Fiscal Fitness
By Mary Scoviak, Features Editor -- Hotels, 3/31/2006 11:00:00 PM
Succeeding in the hotel spa business comes down to doing the math. A stellar spa delivers more than US$100 in spa-specific revenue per occupied room; a poor performer brings in less than US$5, according to benchmark studies of U.S. and international hotel spas by Health Fitness Dynamics (HFD), Pompano Beach, Florida. With average treatment utilization rates standing at 37% for U.S. hotel spas and 43% for hotel spas in the rest of the world, there is a lot of upside being left on treatment tables. “If most hotels ran at 37% occupancy, they would be out of business,” says Judith Singer, HFD’s president and co-owner. “Before you invest US$10 million to US$15 million in a spa, you need to know how to market that space and fill those rooms. The job of the spa is to help the hotel.”
Even with the untapped upside and high operating costs, which, according to PKF Hospitality Research, average close to 55% for labor, spas’ top- and bottom- line potential is fueling a boom in the hotel industry. PKF puts average spa profit margins at 20.5%, which is well behind the 72.8% average for the rooms department but a sturdy “third leg” to the profit stool alongside the 31% contribution of the food and beverage department. The good news is that the spa component is getting even stronger as the learning curve shortens. From 2003 to 2004, PKF reports hotel/resort spa revenues jumped 11.2%, compared with 9.6% for rooms and 8.8% for total revenues.
That is not a bad showing for sector just emerging from its infancy. The International Spa Association (ISPA), Lexington, Kentucky, reports that while growth rates are moderating as the overall industry matures, the current 6.5% growth rate should be sustainable for the spa industry at large, and higher for hotels and resorts. Based on consumer trends, this will not be a case of growth for growth’s sake. “With an aging population that has significant disposable income and with people focused on taking better care of themselves and living more luxurious and healthier lifestyles, the spa industry is poised to permeate other aspects of daily life,” says Robert Mandelbaum, director of research information services for PKF Hospitality Research, Atlanta. “With the same force and direction that the information has become part of our daily lives, we can expect the societal trend toward improved health and better lifestyles will result in a surge in the number of, demand for and success of spas.”
Massaging Spa Profits
Hotel chains, spa management companies and industry consultants are rethinking products, concepts and business practices to maximize spa revenues as their guests move anti-aging and wellness treatments from the “extras” lifestyle column to the “essential.” The most obvious trend in an increasingly crowded marketplace is the move toward the creation of stand-alone identities for spas. “Hotel spa” is as outmoded as “hotel restaurant.” The experience and the standards still have to be seamless, but hotel spas are becoming destinations—if not brands—unto themselves. “Not only have spas infiltrated the hotel market in resort, urban and convention locations, but they have also begun to evolve as brand segments,” Mandelbaum says.
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The next generation of hotel-operated spas will look and function more like Fairmont Hotels & Resorts’ Willow Stream, Six Senses’ hotel spas and managed spas and Marriott International’s new “tranquility zone” concept, Quan Spa. Rolled out in Asia, the stand-alone appeal of brands such as Quan Spa plays directly to consumer demand for therapies that “bring you back into balance and improve your inner vitality and help you to live better, longer.”
Chain-developed spa brands such as Quan Spa signal a shift away from something-for-everyone treatment menus to a distinctive focus—in this case, water therapies. Their look and treatment menus are becoming more narrowly defined to create a marketable, upgradeable and unique identity that differentiates them from their competitive set. “Spas are now must-have facilities,” says Rhett Pickering, Marriott International’s director of spa operations and development in Hong Kong. “Traditionally, we have outsourced them, but we now feel equipped to capitalize on the trend by developing the concept, design and operations ourselves.”
Stronger demand is forging new product types, such as Mii Amo, Enchantment Resort’s resort-within-a-resort in Sedona, Arizona. Complementary to the 116 room/120 suite resort, a Leading Hotels of the World’s Leading Spas member, Mii Amo positions itself as a spa-driven hotel—complete with its own bar, restaurant and, of course, a spa. Not only does this expand the resort’s market base, it also opens up cross-selling possibilities on property. “We decided not to serve typical spa cuisine in Mii Amo’s restaurants. Instead, we offer different kinds of healthful fare—from buffalo to sushi and salads. It is one of our most popular venues, not only among spa goers at Mii Amo, but with Enchantment’s guests,” says Mark Grenoble, managing director, Enchantment Resort. That popularity adds an average US$19 lunch check and US$36 dinner check to a growing revenue base from a spa that generally is so busy that it requires advance reservations.
Urban hotels are differentiating their product with signature spa-within-a-spa concepts such as Winnipeg’s Fort Garry’s Hotel’s Hamam at Ten, which opened last month in its Ten Spa. Like a members’ only VIP bar, these concepts are not selling just treatments, they are selling exclusivity and privilege. “The brochure for Hamam is given out by special request only,” says Ida Albo, director of marketing. “The treatments at Hamam are all “hot,” and they have to be—not only to compete but to drive business. But, they are not necessarily for everyone. It is like going to a restaurant and asking for ‘the other wine list.’”
The need for speed is rejuvenating spa concepts. “I think we will begin to see ‘express spas,’ more affordable spas and more functional spas,” predicts Jamie Waring, managing director, Six Senses Spas, Bangkok. “There is a whole universe of untapped possibilities.”
Anne McCall Wilson, general manager of Fairmont Hotels & Resorts’ Fairmont Spas, Toronto, agrees. “Customization and personalization are the biggest trends. People want to feel that each treatment is made just for them. Some want a US$35 treatment; some want a US$300 treatment. That demand will lead to more segmentation—boutiques, medispas, niche concepts. I also see some consolidation on the horizon,” she says.
Capture New Markets
Just as the product/concept side is becoming more sophisticated, so is the operations side. More effective marketing, savvier retailing and the advent of yield management should help close the gap between the upside and the delivery of spa operations.
Keeping treatment rooms full is the first hurdle. “Spas can generate more per square meter than a guestroom (across all standards of spa), unless you already achieve in excess of US$1,000 per night per guest room,” says Andrew Jacka, director Horwath Spa Consulting, Bangkok. Consider the revenue potential of selling six to seven treatments per room per day, even at a low average of US$50 per treatment. Then, look at reality. “Just because you are open for 12 or more hours a day, do not get fooled into thinking you will have customers the whole time. Most people are looking for their spa visit within a short time frame of later afternoon or early evening. Hoteliers will have to do major marketing or be prepared to offer special deals to fill the other hours of the day,” Jacka adds.
Stressing anti-aging, wellness and authentic local treatments that resonate with clients, hotel spas are tapping new markets to increase their customer mix and improve utilization. Trent Munday, the Bali-based managing director, Mandara Spa, says incorporating indigenous treatments into popular couples’ packages gives an added lift. “Generally speaking, sales increase 10% to 15% when we offer these promotions,” Munday says.
Wellness has become a hot- button sales tool for reaching health-conscious travelers and a savvy market looking for alternative therapies. “One of the biggest opportunities in spa operations is to provide a multifunctional approach,” says Vanessa Main, general manager, Per Aquum Spa Collection, North Male Atoll, Republic of Maldives. “People want more than a massage; they want reflexology, shiatsu, lymphatic drainage—a specialist style that has health promoting benefits. They also want treatments that incorporate locally grown ingredients, individualized for each spa location. Treatments such as these contribute 40% of spa revenue on a consistent monthly basis.”
That is impacting not just treatment menus, but design. “Multifunction treatment rooms maximize the amount of revenue-generating space,” says Gordon Tareta, director of spa operations, Global Hyatt Corp., Chicago. So does the continued appetite for development of spa suites and guestrooms. What lies ahead may be more “trophy” treatment rooms, such as La Tourelle Resort & Spa’s newly opened Vichy Room, promoted alongside the hotel’s waterfall treatments.
Doug Chambers, principal, U.S.-based Blu Spas, predicts that “social programming” will open up sales opportunities for couples/friends/families, as well as bridal business and group business, including incentive packages, spouse packages and local corporate clients. Also high on the agenda are programs targeted toward men. “Social programming may not supplant traditional treatments, but it does represent an opportunity to increase overall spend by spa-goers and would-be spa goers,” Chambers says. Other adds-on under study by spa operators: hair salons with a recognizable “brand” and medical or quasi-medical treatment. The right salon in the right location can increase revenues as much as 300% in 12 months, Chambers says.
Pampering is still important. To capture that market, packages are moving beyond rooms plus treatment to rooms with spa treatments and lifestyle offers, says Casey Olsen, principal/owner, Spa Sources, Palm Desert, California. “How many Valentine’s Day spa promotions do your guests see? Hoteliers need to create something different; something unique—maybe a morning at the spa followed by a half-day shopping trip or some other signature experience,” she recommends.
Both Olsen and Munday see a trend toward selling time as well as treatments. Spa operators will be opening new revenue streams by selling add-on treatments a la carte or pricing in 30 minutes worth of post-treatment relaxation time. “In the past, the ambiance has been treated as part of the overall experience. In the future it should viewed as a revenue generator in itself,” Munday says. Selling time, rather than treatments, has another benefit, McCall Wilson says. “You get the same price per minute with a 60-minute treatment and half hour of relaxation, but you do not need a therapist for the entire time.”
Pump Up Profits
Whatever the concept, integration is the operational mantra for improving profitability, McCall Wilson says. That can mean including spa items in the hotel’s retail outlet, referencing spa-branded items on the standard hotel menu or simply reminding guests to book their spa reservation when they book the hotel room.
Destination resorts, such as The Spa at The Palms, Turks and Caicos, British West Indies, increase average “stay” and spend in the spa by introducing spa-related elements throughout each guest’s stay. When guests check in, they are greeted with complimentary, chilled mini-spa products. Rather than a mint or a cookie, they receive more spa products as their “pillow treat” at turndown. The experience intensifies during treatments. Guests get not only a personalized, detailed consultation, but also a homecare program “prescribed” by the spa’s therapists. “With a transient market, one of our aims must be to maximize the average spend of the client to the spa and also spa-related purchases throughout the stay. If the guest arrives for his or her one treatment and leaves immediately after, there is untapped profit potential,” says Darren Law, managing director for this Leading Small Hotels of the World/Leading Spas member.
When it comes to profitability, retail is often the overlooked revenue stream. “It is a renewable sales opportunity and far less labor intensive than treatments,” Singer says. Retail does not end when the guest leaves the spa. Singer recommends sending soft-sell, online reminders to repurchase favorite spa products. Optimized retail can add 15% to 20% to overall spa revenues.
The value of in-room spa services is still under debate. Tareta likes the “guest-centric” appeal, but lists set up, “travel time” and the specter of equipment damage during transportation among the cons. Law cites twofold benefits: the ability to capture guests who would not go to the spa and the ability to increase the availability of treatments when treatment rooms are fully booked. But, he also sees the downsides: the inability to deliver a full spa experience and the fact that, given the time commitment, the therapist could have been in the spa working on a second client. “You have to build in the cost of time for set up and break down, but you have to ensure the client gets an outstanding treatment worth every cent,” Law says.
Pickering has yet to see the upside of in-room treatments. “The spa is about delivering a whole experience. It is impossible to create that experience in a hotel room,” he says.
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