Hotel Spas – What’s Broken and How to Fix it!

My current thesis is that hotel spas, as they are today, are broken. At the very least, they are sub-optimal. And that is exciting! Why? Because it means there is a massive opportunity for those of us in the industry who can work out how to fix it. And believe me, the market wants it to be fixed. By Trent Munday
Hotel Spas – What’s Broken and How to Fix it!

Let’s think about the perception of the spa world is today. I think it's the perception of people both inside and outside the industry.  Spa is centered. We are all spiritually, emotionally and physically, aligned. The business is great, life is wonderful. All is good. All is well. But is this perception in fact the reality? The challenge is that those outside of the industry often don’t really look that hard. So they may not ever really know for certain. And those within the industry, often tend to be quite insular in their perspectives. We just communicated with others who share similar perspectives to our own. We attend spa conference and events and come away reassured that we’re on the right track.

The challenge with these conferences – and I think it is the same with any industry event, in any industry – is that because we are surrounded by like-minded people, we get a form of confirmation bias. Everyone in the room believes a spa is great. We all think wellness is the one of the most important things in the world and everybody needs to know about it. But when you talk to people outside of these rooms, sometimes you get a different response. That’s why I always like to see to seek out the non-spa people when I go to these events. The Finance guys, the Investment guys, the Owners, you get their perspective because sometimes I think the reality can be quite different. Sometimes, if you invite others in from outside and show them the facts, without any previous knowledge or bias, you’ll get a very different perspective on where you are at.

So why do I say the hotel spa model is broken?

 

Capture Rates

Firstly, Capture Rates are generally low. For those who don’t know, Capture Rate is the percentage of hotel guests who come down and use the spa. In a city hotel, most spas will have a Capture Rate of somewhere between 1% - 5%.  In a resort spa, and by resort spa, you could expect anywhere from 7% to 15% Capture Rates. And by resort spa, I’m talking about one that is easily accessible so guests are not forced to stay within the resort grounds the whole time. A resort where you could drive in and out every day. Locations like Bali in Indonesia, Phuket in Thailand, for example.  Finally, for a remote resort spa, somewhere like Maldives, where the guests stay on those small islands for the duration of their stay, spas should be able to achieve Capture Rates of up to 25% to 30%. But many won’t.

So, if we look at it in another way, what that says to me, is that anywhere between 70% and 99% of the guests in a hotel, don’t want what we are selling. Or at least they are not buying what we’re selling. To any unbiased person, that does not sound optimal. So, something has to change.

 

Profits

Another reason I feel that the hotel spa business is broken right now, is that overall profits are declining. I was actually at a spa event recently where one of the local spa operators came up to me and asked, “Are you guys still making money?” That of course suggests to me that he probably wasn’t making money. And this is not a unique conversation. I get that question often, from both hotel operators and also from spa operators. The issue is, quite simply, that our costs keep increasing, but our revenues are not necessarily increasing along with them, at least not at the same rate. And increase in your top line revenue of say 10%, could quite easily end up as only a 2%-3% increase in your profits. By the time you’ve covered the increase in your staff salaries, rising product and supply cost, rising utilities costs, etc., you could easily eat up well over 5% of your gross revenue increase. So, if your owner is looking for a 10% increase in her profits next year, that will mean your spa needs to increase top line revenues by at least 15%, maybe more.

 

Treatment Prices

I also think we have hit the ceiling of what we can charge for a treatment. We cannot expect our customers to keep pulling out more money from their wallet for a one hour treatment than they already do. I believe we’ve reached the limit of what is a fair price for the services we are providing. When I first started with Mandara back in 2005, the conversations around budget time each year, was all about how much we are going to increase our prices. Not if we would increase, but by how much we will increase. And I am talking about above and beyond whatever increase we had in our operational costs. It was really a question of how much we felt the market (ie: the customer) was willing to pay. We would simply increase 3%, 5%, 7% every year, because we could. Because that is what the market would take. Today, the conversation is more about can we actually increase at all, or do we need to think about maybe a decrease?

 

Occupancy Rates

It has always been interesting to me that even though we operate in hotels, we rarely talk about the Occupancy Rate of our spas. Occupancy is of course a key statistics for hotels, but not so for hotel spas. Maybe part of the reason for that is that this is another metric that doesn’t look great for most hotel spas? 30% Spa Occupancy is about the average rate. If you have a spa with four single treatment rooms that operates for 10 hours per day, that would mean you could do potentially 40 hours of treatments per day. If your spa is running at a 30% Occupancy Rate, you would only be performing only 12 hours of treatments per day. If a hotel was operating at 30% occupancy, the General Manager would probably lose his job. But in spas, somehow, we just seem to accept a number like this as the norm.

 

Therapist Utilisation

Everywhere I go these days I keep hearing that we need more therapists. But I actually think the real issue is we need more customers. That’s what the numbers seem to suggest. Because most therapists are only doing three to four hours of treatments per day, on average. Assuming that they are there to work for eight hours a day, that’s not very efficient. If we consider that treatment hours performed is what generates 85%+ of most spas’ revenue, it is simply not sustainable to have such a low level of productivity. And yes, I do understand that massage is a little bit different, because it can be physically quite tiring. But let’s be honest. In most cases, with most therapists, in most hotel spas, that is not really a major factor. The simple fact is, we need to be able to operate more efficiently. We either need more treatments booked, or fewer therapists – not more.

And often when we do these conferences, we’re in nice hotels with maybe nicer spas; so those numbers are a bit higher. In my job, I tend to travel around a lot, I go to a lot of different spas in a lot of different hotels, in a lot of seasons, in a lot of different countries and these are the numbers that aren’t getting back when I talk to people.

For sure the hotel spa business was not always like this. But today, like everything, the hotel spa market has changed. Unfortunately, we are not changing with it. Once upon a time, if you wanted a decent spa experience you had to go to a hotel spa. Today, with the proliferation of Day Spas, customers have many more options for a quality spa treatment. We have to evolve. Because our whole environment is changing and if we don’t I think we are at risk of becoming a little bit obsolete, at least as far as our guests are concerned.

 

Same Same…But Different

Every spa manager or owner that I speak to believes that their spa is unique. Truly different from all the other spas. But what do our customers see?

There’s an easy way to find out, Just type in the word ‘spa’ into your favourite search engine, then click on the Images tab. What you will find is a lot of images that all look very similar. And these are not usually stock photos. These are photos that these spas are having produced themselves. They are paying professional photographers thousands of dollars to take a unique photo of their spa – that looks just like all the other spa’s photos.

Here’s another way to check just how well we are doing in differentiating ourselves, in our customer’s minds. Take a look at any of the spa magazine or websites that cover hotel spas. Have a look at the images for each one. As mentioned above, they all look very similar. But also read the words. Look at how spas describe their benefits and features. Once again, you’ll find there’s a lot of Same Same.

So as far as our customers are concerned, there’s not really much difference. Why would they choose one spa over the other? What’s compelling? It’s time for hotel spas to take a long hard look in the mirror at all aspects of our business and see ourselves as our customers see us.

 

The Circle of Life

It’s important that we don’t beat ourselves up over this. The current state of the hotel spa business may not be great, but it’s also not that different from many other businesses. Indeed, all businesses essentially follow the same cycle of Idea – Growth – Maturity – Decline – Death. What separates those companies that survive and flourish over time, is Rebirth phase. Somewhere between Decline and Death they find a way to innovate and adapt to the changing market conditions. And this is what’s really exciting about the hotel spa business today. We are right around that Rebirth stage of our business life cycle. If we can innovate and adapt, we will then grow from where we are today to an even bigger and more impactful industry. If we don’t, we run the risk of dying off. That is the opportunity.

So, the challenge before us is one of innovation. What can we do differently? What new ideas and concepts can we come up with to get us off this path of decline? Here’s a few suggestions…

 

THE FUTURE OF HOTEL SPAS

The Third Place

Starbucks is not just a place to drink coffee. The brand vision of Starbucks was to be the place you go between home and work. The Third Place. A place to get some work done, or to have a discussion with friends or colleagues or to eat some food or even, if you really want, to drink some coffee. Hotel spas have a great opportunity to become a Third Place too. At the very least, a place between the hotel room and outside. But I believe the opportunity is bigger than that. I see no reason why spas in general can’t rival Starbucks for the title of the Third Place. Spas no longer need to be a passive place. Instead, they can be a place to do some work, answer some email, make some calls, meet some colleagues, have some food, learn something new, be entertained, etc. The opportunities are endless, if we just release our minds from the constrains that we have imposed upon ourselves because this is a spa – and a spa is XYZ.

 

Organizational Face of Wellness

A good friend of mine and of SpaChina is Professor Gerry Bodeker. Gerry once said to me that spas have the opportunity to be the Organizational Face of Wellness. At the time, I had no idea what he was talking about. I later found out that Gerry meant was that we have an opportunity to be the door to the Wonderful World of Wellness. We can be the guide for our customers to discover and benefit from some wonderful new techniques - or sometimes ancient techniques that have been rediscovered - of wellness, of health and of relaxation. People don’t necessarily trust the little shop or clinic or the day spa on the street, but we are a hotel spa, they trust us. So, we have the opportunity to lead them. It is definitely a feasible innovation for us, but I don’t believe hotel spas have yet begun to exploit it.

 

Spa +

We all know that time is the most valuable asset for most people today. So, instead of your hotel spa being a place for pampering, think about it more in terms of a functional service centre. You can drop your car off for a wash and vacuum and have a coffee and donut while you wait. So why not allow your guests to drop their body off for a bit of servicing and get some other things done at the same time?

Let’s say a guest wants to get his shoes shined every night, ready for the next day. But the first thing he does instead when he walks back into the hotel after a day of meetings is stop in the bar for a couple of drinks. By the time he gets back to his room to take his shoes off, housekeeping has already gone for the day so he can’t get his shoe-shine. How can you give him what he wants? What if you could create a space where the busy corporate traveller could come back in after a tough day pounding the pavement, slip his shoes off and sit back with an ice-cold beer, while getting a relaxing foot & leg massage. Then when it’s over, he gets his shoes back looking brand new, having just had a thorough polish? You’ve now solved the one problem, the shoe shine but you’ve also helped solve another problem – relaxing after a tough day. And in solving these problems you’ve created another service that this guest will gladly pay for.

What we need to do now is to think differently. What we are doing right now just doesn’t seem to be working anymore. At least not like it used to. Imagine if the concept of a spa didn’t exist at all. Imagine there were no such thing as a spa. Now, if you are a hotel owner or General Manager and you have this available space and you want to try and find a way to generate more revenue for your hotel or your service for your guests, what would you put in there? Remember, spas don’t exist. What would you put in that space today? Would it be a spa as we know it today? Based on the numbers we shared earlier, probably not.

So, I think that is what we in the spa industry need to do. Imagine if a world without spa, then reimagine spa for the next generation.

We are truly at an inflection point. And that represents an incredible opportunity.

As Theodore Roosevelt once said …

Do something now. If not you, who? If not here, where? If not now, when?