The disconnect between spa operators, investors and hotel operators

 

To say there is a disconnect between investors, spa operators and hotel operators would be an understatement. Fuelled by unrealistic expectations on return on investment, this is a challenge that the spa industry has faced for many years, and will continue to struggle with in 2014 and beyond. Yet, with global wellness tourism growing, we still haven’t embraced a sustainable solution to this critical issue.

In her panel discussion at the 2013 Global Spa and Wellness Summit, called “Straight Talk from Serious Investors in Hospitality and Spa“, Susan Harmsworth, Founder and CEO of ESpa International, provided some focus on this topic. The panel discussion helped the three parties: spa operators, investors and hotel operators understand the spa business and also explored new dimensions to address the increasing gap between the three pillars. Let’s take a closer look.

 

Reasons behind the disconnect

The underlying reason behind the disconnect between the three pillars is owners’ unrealistic expectations of the spa business in general. The expectation of a swift ROI, less focus on services, neglect of the spa facility and miscommunication all contribute to the increasing gap between owners, spa operators and hotel operators.

 

Spas in emerging markets

The growth in the global wellness tourism economy means that spas are growing at a rapid rate in terms of numbers, especially within emerging markets. Many of these spas are located in luxury hotels or in resort areas. In other words, instead of being a standalone facility, these spas are located within hotels as “add-ons” or “amenities.” As a direct result, many spas in these emerging markets simply do not have the same business focus as standalone ones outside of the hotel industry.

The focus on the hotel is not the spa. It is not the spa’s practices, methods, or uses. Rather, the bottom line matters most within these locations. Generally, investors building these hotels with spas focus on providing quality services to the limited extent that these services will pull in more customers to their entire facility. The actual quality of the spa services provided, on the other hand, is not the focal point. The goal is for the hotel to make money. Therefore, the focus in these locations is the return on the investment, not the quality of service, type of service, or even the facility itself. This is a growing trend we are likely to see continue for years to come.

The investor, from how big they are to how integrated the services are, considers every element of these hotel spas. This is done from the vantage point of the investor, based on expected returns. In some cases, these spas are seen along the same lines as fitness rooms or meeting rooms also offered at luxury hotels. As a result, the quality of service obtained by the average customer at these locations is very much different from what the customer may experience at a traditional, standalone spa where the owners and investors remain dedicated to “Return on Ego”, a concept introduced at the summit. In this concept, the investor does not expect high initial profits, but instead provides a higher quality of service to the customer. The “Return on Ego” investor is more likely to provide better features and service instead of looking just at the bottom line and return on investment.

 

What’s likely coming?

Global wellness tourism will bring new investors into the market, including many who are not spa-savvy. These investors will put money into the spa businesses, but will likely have unrealistic expectations for returns on their investments. This disconnect between the investor and the spa professional will continue to create difficulties within the industry. Some hoteliers will pay attention to the quality of their facilities. Others, though, are looking for a quick return. Ultimately those that do not put the time into the facility will be unlikely to see a spa generating profits in the first year, even though this is something these investors expect to see happen.

 

The way forward: Educating investors

As pointed out by Andrew Gibson, VP Spa and Wellness at Fairmont Raffles Hotels International, it is critical for hotel owners and investors to look at just how much spas add to the hotel’s bottom line beyond what happens within the spa’s treatment rooms. Room rates are higher. Bar tabs are higher. Food bills are larger. Having a spa within the facility raises the value of that facility, providing significant returns. As a direct result, then, investors must consider not just the bottom line within the spa’s financials, but also the benefit and revenue that’s indirectly being brought to the company as a result of the spa being located there.

 

Spas are not a get rich quick venture. They are complex operations and usually very costly to run. It is important to be realistic about our numbers and to manage both the owner’s and hotel operator’s expectations in terms of what constitutes a coherent return on investment. By educating investors to look beyond the pure spa’s financial and to consider the overall impact having a spa has to the entire hotel operation and other outlets, the spa industry would be better positioned to close the gap between the three pillars: investors, hotel operators and spa operators.

By Sonal

Sonal Uberoi creates and delivers smarter spas around the world. Spas and hotel groups hire Sonal to help them design, set up and manage their wellness businesses. Her finance background and worldwide operations experience in the spa, wellness and hospitality sectors make Sonal the go-to expert for business optimisation solutions. Connect with Sonal on LinkedIn www.linkedin.com/in/sonaluberoi.

One thought on “The disconnect between spa operators, investors and hotel operators

  1. Rajesh Iyer said:

    I entirely agree with Sonal’s observation and analysis on the current disconnect between spa operators, hotel operators and investors here in India.
    I also see similar challenges in the salon industry where investors with nil / limited experience or exposure to the industry have invested in stand alone or chain salons on the assumption that the ROI is fantastic and the returns are quick. The frustration starts when they learn & realise that it is a complex matrix to make a salon successful & profitable & that its takes time to get the right type and amount of footfalls,deliver client’s expected level of services, generate customer satisfaction, loyalty and referrals.
    Yet, the industry is attracting a huge interest from VC & Angel Investors due to the potential growth prospect in the next five years.
    I also like to point out that while everybody is so positive on the professional grooming & wellness sector, hardly any VC or Angel Investor is interested in investing in a back end business which supports the salons and spas by ensuring regular supplies of imported & owned branded professional cosmetics, Equipments and Tools.
    The advantage of having a pan India reach, target thousands of salons & spas, generate a healthy business volume with an attractive ROI, nurture the brands, add value and ultimately get the due reward of investing in a solid back end business model is unfortunately not been realised by potential VCs and Angel Investors !!
    As a consultant in this industry for over a decade and now as an full time entrepreneur, I am sad to see this ‘ follow the trend’ pattern of skwed investment in our industry.
    I believe that all sections of the professional grooming & wellness industry has to develop and the chain which binds the spa/ salon owner- operator, space leaser, investor and the back end players like suppliers & aesthetic education and technical support academies should become stronger and ultimately result in a win- win business proposition to all stake holders.

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