Dining, lodging businesses struggle in Minnesota as middle class cuts back

This is the season when David Benowitz is mulling a new menu - and higher prices - at his family of Twin Cities neighborhood restaurants.

The twice-yearly refresh has often been a chance to pass rising costs, from food and alcohol to insurance and wages, on to customers. But this time around, the Craft & Crew Hospitality co-owner said, his customer base won't tolerate a big price hike.

"We can't be serving, at least for our restaurants, a $10 pint of craft beer; it's not going to work," Benowitz said. "Even though the margins say you should be charging that … we can't do it."

Like consumers across the country, many Minnesotans are cutting leisure spending as consumer prices continue to rise and economic uncertainty mounts. U.S. discretionary spending on hotels, restaurants and recreation began slowing last summer before plunging in recent months, according to an Oxford Economics analysis that adjusts for inflation.

The trend spells trouble for the state's nearly $9 billion hospitality industry, which is already vulnerable after years of rising costs and major revenue losses during the recent Operation Metro Surge.

The pain isn't universal, though: Wealthy consumers have propped up consumer spending while middle- and lower-income consumers - who are more sensitive to price increases - are cutting back.

It's a bifurcation showing up across sectors in what economists call the "K-shaped economy," where there's a greater wealth divide between the affluent and poor, with fewer in the middle.

While lower-income households are increasingly stretched, devoting more of their budgets to essentials like housing, food and energy costs, said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, "Those at the upper end of the spectrum have really been continuing to power the economy through their spending, and a lot of that's been driven by the ‘wealth effect' - the appreciation in home values and financial market assets."

More than half of Minnesota businesses said in a recent survey both profits and foot traffic were down year over year in 2025, according to an April 8 report from industry group Hospitality Minnesota.

Nearly half of businesses reported being in financial decline, and some have already shuttered or shifted their business model. Days after the report came out, the Lowry in Minneapolis' Uptown neighborhood said it plans to close after 15 years, and Cardamom at the Walker Art Center laid off its front-of-house staff and switched to QR-code ordering.

The report, which said, "from all angles, our industry is being squeezed," cited higher costs due to federal tariffs and state and local regulations coupled with lower consumer spending.

Kristi Nelson, 66, started tightening her budget about six months ago when she noticed prices were becoming unmanageable. She also wants to eat more healthfully, she said, so instead of dining out a few times a month, she now sticks to a more affordable happy hour maybe once a month.

Nelson said she's also stopped making impulse purchases on Amazon or at the grocery store, shopping only with a list in hand. Though she said her cost of living as a condo owner in Edina still feels manageable, things keep getting tighter as prices rise.

"I just get worried about not being able to save money for retirement," Nelson said. "It seems like it all goes to bills or food or gas."

Data the U.S. Bureau of Economic Analysis released April 9 showed consumer spending barely rose in February and included a 7.5% decline in spending on recreation services, a category that ranges from campground stays to sports, museum and theater tickets. The report concerned economists, who expect spending to weaken further as Americans use their tax refunds and as higher gas prices persist due to the war with Iran, which was not yet reflected in the February data.

In a March 20 research briefing, Oxford Economics forecast higher inflation and a slowdown in consumption and disposable income growth due to the ongoing war. Rising gas prices, economists wrote, will hit lower- and middle-income consumers hardest.

"The bottom 80% of households by income spend close to 4% of their budget on gasoline, while higher-income consumers spend significantly less," the briefing said.

This year's tax refunds, Oxford Economics continued, offers some cushion against inflation, but benefits more "well-to-do households."

"Knock-on impacts on food prices would disproportionately burden lower-income households," the briefing said.

After buying Acorn Hill Resort in Walker, Minn., in 2019, Kyle Walter's family had a banner year in 2020 as customers flocked to Leech Lake for socially distanced vacations. Occupancy rates have since fallen to a more normal level, he said - about 85% compared to 95% at the height of the pandemic.

Acorn Hill tends to draw young, blue-collar families who book a vacation there every year or two, Walter said. There are amenities that cost extra, such as boat rentals and an on-site restaurant and bar, but there's also plenty included for free.

Walter, president of Community of Minnesota Resorts, said he and his family are constantly improving Acorn Hill and nearby Brindley's Harbor Resort, which they bought about five years ago. But tariffs have made construction more expensive, he said, and property taxes have spiked at least 50% in the past several years as demand rose for local real estate.

People snapping up what are now multimillion-dollar lake homes are "a whole different group of buyers," Walter said.

"These people are the weekend warriors or the VRBO-ers or the Airbnb guys who are buying these properties, and they're using them to rent and make income. And that doesn't do anything for the local economy," he said.

In the Twin Cities, businesses are still in recovery mode - and hoping for a fruitful summer - after double-digit percentage revenue losses during Operation Metro Surge.

At Holman's Table in downtown St. Paul, co-owner Troy Reding said January and February are usually slow for the destination restaurant. But this year, he had to cover first-quarter payroll out of his own pocket.

While the restaurant's dinner business has held on, Reding said, events and lunch traffic are down.

"It's going to be interesting to see what traffic patterns do over the next quarter with fuel prices, the war, all that sort of stuff," he said. "I'm not optimistic about it - it's going to be interesting to see how that impacts what people are comfortable spending."

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This story was originally published April 17, 2026 at 7:45 AM.