Minnesota restaurant and hotel owners brace for tough 2025 as spending drops, costs rise

In the face of increased costs and waning consumer appetites, many Minnesota restaurants and hotel owners are bracing for a tough year and are lobbying for fewer regulations and continued support for workforce programs.

A first-of-its-kind report released Monday by the trade group Hospitality Minnesota offered a bleak outlook on the state of the hospitality industry, as businesses foresee thinner margins due to fewer customers and higher employee costs.

The trade group delivered its report late Monday morning at the State Capitol in St. Paul. Business owners plan to meet with lawmakers this week and press for fewer regulations and continued taxpayer support for workforce training programs.

Foot traffic is slowing as consumers are tightening belts to account for economic pains from inflation and other factors. Meantime, the cost of paying employee wages and benefits is on the rise, and the costs of goods are also rising, according to Hospitality Minnesota.

“In any household, when things get tight the discretionary spending gets locked down — at least it does at my house — and that has dramatic negative impacts on our industry,” said Angie Whitcomb, the trade group’s president and CEO.

Those impacts are being felt as travel seems poised to become less of a priority for Minnesotans. Consumers may be holding off trips to a North Shore resort, Whitcomb said, as grocery and utility bills rise and people think more critically about how to spend.

“It’s like, ‘Well, we just don’t have the money this time. Let’s wait till next year,‘ ” Whitcomb said. ”Well, by next year, if that is everyone’s idea, who knows if that resort will be there."

Restaurant and hotel owners are paying more for individual employees, but overall workforce payroll increases at a lesser rate, according to the trade group’s research. That means more business owners are attempting to offer service with fewer employees, Whitcomb said, amid a labor shortage that is being felt among industry employers in the state.

Hospitality Minnesota represents more than 2,000 members, many of whom are still feeling the aftereffects of the COVID-19 pandemic. In a survey, the group found half of the businesses reported lower revenue in 2024 than in 2021, when pandemic restrictions eased and momentum for the industry began to pick up.

Nearly three-quarters of business owners in the report do not expect revenues to increase in 2025 as compared to 2024, according to Hospitality Minnesota.

Many business leaders have been critical of state regulations rolled out over the past two years that some fear will slow economic growth. A top target for reform is the state’s yet-to-be-implemented paid family medical leave, a program the hospitality group wants to see changed to increase the number of days worked to be classified as a seasonal employee.

Other regulations the business group is targeting include a desired exemption from the state’s price transparency law for hospitality employers and those governing how tips can be managed and shared.

Among the findings of the group’s survey, lodging has yet to rebound to levels seen before the pandemic. Compared to 2019, the average occupancy rate for hotels is down 7% statewide. The yearly average in the Twin Cities market specifically is down 10%.

Robert Kisabeth, chief operating officer for TPI Hospitality, said the industry is challenged by lagging corporate and event travelers booking nights at the company’s hotels. He said other barriers keeping the industry from fully bouncing back to where it was before the pandemic include worker shortages, higher taxes and greater supply costs.

“Unfortunately, the data in this report is real, and it raises eyebrows,” Kisabeth said. “I can tell you firsthand that business is not coming back as well as we had hoped.”

TPI Hospitality, based in Willmar, operates 23 hotels, six restaurants and two conference centers in Minnesota.

Concerns about the future of the industry come as consumer confidence reached a low point in February, researchers found.

Consumer sentiment fell to its lowest point since July, according to a survey by the University of Michigan, as perceptions about economic hardships around tariffs resonated across political divides. Many consumers shared concerns about higher inflation in the months ahead as expectations about personal finances fell 6% in the span of one month, the survey found.

A separate study by the Conference Board, a think tank, identified the largest monthly decline in consumer confidence since August 2021. That came as consumers' outlook for income and business conditions dropped well below a threshold signaling the potential for a recession ahead.

Last month, leaders from Meet Minneapolis, the city’s visitor and convention bureau, pointed to challenges around the travel industry as tourism officials look to reshape how the city is known.

Leisure travel is becoming less of a priority for budget-conscious consumers in 2025, said Myha Gallagher, vice president of research for Future Partners, during the group’s annual meeting. U.S. travelers across demographics are dropping travel plans and decreasing how much they expect to spend this year, the study found.