Duluth's tourism tax collection rebounds to pre-pandemic levels

DULUTH - At least in one measure, Duluth's pandemic recovery surged ahead in 2021, with the city's tourism tax collection slightly surpassing what it captured in 2019.

Only $9 million was predicted for the year, after 2020 saw spending plummet at the onset of the COVID-19 pandemic. Duluth collected $12.4 million in 2021 from locals enjoying the town and visitors flocking to the city for major events, weekend festivals and outdoor recreation. That's $4 million more than in 2020 and slightly more than 2019, which was a record year.

Lincoln Park restaurateur Tom Hanson said he felt the rebound.

He retooled his business model during the pandemic, shortening hours, selling grocery items in his deli and raising worker wages. His restaurants took in about 15% less than in 2019 while reducing hours by 40%.

"People just had more money in their pockets," said the owner of three popular restaurants, including the Duluth Grill.

But money-laden pockets were necessary, as inflation and supply chain issues forced hotels and restaurants to increase prices.

Revenue grew but hotel occupancy was down from 2019 by about 3%, said Nancy Norr, interim executive director of Visit Duluth.

"That's reflective of higher lodging rates," she said, "probably driven by higher expenses."

Duluth has done better than comparable Minnesota cities in filling hotel rooms in the past year, said Sheraton Duluth general manager Karen Pionk.

But staffing shortages mean that some can't fill their entire inventory of rooms, and higher operating costs mean raised rates.

"The climb has been extremely slow," Pionk said.

In December 2019, the leisure and hospitality industry employed nearly 13,942 people in the Duluth metro area. This December, that figure had dropped to 13,431, according to state data.

A workforce robust enough to meet the demands of a busy summer is the biggest challenge facing area businesses, said Matt Baumgartner, president of the Duluth Area Chamber of Commerce.

"We're not out of the weeds yet," he said, with many still dealing with worker shortages, limited spending ability and "tricky" supply and demand issues.

Still, the Chamber of Commerce is "very bullish on tourism" heading further in 2022, Baumgartner said.

When businesses were forced to shut down in March 2020, "we didn't know if any of us would be back to eating and drinking in establishments and traveling like we did before," he said. "There was a lot of fear there. So, looking at 2021 numbers and seeing them comparable to 2019 is extremely exciting."

Duluth collects food and beverage and lodging sales taxes from its restaurants and hotels. Money supports a variety of entities, including the Duluth Entertainment Convention Center, Spirit Mountain and the Lake Superior Zoo.

With unknowns surrounding vaccines, the city was conservative when it projected only $9 million in tourism taxes for 2021, said Mayor Emily Larson.

But she's not surprised tourists returned.

"When things started opening up, people felt this was one of the first places that made sense," she said. "It was a return to something familiar."

The city's future marketing strategies will include casting a wider net for potential visitors, knowing that as people feel more comfortable traveling they may choose to go farther afield than Duluth, Larson said.

"I'm excited about how we can count on people to continue to love this community and to continue to want to visit, and also how we can expand that audience," she said.

Norr said she's seeing an increase in organizations booking conferences and conventions in the coming months.

"Duluth is the third most popular market in the state," she said, "and we are expecting a stronger recovery in 2022."