The Tri-Cities’ hospitality sector has recovered but can it now grow?

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.

An astonishing recovery

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 prepandemic 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 postpandemic 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.

Positive outlook ahead

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