For those of you that were around back in the mid 1990’s, you will recall a time when Spa was not something you’d be sure to find in a hotel. The few that did exist were most likely just made up of a few converted guest rooms with a massage table inside. In the 20 plus years since then, hotel spas have become ubiquitous.
If you don’t remember those days, you might get something out of an earlier article I published on the Evolution of Hotel Spas.
But lately my Spidey-Sense has been tingling. I reckon we might have just about come full circle.
Don’t Sell Me What I Want
I’m a strong believer in selling people what they need, not what they want. Of course, we all know it’s often easier to just give them what they’re asking for. However, if it’s not right for them, I believe it’s just smarter business in the long run to instead give them what they need. Even if it means less for you in the short run. The same logic applies to just about everything – including Spa Consulting.
Earlier this year I was working with a client in the Middle East. He was the General Manager of an internationally branded 5 star city hotel. He’d paid me to come out and do a basic market analysis and advise them on what to do about their spa. They didn’t really have a spa at all. It was a just a single room, beside the gym, set up with a massage table inside. Very basic to say the least. The management company was pushing the owner to build a spa and the GM was tasked with getting a professional assessment and determining the ROI on the investment.
They’d already identified some prime space on the top floor of the building. This would be the new spa. Initial estimates were that it would probably cost approx. USD $1 million to build out the spa in this location. All three parties (Owner, Management Company & GM) believed a quality spa would be a great asset to the hotel and be a nice boost to the bottom line. So, if I could just reconfirm what they already believed, we were looking at a nice sized consulting contract out of this.
The Process
I did a quick tour of the four nearest competitor hotels, all of which were within a 3-5 minute walk of each other. Each was a 5 star property. Each carried an international brand. And of course, each had a spa. None of these spas were amazing, but they were all pretty good. The spa that my client was hoping to build could possibly have been the best of the lot. But unless they were to spend really big money, it was unlikely that it would be amazing. Just another good hotel spa.
We already knew the location and we knew the costs of construction and fitout. So, all we needed to do now was work out our revenue and our costs of operation and ultimately the GOP for the spa. Then we’d know how long it would take to pay back the investment. Simple as that. We already had some ballpark numbers on operational costs. Revenue, then, was going to be the key variable.
Now, I don’t know how much revenue they were all expecting the spa would generate. But it soon became clear that those expectations were very, VERY, aggressive. When I told them they could expect 7-10 treatments per day with an average cheque between $80 to $95, you could’ve heard a pin drop in that room. $1,000 per day was the absolute best case scenario I could see.
$365,000 spa revenue per year.
Assuming an optimistic GOP Margin of 35%, they might be able pull approx. $125,000 in profits from the spa per year. With this, they wouldn’t be able to pay back the investment on $1 Million for around 8 years. And this is all IF everything goes well. If not, there was every chance this 8 years could stretch out to 10 – or more.
🙁
The Denial
And thus began the denial phase…
But we think we should be able to charge the same price for a spa treatment as we do for a room night.
And we think our capture rate will be up to 30%, not 3% like you’re assuming.
Don’t forget, we have four other hotels within walking distance and we can attract spa guests from there. They will come to use our spa.
Maybe you can. Perhaps you’re right. Possibly they will.
But the reality is… You probably can’t. You’re probably not. And they probably won’t.
The Recommendation
I guess by now, you know what comes next…
Ultimately, instead of spending $1 million on a spa that could take 10 or more years to pay back, I recommended converting some guest rooms into treatment rooms. With this option, they could do something pretty darn nice for $250,000 or thereabouts. They could take one section at the end of a hallway and put some effort into décor and soft furnishings to differentiate this zone from the rest of the guest rooms. One guest room could be the Spa Reception. The Suite Room could become a Spa Suite for couples. Take three more guest rooms and set them up as single treatment rooms. And again, spend some money on soft furnishings for the rooms so they don’t look like the other guest rooms. You still need it to feel like a spa. Voila!
The Reality Check
Let’s be clear. This guest room spa solution is never going to win any big spa award. Chances are it won’t even get any press coverage either. But the point is, for many hotels, these things aren’t practically attainable anyway. And even if they are, how much direct business are they likely to pull in as a result? Here’s a more important question…how much hotel business are they likely to lose by having a spa like this? How many potential guests will say ‘I’m not staying there because their spa is really just a few converted guest rooms.’? Honestly, not many, right?
So, if we need to spend big money to get our spa noticed. And if there’s no significant downside in a more modest solution. Then why would we not be recommending a solution like this?
The circle is complete.
And guess what, I’ve had two other very similar conversations in the last couple of months in Malaysia and Vietnam.
Look out. Here comes the SpiderMannnnnn!
