You don’t need to be a numbers geek to know that the pandemic wreaked havoc on the hospitality industry, here and elsewhere. Travel stopped, dining in became a dare and the workforce disappeared. None of the 19 large groupings, or sectors, of the local economy took so much of the pandemic’s punch.
The hospitality sector encompasses both accommodation establishments and those of eating, drinking, catering and sipping (of the coffee variety).
In the greater Tri-Cities, it has been the seventh largest, by employment, over the past decade. As a result, the sector’s large layoffs greatly added to the pandemic spike in unemployment.
The rate averaged 8.9% in 2020, after having declined to a multi-year low of 5.8% in 2018.
Yet, the recovery of the sector in 2021 has been nothing short of astonishing.
Benton-Franklin Trends’ graph, “Total Accommodation Retail Sales,” shows a breathtaking plunge in its 2020 revenues, to levels not seen since 2006. It also depicts a recovery in 2021 of 70% year over year. The recovery in the eating and drinking sub-sector wasn’t quite as dramatic, with a 34% increase over 2020 levels.
Has the sector now regained its pre-pandemic footing? The short answer is yes, but it is not setting the pace observed in the immediate recovery stages. In the second quarter of last year, the most recent period available, accommodation revenues were up about 14% over the same quarter in 2019, on average over all such businesses in the two counties.
Food services performed better, with a 24% average increase over the second quarter of 2019 for all such businesses in the two counties.
On the surface, these are impressive gains. But do they translate in impressive gains in operator income? Likely not.
We obviously don’t have access to the collective profit and loss statements of all these firms. But we can track total wage costs, thanks to data from the Washington Employment Security Department (ESD). This is likely the largest cost category for all hospitality operators.
A comparison of the second quarter in pre-pandemic year 2019 to post-pandemic year 2022 is revealing. Total wages paid in the accommodations sector rose dramatically: 32% in Benton County and 24% in Franklin County. Clearly, the rise of this cost category significantly outstripped the revenue increase over the same three-year period.
And for food services? The ESD reports reveal similar double-digit increases in total labor costs: 23% in Benton County and 27% in Franklin County.
Since sales increases averaged 24% for the two counties over the same period, the bottom line of restaurants, bars and cafes was likely not as impacted as those of hotels. But the unprecedented increases in hourly wages, widely reported in the financial press, are certainly challenging profitability of these establishments.
And the outlook for the businesses that make up the hospitality sector? Barring a deep recession, revenues are likely to hold up this year.
Business travel is likely to pick up, but not at a fast pace, as work routines return to normal, even if it’s a new normal.
Leisure travel likely will remain strong, with its strength depending on the ability of the Tri-Cities to stage compelling events and promote general tourism. Perhaps the new blend of travel, “bleisure,” will add extra days to business travel visits.
Food services will gain, of course, from a recovery in travel. More important, however, will be the area’s anticipated population growth.
State demographers at the Washington Office of Financial Management forecast that of all the metro areas in the state, the greater Tri-Cities will grow the fastest. Between 2022-25, the “middle” forecast calls for an additional 15,000 inhabitants in the two counties and between 2022 and the end of the decade, 38,000. These new Tri-Citians will create strong tail winds for food service businesses.
But will the hospitality workforce grow at the same pace? An outlook on the labor force doesn’t seem to offer much optimism. For sure, the workforce in the sector certainly has grown over the past three years.
In the second quarter of last year, employment was about 10,260, or about 2,000 more than in the same quarter during pandemic year 2020. Notably, that count was a bit above the pre-pandemic quarter of 2019, at about 9,900.
But the population of the two counties, as seen in Trends data, has grown by over 15,000, or by at least 5%, over the past three years.
If the staffing to the population ratio were to remain roughly the same as in 2019, this would mean that local hospitality business would currently employ 200 to 250 more. Undoubtedly, operators have adjusted to lower labor availability, but it is this writer’s hunch that more applicants would be welcome.
And that gap between demand and supply may only get larger with the projected population increases in the two counties.
Higher wages likely have retained and even attracted new workers. The data show that this is especially the case for teenagers, and to a much lesser degree, older working adults. At this point, however, we simply don’t know whether forecasted higher population will translate into a larger hospitality workforce.
Patrick Jones is the executive director for Eastern Washington University’s Institute for Public Policy & Economic Analysis. Benton-Franklin Trends, the institute’s project, uses local, state and federal data to measure the local economic, educational and civic life of Benton and Franklin counties.
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