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REGIONAL- The hospitality and tourism industry in Minnesota is down this year, according to a recent survey of businesses conducted jointly by the Federal Reserve Bank of Minnesota, Hospitality …
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REGIONAL- The hospitality and tourism industry in Minnesota is down this year, according to a recent survey of businesses conducted jointly by the Federal Reserve Bank of Minnesota, Hospitality Minnesota and Explore Minnesota, with the Arrowhead facing greater challenges than other regions.
Federal Reserve Bank Director of Regional Outreach Ron Wirtz recapped the survey responses of 266 businesses in a Sept. 27 webinar. The survey was conducted at the end of August, and Wirtz said that while the overall health of the industry is OK, a poor summer overall in terms of revenue has left businesses in an eroding position.
“Unfortunately, I don’t have a lot of great news in terms of some of the indicators that we look at,” Wirtz said. “It was a fairly poor summer overall in terms of revenue. Some of the biggest challenges are some of the same challenges that we’ve seen in the past, inflation and wages in particular, but there are others. We’re seeing pressures for both inflation and wages ease in terms of what people are reporting, but it seems like firms are not necessarily feeling that relief.”
Just over 50 percent of respondents reported that revenue was somewhat or significantly lower than last year, with only 25 percent indicating higher revenues. That’s due in part to lower customer traffic, reported by half of the survey respondents.
Those numbers are in stark contrast to 2021, the first summer of the COVID pandemic without significant business restrictions when people sought out tourist experiences as respite from the quarantines they’d been under. Nearly 70 percent of businesses reported increases in revenue that year, about 30 percent indicating their revenues were significantly higher. Each year since, the number of businesses reporting lower revenue that the year before has increased, a possible indicator that people are returning to pre-pandemic lifestyles.
“It doesn’t mean they were necessarily unprofitable or that revenues were necessarily bad,” Wirtz said. “You may have had a really great year and revenues decline from last year. But again, just on its face, what we saw (this year) is that roughly half of respondents saw revenue decline from last year, and only about a quarter see increases. In general, it seems pretty clear that the pandemic boom has really worn off and and that we’re seeing some adjustments throughout the sector.”
Most businesses don’t expect to recoup any losses going into the fall, and around 80 percent reported expectations of level to decreased revenue and customer traffic compared to last year.
Inflation was the top challenge reported to operations, far outdistancing the second-most reported challenge, wage increases.
Staffing wasn’t as much of a concern in this year’s survey as it has been in the past, Wirtz said.
“Hiring more full-time staff has dropped significantly, and they are also hiring to replace more turnover than they were previously,” he said. “I think a lot of businesses managed to staff up over the last couple of years and so now I think it’s a little bit more of maintaining.
“What our respondents are reporting is that wholesale inflation is still higher than what they are charging to their customers and so they are eating a lot of that price increase. What we are seeing is that the long-term trend is improving modestly but pretty steadily. I’m sure everybody out there who’s listening who’s running a business would love to see lower prices from their vendors rather than just seeing prices go up more slowly.”
North Country impact
The survey breaks down the tourism and hospitality industry into four sectors – goods and services, food and drink establishments, attractions and entertainment, and overnight accommodations. North Country resorts may have seen slightly less impact on their business overall, as the overnight accommodation sector experienced less of a downturn than the other three.
“The only sector that is even close to par is accommodation,” Wirtz said. “And even there, just anecdotally, generally even they have been seeing lower occupancy, but their average room rates have remained fairly healthy, so I think that’s one of the reasons they’re a little bit closer to par.”
However, compared to the rest of the state, the northeast region had the highest percentage of businesses reporting slightly or significantly lower revenues and traffic and the smallest reporting slightly or significantly higher ones.
And while the vast majority of businesses reported little to no impact from the summer floods, the Tower-Soudan area likely missed out on the economic benefits of tourists returning to Lake Vermilion-Soudan Underground Mine State Park. Impacted by the pandemic and then a renovation project which closed the facility in October 2021, the park re-opened for tours in May but closed again in June after the mine’s 27th level became flooded with over nine feet of water from torrential rain and the sump pumps malfunctioned. When open, the park has drawn about 34,000 visitors annually.
Another indicator that the reported losses may not have been felt equally across the North Country comes from preliminary visitor estimates to Voyageurs National Park. While visitor center numbers for the summer have not yet been finalized, manager of interpretation and public affairs Kate Severson told the Timberjay that visitation was up this summer over 2022 and 2023, although pandemic-related closures of visitor centers and boat tours may have led to some underreporting for those years. Severson said staff believe that numbers in 2024 are higher in part because there wasn’t much flooding at the start of the summer compared to previous years.
Specifically for boat tours, VNP saw participation increase from 6,839 in 2023 to 8,773 in 2024. Severson said that also reflects the fact that more tours were scheduled this season and fewer were cancelled.
Overall effects
Wirtz said that the data shows that growth in tourism and hospitality is essentially “stalled.”
“I think we have to be straight up on that,” he said. “I don’t really see any region or industry sub-sector that is seeing wildly different results. Some are better, but it’s mostly in the margins, inflation and wage pressures are both improving but I don’t know that respondents are necessarily feeling that much relief either.”
“Overall financial health is still positive on net,” Wirtz concluded. “There’s definitely been some erosion in the overall financial health of the sector that we’re paying attention to. I think it’s very safe to say this is a very cautious group in terms of what lies ahead.”
And Wirtz noted the limitations of the survey.
“It’s hard to say any point-in-time survey is exactly what is happening,” he said. “We kind of don’t know where we are on the trend line. We try to do as good a job as we can, but not everything necessarily fits in an easy to interpret box.”