PROVIDENCE – With a consensus forecast that the probability of a recession in the next 12 months is more probable than not, hospitality industry insiders on Wednesday said business owners’ demand for labor, long at the top of the list of challenges they are facing, has been superseded by concerns over shaky and uncertain macroeconomic trends.
Speaking at the R.I. Hospitality Association’s 21st annual Economic Outlook Breakfast held at the R.I. Convention Center, where about 100 members heard from national, regional and statewide hospitality experts, Chad Moutray, National Restaurant Association vice president of research and knowledge, said the hypothesis among economists that there has long been “two economies” split along household finances has accelerated.
Recent data collected on consumer purchasing and dining habits shows the majority of households making $75,000 or less are becoming increasingly anxious over rising food and menu prices with so-called “on-premises” dining dropping 13% since 2022.
In an industry already defined by lower-than-average wages and slimmer profit margins, that dynamic will continue to hamper the hospitality industry through at least the next year, said Moutray.
“We still predict labor challenges for decades to come,” he said, noting NRA research showing while there has been a 4% increase in labor costs, the price of food has jumped 30%.
And for consumers, food menu prices have outpaced grocery store prices by almost three-fold, at 4.3% and 1.1% respectively, year-over-year.
Consumer inflation is up 21% since 2020, said Moutray, resulting in a continued pullback in consumer spending. A recent NRA survey showed 37% of respondents expect lower sales in the next six months; and 46% think general business conditions will worsen.
Despite overall restaurant sales reaching $1.1 trillion in 2024, the picture becomes murkier when looking at “real” sales, said Moutray, which shows that much of the revenue growth is a result of higher costs.
“In many cases, overall [restaurant] traffic is down,” he said. “The No. 1 issue now [among hospitality business owners] is the economy. Not recruiting employees.”
On the lodging sector, the picture is much the same, added Kate Mashburn, vice president of Pinnacle Advisory Group, who said 2023 average daily room rates were the highest on record, reaching $156, even though national hotel occupancy ended the fiscal year at 63%.
“Everything effects the travel industry," she said.
While luxury accommodations have seen the greatest gains, activity for economy and mid-scale operators has declined.
More recently, resorts are experiencing a plateau in demand after record growth during and immediately after the pandemic. The city of Newport saw its daily room rate reach $323 in 2023, jumping another 6% year-over year.
But consumers are increasing expressing “rate resistance," said Mashburn.
When looking at real growth, Pinnacle projects a 6% decline compared to 2019.
“Rate conscious leisure travelers are becoming price sensitive. That growth is now subsiding,” said Mashburn. “All of these [economic factors] will impact how we do business.”
In Rhode Island, average daily room rates topped out at $186 in 2023, a 23% increase over 2019. Hotels in the state now have the highest revenue per room on average in New England at $143.
“Rhode Island is outpacing the national average significantly,” said Mashburn.
The recovery in Providence has been more sluggish, with the capital city occupancy rate at 60%, compared to 70% in 2019.
“It's been a slow climb back,” said Mashburn.
However, Heather Singleton, CEO for the R.I. Hospitality Association, sees reason for optimism, citing data from the R.I. Department of Labor and Training projecting the hospitality “super sector” will have the largest occupational growth among all other categorized industries between now and 2030, with arts and recreation employment alone expected to increase 40%.
Still, the average salary for a worker in accommodations is $27,900.
“There is a reason for that,” said Singleton, noting industry data showing that many hospitality jobs are seasonal.
“So it’s important to tell this story and explain the numbers,” she said. “We are the sector that is going be growing the most and have the most job opportunities available.”
UPDATE: Clarifies seasonal employment affects average salary for a worker in accommodations in 23rd and 24th paragraphs.
Chris Allen is a PBN Staff Writer. You may reach him at Allen@pbn.com.
