve Bank of Minneapolis and Explore Minnesota Tourism from August 15-24, 65% of hospitality operators matched or beat their 2019 summer revenues. This was 10 points off of the 75% predicting such conditions in our last survey. While disappointing, the multi-year recovery overall continues as 88% of operators indicate that conditions have been either improving or steady over the last 6-9 months.
Challenges related to workforce shortages and inflation persisted at high rates. 85% of operators continue to describe labor availability as “tight” and 77% of operators are reporting inflation has driven their costs for goods and services up 5-10% over the last year (relatively unchanged from May). While the jobs deficit gap has improved since May, the industry remains down 17,000 workers from pre-pandemic levels.
Challenges related to workforce shortages and inflation persisted at high rates. 85% of operators continue to describe labor availability as “tight” and 77% of operators are reporting inflation has driven their costs for goods and services up 5-10% over the last year (relatively unchanged from May). While the jobs deficit gap has improved since May, the industry remains down 17,000 workers from pre-pandemic levels.
KEY TAKEAWAYS
- Summer Revenue Falls Short of May Projections In May, for the first time in the pandemic era, 70% or more of operators in each sector projected summer revenue would meet or surpass pre-pandemic levels. Unfortunately, the industry did not meet these recovery goals.
Operators Projecting Summer Revenue Would Meet or Surpass 2019 vs Actual
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SECTOR
All Hospitality
Resort/Campground
Hotel/Motel
Foodservice
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PROJECTION
75%
80%
80%
70%
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ACTUAL
65%
81%
68%
55%
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- Resort and Campground Sector Continues to Shine Taking advantage of strong recreational travel demand, the resort and campground sector continued to dramatically outpace other sectors with 81% meeting or surpassing pre-pandemic revenues.
- Workforce Shortage Continues 85% of hospitality operators continue to report labor availability as tight, despite thousands of workers entering the hospitality workforce.
- Inflation Challenges Persist 77% of operators continue to report inflation has driven their costs for goods and services 5-10% higher or more over the last year. It’s concerning that consumer demand is also being negatively impacted by inflation at an increasing rate.
- Longer-Term Financial Health Continues to Stabilize 88% of operators indicate that conditions have been either improving or steady over the last 6-9 months. 82% responded that their financial health is growing or stable/positive. 73% indicate that they do not expect solvency to be an issue in the next year. Nearly half of operators assert that revenue has returned to pre-pandemic levels.
Read on for a fuller analysis of the survey findings.
Hospitality Industry Revenues Miss Summer Projections
Optimism was high in May as for the first time in the pandemic era 70% or more of operators in all three sectors projected revenues would meet or surpass pre-pandemic levels. Unfortunately, the summer season did not play out as hoped. The foodservice and hotel sectors missed projections by double digits (see above). That said, an increasing percentage of operators returned to pre-pandemic revenue levels, a sign that the recovery continues to head in the right direction overall.
Optimism was high in May as for the first time in the pandemic era 70% or more of operators in all three sectors projected revenues would meet or surpass pre-pandemic levels. Unfortunately, the summer season did not play out as hoped. The foodservice and hotel sectors missed projections by double digits (see above). That said, an increasing percentage of operators returned to pre-pandemic revenue levels, a sign that the recovery continues to head in the right direction overall.
Percent of Businesses Meeting or Surpassing Pre-pandemic Revenue
This is the third quarter in a row that the number of operators achieving pre-pandemic revenue levels has underperformed projections. As we warned in May, expectations should be tempered by the ongoing fluidity of economic and other conditions. Those cautions have been borne out, especially as it relates to inflation and consumer demand (see below).
This is the third quarter in a row that the number of operators achieving pre-pandemic revenue levels has underperformed projections. As we warned in May, expectations should be tempered by the ongoing fluidity of economic and other conditions. Those cautions have been borne out, especially as it relates to inflation and consumer demand (see below).
Financial Health and Solvency Continue to Stabilize
88% of operators indicate that conditions have been either improving or steady over the last 6-9 months, relatively unchanged from May. 82% of operators say their financial health is growing or stable/positive, representing a four-point increase.
88% of operators indicate that conditions have been either improving or steady over the last 6-9 months, relatively unchanged from May. 82% of operators say their financial health is growing or stable/positive, representing a four-point increase.
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73% of hospitality operators state that they are not concerned about their business’ solvency over the next 12 months, the highest level of such response for 2022. This is a modest increase from the 70% who responded similarly in May and up significantly from 59% in March. For context, in March of 2021 (prior to full re-opening) only 42% felt this confidence level.
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Hospitality Jobs Deficit Shrinks yet Labor Availability Remains Historically Tight
Minnesota added 25,000 hospitality and leisure jobs since May according to state records. This resulted in the “jobs deficit” (the number of lost jobs from pre-pandemic levels) in our industry shrinking to roughly 17,000 from nearly 29,000 in May. While this is positive movement, 85% of operators continued to describe labor availability as “tight.” Still, the percent responding “very tight” decreased to 56% from 64% a modest improvement in that category.
Minnesota added 25,000 hospitality and leisure jobs since May according to state records. This resulted in the “jobs deficit” (the number of lost jobs from pre-pandemic levels) in our industry shrinking to roughly 17,000 from nearly 29,000 in May. While this is positive movement, 85% of operators continued to describe labor availability as “tight.” Still, the percent responding “very tight” decreased to 56% from 64% a modest improvement in that category.
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May 2022 Labor Availability
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August 2022 Labor Availability
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Impact on the Broader State Economy
The job losses in hospitality are the driving factor in the state’s broader jobs deficit when compared to pre-pandemic employment numbers. Statewide, Minnesota’s private sector currently has 22,495 less jobs than in July 2019, and hospitality makes up a whopping 77% of these job losses. While the numbers are moving in the right direction, clearly there is more work to be done in the state’s economic recovery to help get people back to work.
Jobs Deficit Driven by Minneapolis and other Metro Cities
Our analysis of the most recent jobs data released by the Department of Employment and Economic Development indicates that hospitality job losses are concentrated in the metro and disproportionately by the city of Minneapolis. We analyzed the 21 cities in the metro area with over 20,000 workers each and found that these cities made up 82% of the statewide jobs losses in our industry. The City of Minneapolis alone accounts for 32% of statewide hospitality jobs losses, despite only representing 7% of the state’s population. Of the metro cities analyzed, the average percentage hospitality jobs loss from 2019 to 2022 was -13%, yet Minneapolis was nearly ten points worse at -24%. While the city is on its way to recovery, lodging occupancy remains nearly 20 points off historic norms and downtown office building occupancy is barely over 50% according to data shared by the Minneapolis Downtown Council. Operators are cautiously optimistic that returning events, business travel, and office occupancy this fall will hasten recovery. Meanwhile, in order for the city, region and state economy to fully thrive, the city must continue to address public safety and transportation concerns for both its workers and visitors.
The job losses in hospitality are the driving factor in the state’s broader jobs deficit when compared to pre-pandemic employment numbers. Statewide, Minnesota’s private sector currently has 22,495 less jobs than in July 2019, and hospitality makes up a whopping 77% of these job losses. While the numbers are moving in the right direction, clearly there is more work to be done in the state’s economic recovery to help get people back to work.
Jobs Deficit Driven by Minneapolis and other Metro Cities
Our analysis of the most recent jobs data released by the Department of Employment and Economic Development indicates that hospitality job losses are concentrated in the metro and disproportionately by the city of Minneapolis. We analyzed the 21 cities in the metro area with over 20,000 workers each and found that these cities made up 82% of the statewide jobs losses in our industry. The City of Minneapolis alone accounts for 32% of statewide hospitality jobs losses, despite only representing 7% of the state’s population. Of the metro cities analyzed, the average percentage hospitality jobs loss from 2019 to 2022 was -13%, yet Minneapolis was nearly ten points worse at -24%. While the city is on its way to recovery, lodging occupancy remains nearly 20 points off historic norms and downtown office building occupancy is barely over 50% according to data shared by the Minneapolis Downtown Council. Operators are cautiously optimistic that returning events, business travel, and office occupancy this fall will hasten recovery. Meanwhile, in order for the city, region and state economy to fully thrive, the city must continue to address public safety and transportation concerns for both its workers and visitors.
Inflation Concerns Remain High, Consumer Demand Softening
77% of hospitality operators indicate that the prices they pay for goods and services have jumped by 5-10% or more over the last year, virtually unchanged from May:
77% of hospitality operators indicate that the prices they pay for goods and services have jumped by 5-10% or more over the last year, virtually unchanged from May:
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May 2022 | Price Changes Over Year
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August 2022 | Price Changes Over Year
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In May we noted the trend that while 76% of operators were seeing wholesale increases at 5-10% or more, only 50% were passing on similar cost increases to customers. This trend has continued through the summer season, as now only 43% are passing on similar cost increases to customers, presumably due to perceived price sensitivity concerns in the current economy. Given the razor thin margins many hospitality businesses operate on, absorbing such additional costs without offset is not sustainable and furthers the economic squeeze many are facing.
Also noted in our May report were concerns that consumer demand for travel and dining could be impacted by ongoing inflation conditions. While early summer demand remained high, national reports indicate that Americans are now dramatically changing spending habits in reaction to inflation. For example, according to a survey by Morning Consult, two-thirds of consumers are curtailing spending. Of those, three-fourths are spending less on travel or not travelling and 90% are either not dining or spending less on dining.
In addition to rising costs, supply chain problems persist with 92% of operators expressing some level of difficulty obtaining necessary goods and services, posing additional challenges to business operations.
Return to Normal
We have been projecting a multi-year recovery since the early days of the pandemic. 57% of restaurant and 59% of hotel operators indicate that they do not anticipate revenue to return to pre-pandemic levels until 2023 or later. In contrast, 70% of operators in the resort and campground sector indicate they have already returned to pre-pandemic revenue levels. As we move into fall, we will continue to closely watch inflation pressures, consumer demand and workforce levels as major impacts to the speed and depth of the economic recovery. The industry continues to work to rebuild the workforce pipeline, and the Hospitality Minnesota Education Foundation is at the frontline of these efforts. Operators wishing to learn more and engage in these efforts should contact ben@hospitalitymn.com.
Hospitality Minnesota would like to thank everyone who responded., as well as our partners Explore Minnesota Tourism and the Federal Reserve Bank of Minneapolis. This data is a critical part of how Hospitality Minnesota advocates for the industry with policymakers, communicates with the media, public, and other key stakeholders, and shares critical insights and actionable intelligence with our members.
Also noted in our May report were concerns that consumer demand for travel and dining could be impacted by ongoing inflation conditions. While early summer demand remained high, national reports indicate that Americans are now dramatically changing spending habits in reaction to inflation. For example, according to a survey by Morning Consult, two-thirds of consumers are curtailing spending. Of those, three-fourths are spending less on travel or not travelling and 90% are either not dining or spending less on dining.
In addition to rising costs, supply chain problems persist with 92% of operators expressing some level of difficulty obtaining necessary goods and services, posing additional challenges to business operations.
Return to Normal
We have been projecting a multi-year recovery since the early days of the pandemic. 57% of restaurant and 59% of hotel operators indicate that they do not anticipate revenue to return to pre-pandemic levels until 2023 or later. In contrast, 70% of operators in the resort and campground sector indicate they have already returned to pre-pandemic revenue levels. As we move into fall, we will continue to closely watch inflation pressures, consumer demand and workforce levels as major impacts to the speed and depth of the economic recovery. The industry continues to work to rebuild the workforce pipeline, and the Hospitality Minnesota Education Foundation is at the frontline of these efforts. Operators wishing to learn more and engage in these efforts should contact ben@hospitalitymn.com.
Hospitality Minnesota would like to thank everyone who responded., as well as our partners Explore Minnesota Tourism and the Federal Reserve Bank of Minneapolis. This data is a critical part of how Hospitality Minnesota advocates for the industry with policymakers, communicates with the media, public, and other key stakeholders, and shares critical insights and actionable intelligence with our members.
