When it comes to Spa Management Models, what are the options?
A few years ago, the folks at Hotel Executive asked me to offer some advice to hotel owners and general managers on this. It was timely back then as I would have several conversations every year on exactly that. As it happens, the same advice is timely today. Not even 10 weeks into the year and I’ve been asked this same question three times already
So, I thought I’d share the crux of that article with you today…
Today’s hotel spa can be either a great profit centre or an essential amenity that is just another cost centre. Either one is fine. The key is in understanding what role your spa plays for your hotel, then finding the right help to bring that spa to life and ensure that the finished product fits with the overall objective.
Where did we come from?
Not so long ago, spas in hotels were limited to exclusive resort destinations. Then, around 20 years ago, an interesting thing happened. Hotels decided spas should now be a part of their overall service offering. What followed was a boom time for hotel spas. Or, perhaps more correctly, a boom time for the industry that emerged around hotel spas. It was a time of ‘If you build it, he will come’. This worked fine for Kevin Costner in Field of Dreams but the same can not be said for hotel spas.
As with many emerging industries, facts and figures often give way to hyperbole. Hotel owners and managers were caught up in the euphoria of what the spa prophets promised them – a beautiful new facility within your hotel that will be a license to print money.
In fairness to us spa people, it wasn’t a deliberate act of deception. We too got caught up in the moment. We genuinely believed that your guests would flock to the spa. Why wouldn’t they? Who wouldn’t want to be pampered from head to toe and come out feeling relaxed and refreshed?
The U is for Unique
We gave you the concept. You decided to hang your collective hats on it. Your spa would be your USP. The one thing that really sets you apart from the competition. Here’s the problem – your competitors quickly started building spas too. And then it became a game of one-upmanship if you really wanted your spa to be unique. This is where the whole thing got a little out of control. Hotel spas started being overbuilt. After all, how else can you create a USP if everyone else is doing the same thing? Hotels were sinking way too much money into the spa facility to ever get a reasonable return on investment. Spa consultants were all too willing to help hotels create these amazing spa facilities and in so doing build a monument to themselves, rather than a sustainable business unit.
Fast forward a few more years, to the present day and hotel owners are looking at the ROI of their spas and scratching their heads.
So, who’s to blame? The spa industry? The hotel owners? The spa consultants? The hotel managers? Truth is, we’re all probably a little bit implicit in being caught up in the moment.
History Teaches. The Future Forgives
The good news is that spas definitely still have a place in hotels, especially in resort hotels. Now that the gold rush mentality is gone, you can take the time to calmly and rationally consider what specific spa elements will work in your hotel. Learn from the many mistakes that others have made over the years and get your hotel spa right.
But what is the right spa for your hotel? What treatments should you have? What facilities do you need? Which skincare products should you use? Where can you find the staff? Who will train them?
This is where you as a hotel manager start to get a bit anxious. There’s so much to know. You don’t understand any of it. Maybe it really is too difficult?
As a former hotelier, I liken it to my first General Manager’s post where my Managing Director questioned whether or not I would be able to run a quality restaurant. After all, I was a Rooms guy, not an F&B guy. My answer was simple. I’ll hire a great chef and a good restaurant manager and then I’ll manage them. The result, a great F&B product (even if I do say so myself).
The spa is no different. You simply need to reach out and get some form of technical assistance. Finding the right type of assistance is definitely a challenge. You basically have four choices when considering the right form of technical expertise and guidance to either set up or revitalise your spa.
Recruit an experienced Spa Manager, with a background appropriate to your hotel, and have them take on the role of consultant, advisor, designer, project manager, trainer and ultimately manager.
The great thing about this option is, assuming you find the right person, they will have complete ownership of the spa. It also means you have the flexibility to manage that person, much more so than you could if you hired a consultant.
The big risk here is hiring the wrong person. Sometimes it’s hard to know for sure until it’s too late. Another concern is that in having one person who is essentially the soul of your spa, when they decide to leave, a big part of the spa dies with them. It doesn’t have to be this way. Certainly, if they have done a good job empowering and educating their team, the spa should be able to survive the departure of its creator. Finally, spa concepts can be a very subjective thing and individuals often have strong ideas about what they want to create. If not checked, these concepts can be more about the individual’s preferences than what your guests are really looking for.
Partner with a Spa Management Company to run your spa. These operate much the same way as a hotel management company would and usually have one of two business models. A revenue share model would see the spa management company and the hotel splitting the top line revenue, most of the operational costs being charged to the spa P&L, whilst some expenses like utilities, rent, laundry, etc would be absorbed by the hotel. A management contract model would have all revenue and all expenses allocated to the spa P&L and the spa management company would receive a percentage of GOR and a percentage of GOP, with the hotel receiving the remainder.
The biggest advantage of this option is that the hotel doesn’t have to worry about the day to day management of the spa. Of course, if a management contract business model is chosen the hotel should be actively involved in managing the P&L along with the spa management company. However, if a revenue share model is in place, the hotel really only need concern itself with that top line revenue number and of course ensuring that overall guest service standards are met.
One of the disadvantages of this option is a loss of control for the hotel. Most spa management companies will insist that they have final say on treatment menu, pricing, retail products, etc. This can vary according to the business model in place but generally if you are trusting your spa to spa management company you really do need to trust these types of decisions to them. The other disadvantage here is that sometimes there just isn’t much revenue to share. With payroll costs increasing to as much as 50% or even more, spas in the western world are often reduced to single digit GOP margins. In Asia the margins are more attractive, largely on the back of lower payroll costs, but still the margins are eroding.
Whilst the hotel may be content earning relatively low revenue from the spa (as I mentioned earlier, in some cases a spa is treated as a necessary amenity rather than a pure profit centre), you need to consider if the spa management company is earning enough to justify their efforts too. If not, they will either devote less energy to you spa and ultimately may end up offering a sub-standard service offering to your guests.
A third option would be to contract with what we call a Product House to run your spa. A product house is essentially a cosmetic or skin care company that will run the spa under their brand, much as you might see in a retail shopping mall. Some product houses offering spa management services include Clarins, Jurlique, Elemis and L’Occitane.
The benefits of this option are much the same as with a spa management company. An added benefit is that the product support and training assistance is almost guaranteed as your spa is really a showpiece for the product house. Finding a strong product company to partner with locally and ensure good support and training is one of the biggest challenges for spa management companies.
Again, similar to spa management company option, the big downside here is a lack of control for the hotel. The other thing to be aware of here is that product houses will often impose minimum annual orders of product. If the spa is being well managed and retail sales are driven, this isn’t a problem as you’ll be selling all your product. However, if you’re spa isn’t selling through, you can still be on the hook for large product orders that will ultimately leave you with dead inventory on the shelves. Minimum purchase requirements need to be considered when look at the overall business proposal of the product house too. Often it can seem like you’re getting a better revenue share here than with a spa management company when in fact you can end up worse off due to excess product purchases.
Enlisting the services of a Spa Consultant to bring your project to life is perhaps the most obvious solution sought by hotels. A spa consultant will usually come in to help setup or revitalise your spa and then hand it over to the hotel to manage it moving forward. A good consultant would be available for ongoing assistance, re-training, QA audits, etc.
Flexibility and control are the two biggest benefits of using a spa consultant. The best spa consultants will certainly have strong ideas as to how things should be done, but as the client, the ultimate decision is yours. Spa consultants are not bound to any specific treatment protocols or product lines so as the client you are free to select the best fit for your spa.
The biggest challenge with Spa Consultants is finding the right one. Most spa consultants are former therapists or a spa managers who’ve decided to go out on their own, for various reasons. Obviously, being a great therapist or manager does not automatically qualify you as a great spa consultant. You may find a consultant who’s a great trainer, but not so great at creating the SOPs for your spa. You may find a consultant who has excellent product knowledge but doesn’t understand the issues around design and construction. In short, it’s difficult to find an individual spa consultant who has the complete set of skills necessary to be a ‘one-stop-spa-solution’. If you are fortunate enough to find one, they won’t come cheap.
Remember, if you’re creating a new spa, you’ll need your spa consultant on board for at 4-6 months at a minimum. Adding their monthly fee, plus expenses and incidentals, your spa consultant’s bill can very quickly get up around six figures – especially if you don’t enlist a local. Cost of airfares, accommodation, meals, laundry, etc. can add up very quickly.
The other challenge with spa consultants is, when their job is finished, you’re still left with the day to management of the spa. If done right during the project phase, you would have your spa manager on board early to work alongside the spa consultant and be immersed in the entire concept and creation so that they end up with a level of ownership moving forward. Of course, a year later, after your spa manager and a few therapists have left, you could be back at square one.
Horses, Not Unicorns, For Courses
Which option is right for your hotel?
Unfortunately, there is no one answer to this question. Each hotel is unique. Each scenario is different. All options have pros and cons.
The best option might be any one of these mentioned above or possibly a combination of them. Maybe you hire a consultant to help with the design and then help you find the right spa management company. Maybe you contract a product house and have them help you find a spa manager you can hire to run your spa.
The most important thing is to be clear on what you want from your spa. Is it an amenity or a profit centre? If it’s there to make money, build smart. Be realistic about the true guest demand and revenue potential. A hotel spa is not some magical, mystical world unto itself. It should be treated much the same as any department or facility within the hotel.
Managed well, your hotel spa can be a great asset. Neglected, it’ll cost you money, time and guest complaints.