Croatian hotels under pressure: Labor and food costs rising twice as fast as prices and Mediterranean competition

The Croatian tourism sector, particularly its hotel industry, is facing increasing challenges that threaten to undermine its competitiveness in the Mediterranean. The latest data, published yesterday by the Croatian Tourism Association (HUT), reveal a worrying gap between the growth of accommodation prices and the explosion of key operational costs. An analysis for the first six months of 2025 shows that while the prices of hotel services in Croatia are growing at a moderate pace, business costs, primarily those related to labor and food procurement, are galloping twice as fast compared to direct Mediterranean competition. This trend, which is not new but has been intensifying since the beginning of 2023, seriously jeopardizes the profitability of domestic hoteliers and, consequently, reduces their potential for much-needed new investments.

According to a detailed comparative analysis based on official Eurostat data, hotel accommodation prices in Croatia increased by 4.6 percent in the first half of this year compared to the same period last year. At first glance, this growth seems solid, even slightly higher than the average growth of 3.9 percent recorded in competing European Mediterranean countries. However, the real picture becomes much bleaker when costs are taken into account. It is precisely here that Croatia significantly lags and is losing the battle with competitors like France, Greece, Cyprus, Italy, Malta, Spain, Slovenia, and Portugal, the countries included in the analysis.

Galloping growth of labor and food costs

Two key pillars of costs in the hotel industry – labor and food – are experiencing a dramatic increase in Croatia. Labor costs in the first six months of 2025 jumped by as much as 11.7 percent. For comparison, the average growth of labor costs in the observed competing countries was only 4.2 percent. This means that the pressure on expenditures for salaries and contributions in Croatia was almost three times stronger than that of its main market rivals. This figure is just a continuation of a multi-year trend that is seriously burdening business operations. Specifically, labor costs in the domestic accommodation and hospitality industry have been recording double-digit growth rates for the fourth consecutive year: 11.3 percent in 2022, an alarming 15 percent in 2023, 13.6 percent in 2024, and the current 11.7 percent. In the same period, the average annual growth among the EU Mediterranean competition never exceeded the 7.5 percent mark, which clearly illustrates the magnitude of the problem faced by Croatian employers in tourism.

A similar, although slightly milder, situation is present with food prices. In the first half of the year, food prices in Croatia increased by 5 percent. At the same time, the average for the competition in the Mediterranean was almost half of that, at 2.6 percent. Of all the analyzed countries, only Slovenia recorded a higher increase in food prices than Croatia, with a rise of 5.7 percent. On the other end of the spectrum are countries like Cyprus, where food prices even fell by 0.2 percent, while most other competitors recorded growth not exceeding 4 percent. These price increases directly affect the costs of board and à la carte services, further reducing the profit margins of hoteliers.

Pricing policy under pressure

Faced with such a rampant rise in costs, domestic hoteliers find themselves in an unenviable position. Attempting to transfer the entire burden of costs to the end-user, the guest, would result in a loss of price competitiveness and a potential drop in demand. Therefore, accommodation prices cannot keep pace with the growth of costs. The data for 2024 illustrates this best: while the average growth of hotel accommodation prices in the EU Mediterranean was 4.5 percent, in Croatia it was more than twice as low, at only 1.9 percent. This year's price growth of 4.6 percent, although seemingly higher than the competition's average (3.9 percent), is still insufficient to compensate for the cumulative effect of double-digit cost growth, especially labor costs.

This situation creates a vicious cycle in which the declining profitability of the sector directly reduces its investment potential. As pointed out by Veljko Ostojić, director of the Croatian Tourism Association, this is precisely what weakens the position of domestic hoteliers and undermines the attractiveness of investing in new or renovating existing hotels in Croatia. This is particularly problematic given the strategic importance of the hotel sector for the entire Croatian tourism industry. It is the hotels that generate significantly longer tourist traffic, attract guests with higher purchasing power resulting in higher average spending, and stimulate the development of local destinations by creating year-round jobs. Their operations also open up numerous opportunities for the development of related industries, from agriculture to service businesses.

Structural problems and the future of investments

The problem becomes even more pronounced when viewed in the broader context of the accommodation structure of Croatian tourism, which is considered the worst in the Mediterranean. Hotels make up only 9.5 percent of the total accommodation capacity, while private accommodation plays a dominant role. It is precisely the hotel sector that is key to raising the quality of a destination and achieving more sustainable development, as it places a significantly smaller burden on local municipal and transport infrastructure compared to a-part-ment-i-za-tion. Therefore, encouraging investment in the hotel sector is of crucial importance for the future of Croatian tourism.

Paradoxically, the demand for high-quality hotel accommodation has never been greater. Data shows that the occupancy rate of the highest category hotels, those with 4 and 5 stars, is continuously above 90 percent at the very peak of the summer season. This clearly signals that there is strong market demand and a willingness of guests to pay for a premium service. However, the current dynamics of cost growth, which far outpaces the growth of prices, discourages investors and calls into question the long-term sustainability of the business. Without a change in this trend and the creation of a more favorable business environment, Croatia risks, despite high demand, missing the opportunity for a qualitative leap forward and the further development of its most important economic sector.