New year, new challenges for Minnesota’s hospitality businesses

Minnesota hospitality and tourism businesses reported heightened challenges during the typically slow winter season in a survey conducted by the Federal Reserve Bank of Minneapolis and Hospitality Minnesota.

The survey received 125 responses from across the state in February and March 2026. More businesses reported declines in revenues and profits than those that reported growth. Many in and around the Twin Cities emphasized that customer demand pulled back during the recent immigration enforcement action in the state.

A little over half of respondents were still hiring workers, mainly to replace turnover or fill seasonal needs. Business owners noted struggles with rising labor costs and new taxes. With uncertainty heightened at the start of the year, businesses’ overall outlook was more negative than positive.

Customers continue to pull back amid unrest

Over half of respondents reported that customer traffic and profits had declined in the fourth quarter of 2025 compared with the previous year.

“We have seen a slow decline in regular diners knowing it comes from less income in their pockets while [having] to increase our prices due to increases in the market,” wrote the owner of a Twin Cities restaurant.

Expectations for the first quarter of 2026 were even more negative. A majority expected their revenue to be down over the year, and over 65 percent expected their profits to be lower as well (see Figure 1).

While expectations were negative across the state, businesses located in the Twin Cities metro were much more pessimistic. Some commented that their expectations were shaped by the recent increase in immigration enforcement and subsequent protests in the state.

The “surge and protests have had major impacts,” wrote the owner of a Twin Cities dining establishment. The business relies on patrons from the greater metro area, “and many are unwilling to come into the city.”

More than half of businesses reported that their operations had been negatively impacted by changes to immigration enforcement activity, most often citing increased staff absences and lower customer demand. Thirty percent had temporarily closed or reduced their hours.

“Customers change habits and stay away, even though the actions of ICE [Immigration and Customs Enforcement] and protests are limited in geographic scope and timing,” commented another Minneapolis restaurant owner.

The few who reported positive impacts from the enforcement action operated hotels that saw increased bookings from federal agents staying in the city.

Rising prices and other costs batter businesses

For respondents across the state, price increases were a big challenge this winter.

“[Cost of goods] continue to nibble away at profits,” wrote the owner of a restaurant outside of St. Cloud. “Many vendors are raising prices multiple times per year when it used to be only once per year.”

Over half of respondents estimated that their wholesale prices had increased 5 percent or more this winter since the previous winter (see Figure 2). Retail prices ticked up, but not to the same extent as inputs.

Businesses that import goods often pointed to tariffs for some of their wholesale price increases. Nearly 60 percent of respondents reported that tariffs had a negative effect on their businesses. A restaurant owner south of Mankato wrote that it was “very difficult to budget for costs when tariffs are added after quotes received.”

Another major challenge businesses reported was state and local government policies, often related to labor. Respondents frequently left comments related to Minnesota’s new paid leave policy that went into effect in January 2026.

The owner of a northern Minnesota recreation business was “concerned about last minute requests for paid leave as our business hires seasonal employees and we operate with limited staffing.”

Amid these policy changes, businesses reported that they were still increasing wages but less so than prior years. Some businesses commented that they needed to increase wages to retain or attract talent, but such raises were difficult to afford.

A small majority of respondents (55 percent) were still actively hiring. Nearly 70 percent of these hiring businesses were looking to replace turnover. Only 17 percent wanted to add new positions.

Chilly outlook for coming months

Outlook for the next six months was downbeat; 45 percent were pessimistic about the next six months compared with 27 percent who were optimistic. The remainder were neutral.

Twin Cities respondents reported a more negative outlook than Greater Minnesota respondents overall. A restaurant owner with locations in and around the metro wrote that their “Minneapolis locations are the hardest hit” by declines in revenues and profits.

However, Greater Minnesota businesses mentioned feeling the effects of the strain in the Twin Cities as well. “When the metro is optimistic and doing well, we do well,” wrote a hotel owner along the North Shore. “So, get the metro to feel better and we will do okay.”

The Minnesota Tourism & Hospitality Survey was conducted from February 19 to March 11, 2026. The online survey received 125 complete responses from a convenience sample of hospitality and tourism industry business contacts in Minnesota. Fifty percent of respondents were from the Minneapolis–St. Paul metro area. The survey was distributed in partnership with Hospitality Minnesota. Results come from an unweighted convenience sample.