Duluth tourism revenues rebound to pre-pandemic levels
While tourists are spending more, many local businesses are feeling squeezed.
DULUTH — Local tourism tax collection figures released this week indicate visitors are back in force and are spending even more than they did before the COVID-19 pandemic struck. But while the numbers paint an encouraging picture, they should not be misinterpreted as evidence that Duluth’s tourism industry has fully recovered. Far from it.
“These numbers are fantastic to see,” said Brian Daugherty, president of Grandma’s Restaurant Co. “The demand for Duluth is strong. That is a great gift and blessing, and not all markets are nearly as strong as we are.”
“So these numbers are good, real good, and I don’t want to sound ungrateful. But there are a few asterisks,” he said.
The first asterisk Daugherty pointed to was the scarcity of workers and the higher wages businesses have had to offer just to maintain staffing. He said overall labor costs have risen by more than 20% since the pandemic.
Second, food costs have also jumped by more than 10%.
And a third asterisk involves the rising price of other input costs, such as water, gas, electricity and sanitation services, said Daugherty, referring to restaurants as “utility machines.”
Brandon Porter, general manager of Duluth’s Holiday Inn & Suites, described similar challenges, with wages for many employees, such as housekeepers, rising by nearly 50% since the pandemic arose.
But Porter also sees reason for optimism.
“Our occupancy figures are showing that people are returning to travel,” he said, noting that business at the Holiday Inn is up more than 22%, year to date.
Lodging revenues have been bolstered by a strong local market, according to Jen Carlson, the city’s finance director.
“I think a lot of what’s driving the hotel/motel lodging numbers higher is the price of rooms. And the price of rooms is driven by demand. So, we have added some new lodging capacity in Duluth, and yet that demand has remained strong. I’ve heard it’s often really hard to get a hotel room in the city of Duluth on a weekend,” she said.
Porter sees even more reason for optimism as conventions and other large events begin to return to the Duluth Entertainment Convention Center.
DECC Executive Director Dan Hartman noted that "We're not at 100% yet. But we're building back."
The number of convention bookings for the fall and winter are actually running ahead of what the DECC hosted during those same seasons in 2019, Hartman said. However, attendance for some of those events has been softer since the pandemic, and the evolving coronavirus continues to surprise.
"If there's lone lesson we've learned in the past couple years, it's that you can't guarantee anything," he said.
Porter said conventions are particularly useful for maintaining room occupancy levels during the non-peak months outside of the tourist season.
Tricia Hobbs, a senior economic developer for the city, noted that Duluth had a hotel/motel occupancy rate of 74% in June compared with 73% during the same month in 2019, according to Smith Travel Research Inc.
Duluth’s tourism tax collections from lodging for the first half of this year totaled nearly $2.9 million — up 15.6% from the same six-month period in 2019.
“We’re seeing healthy numbers in terms of folks coming and booking stays in Duluth. So, that visitation number continues to look really great. But the costs to do business are increasing, as well, and a lot of business owners are adjusting appropriately,” Hobbs said.
Local businesses, such as the Grandma’s chain, often have not been able to fully pass along increased costs to customers, however, without running the risk of adverse sticker shock, and Daugherty said profit margins have been hard squeezed as a result.
While Carlson views recently improved tourism tax collections as a positive sign, she said people should not assume they serve as a testament to the overall health of the tourism industry.
“Those are two very different things: profits versus collections,” she said.
Hobbs said the latest tourism stats are encouraging, while “knowing and understanding that as we see summer roll out, gas prices are absolutely a factor.”
So far, people still seem to be making the trip to Duluth, based on occupancy numbers. But Hobbs acknowledged they may be reining in spending where they can, perhaps packing a lunch instead of going out to eat.
Carlson said Duluth remains an attractive destination for people on limited budgets.
“There are many things you can do in Duluth that don’t cost money. So, I think it’s a place that people come when they maybe don’t have a lot of money to take a vacation, because a lot of what we have to offer is free,” she said.
Food and beverage sales have seen more modest growth than the lodging sector. Tax revenue from restaurants and bars is up nearly 13% from the first half of last year. But it’s only about $1,200 higher than what the city received from food and beverage sales in the first six months of 2019 — sitting virtually the same at about $2.8 million.
“Food and beverage sales are nearly dead-on where they were in 2019,” Carlson said.
In an inflationary environment, that means businesses in the food and beverage sector have been losing ground, as a group.
Many local restaurants have been forced to operate with reduced schedules due to their inability to recruit enough staff to maintain a full schedule
Porter said the Lyric Kitchen Bar, which operates as part of the Holiday Inn, used to offer breakfast, lunch and dinner but now serves only the latter meal due to “the limited return to work we’ve seen in the downtown.”
Daugherty said he is operating with limited hours due to staffing constraints, too.
“If I could be open longer, I would,” he said. “Would there be room to grow our sales if we had more labor? Yes. But we cannot capture all the sales right now, because of the shortage we face.”