Hospitality businesses see fewer customers and higher costs

Hospitality businesses in Minnesota have been struggling with slower than normal traffic leading into the peak summer season, according to a survey conducted by the Minneapolis Fed and Hospitality Minnesota.

The May survey, which received 111 responses from across the state, found that nearly half of businesses reported being in a weak financial position amid high costs and increased uncertainty.

Most hospitality firms were still hiring despite the uncertainty and said that finding workers was less difficult. But these improvements did not help overall expectations; outlook was more negative than positive for business in the coming months.

Customers pull back

A majority of respondents reported that customer traffic had declined, contributing to lower revenue and profits in recent months relative to the same time last year (see Figure 1). Although many respondents depend on the remaining summer months to support their business, the spring decline left businesses with weakened finances heading into the season.

“Customers seem to be a little more cautious with making plans to travel due to current economic climate,” wrote the owner of a northern Minnesota hotel. A hotel owner in the Twin Cities reported a similar trend. “I have had more cancellations than usual for summer reservations.”

Expectations for revenue and profits in the summer months were more optimistic but still tempered. Those in the Twin Cities metro had lower expectations for the season than those outstate. Some mentioned that office workers were still largely absent in downtown Minneapolis and St. Paul, and summer road construction wasn’t helping to encourage visitors to the area.

New and old challenges

Increased wages and salaries were a top challenge for businesses (see Figure 2). Many mentioned that they needed to continue to increase wages to attract and retain workers, while others said that the costs related to recent paid time off legislation in the state were adding strain.

“We need workers to be there when the customers are there,” said the owner of a restaurant in southern Minnesota. “If we are paying them to not be there, and have to pay others overtime to cover, it makes it hard to make ends meet with already tight margins.”

Respondents also blamed persistently rising prices for driving customers away, an issue that has been hitting the industry hard over the last three years (see Figure 2). Additional price increases from new tariffs compounded those concerns, adding more economic uncertainty for both customers and businesses.

“Vendors are increasing prices ‘just in case’ and ‘planning ahead’ for tariffs that may or may not actually affect products,” wrote the owner of a northern Minnesota resort.

Over 50 percent of respondents estimated that wholesale prices had increased 5 percent or more since the same time last year. However, businesses seemed more reluctant to pass these prices on to their customers; only 25 percent increased retail prices by this amount (see Figure 3).

“The only counteraction is to again raise prices, which then drives the guest count down,” wrote the owner of a restaurant in a Twin Cities suburb. “It has been a downward spiral with inflation, increased prices, and regulations.”

“More money out of consumers’ pockets to pay higher prices on goods will leave less discretionary funds for vacation and travel,” wrote the owner of a North Shore resort.

Hiring persists, but outlook turns gloomy

Despite high costs, most businesses reported that they were still hiring. Many were looking to replace turnover or were hiring part-time and seasonal workers; only 15 percent were hiring full-time, permanent staff.

For those who were hiring, finding workers to fill open positions was less difficult than it had been in prior years. “This has been the best year in at least the past five years for hiring staff,” wrote the owner of a resort in central Minnesota.

The owner of a Minneapolis catering company added that they “have not experienced a difficulty getting response to posted ads but have felt that the quality of applicants has decreased and that the pay expectation for certain positions has gone up.”

While increased labor availability was one silver lining, expectations for the peak summer season were cloudy overall. More respondents had a negative outlook for their hospitality businesses over the next six months than those that had a positive one. This was a notable change from the usual net positive outlook reported by respondents in the last few years amid other challenges.

Respondents noted numerous concerns for the coming months, including worries that prices will continue to increase. The owner of a Minneapolis restaurant pointed to “rising prices for insurance, utilities, wages. All expenses are on the rise.”

And those rising costs may continue to affect company patrons as well.

“The travel industry will suffer due to less money for the average person to be able to afford leisure time vacations,” wrote the owner of the northern Minnesota resort. “Significantly less people from abroad want to vacation in the US. This negatively affects my business now and into the foreseeable future.”

The Tourism & Hospitality Survey was conducted from May 7 to May 28, 2025. The online survey received 111 complete responses from a convenience sample of hospitality and tourism industry business contacts in Minnesota. Fifty-two percent of respondents were from the Minneapolis–St. Paul metro area, and 48 percent were from across Greater Minnesota. It was distributed in partnership with Hospitality Minnesota. Results are not representative and should be considered a snapshot of current conditions.