The State of Hospitality in Santa Rosa

BY CHRIS VOMVOLAKIS

SINCE THE LATE 1990’S SANTA ROSA has continued to grow as a premier travel destination driven by the allure of award-winning wines, world-class craft beer, unmatched outdoor recreation and athletic competitions, and farm to table cuisine. The common thread that weaves its way through these experiences is Santa Rosa’s stellar reputation for hospitality. Hospitality—the cornerstone of the tourism industry in Santa Rosa and Sonoma County—can be defined as, “The friendly and generous reception and entertainment of guests, visitors, or strangers in which the host receives the guests with goodwill.” Hospitality in Santa Rosa and Sonoma County is part of a multibillion–dollar industry that is completely dependent on the availability of leisure time, disposable income, and customer satisfaction. The hospitality “supersector” consist of four segments: travel and tourism; food and beverages; lodging and accommodations; and arts, entertainment, and recreation. While many business niches are composed of a handful of different organizations, the hospitality industry applies to nearly any business that provides customer service and is focused on meeting leisurely needs rather than basic ones. The Impact of COVID-19 on the Hospitality Industry

As an industry reliant mainly on travel and tourism, the restrictions on travel and ongoing concerns individuals have from COVID-19 variants have placed profound strain on the hospitality sector, centered mainly on the impact on jobs and employment countywide.

In the fall of 2021, the U.S. Department of Labor reported that the number of hospitality job openings is expanding. While that may sound good for individuals, it is a concerning trend for the economy, indicating an increasingly difficult labor market that was already placing pressure on hospitality and tourism businesses.

The agency’s recent Job Openings and Labor Turnover Survey (JOLTS), analyzing data from October 2021, showed that there were 11.03 million job openings in the United States—exceeding the number of people actively searching for work by 3.6 million.

The JOLTS report is closely watched at the Federal Reserve and elsewhere for signs of labor market tightness. The pandemic has caused a surge in employee departures, exceeding what were once historic levels. Even with October’s decline, the level is still 24% above where it was during the same period in 2020. Economists generally see the exodus as a result of greater opportunity in the pandemic-era jobs market spurred by many workers still reluctant to come off the sidelines either because of child-care issues or health concerns.

Percy Brandon, general manager of Vintners Resort, has nearly 100 openings for a variety of lodging and food service jobs at the luxury Santa Rosa-area property. Will Seppi, owner of Costeaux French Bakery in Healdsburg, is looking for up to 15 more workers to essentially double the staff so the restaurant can open seven days a week instead of only five.

These hospitality operators are emblematic of the vexing challenge facing many Sonoma County restaurants, hotels, wineries, breweries, and cafes: securing enough qualified workers to efficiently and effectively run their businesses.

With over 80% of county residents 5 or older fully vaccinated

and the threat of the COVID-19 virus finally fading after a painful two years, Santa Rosa and Sonoma County companies have slowly been able to expand operations.

However, many area restaurants, wineries, breweries, and hotels continue to be constrained by staffing shortages. It limits their ability to resume normal daily operating hours. What’s more, greater competition for new hires has forced hospitality establishments to pay higher wages even though there has been an extremely sharp decline in revenue in this sector.

With more hospitality businesses trying to ramp up, “It’s become a rat race among all of us to bring more people on board,” Brandon said, noting that “never in my career have I seen this,” as he strives to double his 100-person payroll to fully reopen all the property’s amenities.

Encouraging signs

In 2021, state legislators allocated $95 million for Visit California to launch a marketing and advertising program called “Calling all Californians.” The initial goal is to encourage travel within the state where visitors spent $145 billion in 2019. Tourism spending cratered in the pandemic, dropping by $79 billion last year when 1.2 million of the state’s hospitality workers lost their jobs.

California State Senator Mike McGuire (D-Healdsburg) says legislators are discussing spending $1.5 billion in the current budget to add a third round of small business grants of up to $25,000 apiece that struggling enterprises, including in the hospitality sector, could use to boost payrolls among other things.

McGuire, a key player in securing Governor Gavin Newsom’s support for the tourism stimulus, expressed confidence Calling all Californians would “stir significant economic activity across California.” He and other state officials believe it will lead to tens of billions of dollars in visitor spending and additional state and local tax revenues. Peter Rumble, CEO of the Santa Rosa Metro Chamber, agreed, saying Sonoma County needs “some of that cash to kick-start the travel and hospitality sector.”

The local hospitality industry has been slowly adding jobs as the community has gradually reopened, although the workforce remains 30% smaller than it was the spring before the pandemic—when the county’s economy was vibrant and growing. There are currently 6,200 more people on local hospitality payrolls than in April 2020—when the public health crisis propelled the Sonoma County unemployment rate to an 80-year high of 15.4%. In that single month after the onset of the pandemic, 48,000 local residents were laid off, including 14,400 who worked in hospitality jobs, according to state employment data.

At Vintners Resort, similar to all venues, employees are working long hours and filling multiple roles. Still, parts of the property—the River Vine restaurant, the spa, events center, and catering business—are either closed or operating on a limited basis due to the labor shortage.

The hotel is fully open thanks to the staff’s hustle, and the acclaimed John Ash & Co. restaurant, known for its Wine Country cuisine, is operating daily except Monday and Tuesday.

Going places

Hotels and markets that rely on the hospitality supersector are still likely a year or more away from a meaningful recovery. Business travel is expected to improve in 2022, but won’t solve the problem. There will certainly be some travel restrictions companies institute voluntarily, and companies holding onto cash will likely make cuts to travel budgets. The simple availability of group and convention business will be governed by meeting restrictions imposed by state and county health officials.

The bedrock of Sonoma County’s hospitality supersector, leisure travel, is coming back—but slowly, similar to business travel. Direct visitor spending in Sonoma County totaled $1.1 billion in 2020, down from $2 billion the previous year. Despite the decline, Sonoma County remained just behind Monterey ($1.5 billion) and ahead of Napa ($0.8 billion) and El Dorado ($0.7 billion) Counties. Sonoma County’s Transient Occupancy Tax (TOT) receipts totaled nearly $36 million in 2020—a decrease of 26.3% from 2019, a year that recorded the highest level of TOT receipts Sonoma County has ever collected.

Despite the slowness of recovery, there is optimism in the industry.

“As travelers begin to embrace a return to something resembling ‘normal,’ it seems that the Delta variant has had only a nominal impact on the willingness to travel,” said Charlene Lennon, Director of Sales for Visit Santa Rosa. “We believe we are past serious virus-related barriers in destination travel, although the emergence of Omicron will have a small short-term effect. We expect travelers to hit the roads and skies with continued passion and positivity in 2022.”

Lennon went on to say that “based on the consumer sentiment trends we’re seeing, travelers are increasingly accepting health risks as manageable due in part to rising vaccination rates.” She predicts that 2022 will be characterized by growth in vacation length-of-stay metrics, travel farther from home (versus the past two years) and a higher proportion of “major vacations” as well as more frequent local drive market getaways.

Without question, the pandemic has had a profound impact on the tourism industry—and will likely have lasting implications. In 2020 and 2021, the popularity of staycations, hygiene protocols and contactless technologies—all now firmly embedded in the daily activities of hospitality businesses—has risen sharply, and we are seeing some new trends emerge locally.

Today—Hospitality 2.0

The Chamber conducted a survey of local hospitality professionals for the purpose of unearthing the direction the industry is heading in. Overall, these professionals overwhelmingly indicated the need for the service and hospitality industry to embrace the following trends and understand what’s at stake. Six findings came out from this survey: 1. Standardization can no longer be the norm: It is becoming critical to personalize and tailor the services to the needs and preferences of travelers. 2. To create value, focus on niche markets: More customization and specialization may enable increased value creation for hospitality organizations. But be careful, as one respondent said—this requires a genuine modification of the value proposition, not “simply branding and rebranding.”

Technology will be at the core of the hospitality experience, both before and after a visit to Santa Rosa. This will lead to the development of new concepts and more innovation in the industry and contribute to the emergence of an ever more individualized offer.

The impact of global warming is a major risk for both hospitality businesses, which may lose revenues and profits, and society as a whole. It is critical for governments, but even more so for organizations, to become more sustainable: “not just green, but real sustainable business models.”

People are becoming increasingly sensitive to environmental and social issues. A respondent noted that this “has to be considered in branding, but beware of green-washers; consumers are now well-aware that window-dressing exists and they will not buy it.”

One respondent said, “Tourism, despite the slow return of visitors, will become riskier and more prone to crises” as the number of travelers steadily continues to grow and confidence returns. This will be accompanied by increased regulation as smaller communities (e.g., Guerneville or the City of Sonoma) perceive pressure from the number of tourists returning.

Lockdowns, upturned work, and strained childcare schedules have afforded food delivery services new importance this year. No longer content with only ordering the usual go-to pizza, Thai or Indian takeaway, Santa Rosans have taken things up a notch. Not wanting to forego the frills of fine dining, they are now looking to emulate the dining-out experience at home. Santa Rosa food and beverage outlets have made this possible by incorporating drinks deliveries and offering extras: atmospheric candles, QR-code playlists, and unexpected freebies. Meanwhile,

hotels have played their part in supporting local first responder needs and turning hotel rooms into alternative workspaces for those tired of working from home. 6. Manage talents actively: The days of long-lasting employee retention as well as passive, hierarchical management styles are definitely gone. “Attracting, developing and keeping the right talent into and within the hospitality industry remains a core challenge.”

Tomorrow—Hospitality 3.0?

While the consensus revolves around the need for the Santa Rosa and Sonoma County hospitality industry to evolve in order to better adapt to the current environment, some respondents were more extreme and suggested that hotel rooms as we know them today “will become a thing of the past.”

These survey respondents refer to the impact of the sharing economy and the tendency of today’s customers to avoid traditional hotels. They believe that adjustments are not sufficient, and that the hospitality industry must reinvent itself.

This standpoint is reinforced by the increasing importance of technology in the hospitality industry and the power that technology firms are acquiring. A respondent elaborated:

“Major technology firms will replace most hotel brands because they can offer technology solutions and create markets to attract customers. The traditional hospitality industry will evolve into niche markets serving specific types of customers or luxury sector so they can afford to pay their staff a higher salary. Some corporate brands may survive, but their business will get tougher.”

While some respondents see more change than others coming for the hospitality industry, all agree that the sector must evolve and reinvent itself to take advantage of the opportunities and cope with the challenges it faces if they wish to remain competitive in an already challenging business landscape. The only question remaining is how quickly that transformation will happen.

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