Spa News Dubai

Cash in with new spa strategies



Paul Arnold and Nikita Sarkar of Ernst & Young Middle East’s Hospitality, Leisure and Real Estate Advisory Services department analyse the results of its new Spa Benchmark Survey, revealing that good yield management can make treatment rooms more profitable.

The Ernst & Young (EY) Spa Benchmark Survey results confirm that consumer propensity of going to spas is on the rise, with the number of treatments booked at spas in Dubai in June reflecting a 39% increase since January.

However, the economic climate has translated to increased price sensitivity of spa patrons as well, with the treatment revenues only increasing by 32% over the same period.

Interestingly, April was a stellar month for spas, when treatment revenue increased by a whopping 72% from January. In fact, April has been the only month this year where increase in treatment revenue outpaced increase in treatments booked (the latter also recording a steep 67% rise since January).

Spa operators attribute this spike to the Easter holidays and a higher influx of Russian tourists who are more inclined towards spa therapies and retail products.

Chance peaks aside, the challenge for spas now is to function in a profitable way. Like every other business that wants to survive in the present slowdown, spas seriously need to examine every facet of their business to remain relevant and provide value to their clients. Now is the time to critically evaluate the ‘health’ of the spa business.

Based on findings from the Spa Benchmark Survey, which has been carried out across 17 five-star Dubai hotel spas monthly during 2009 to date, Ernst & Young recommends three areas for hoteliers to focus on.

1. Manage for the future

Now, more than ever, spas need to create forward-looking strategies predicting trends a couple of years out. This forecasting should be based on formal analytical tools, sound judgment, expertise and knowledge of industry dynamics and the analysis of historical data.

A performance indicator of particular significance, tracked in the EY Spa Benchmark Survey, is the Average Treatment Revenue per Treatment Sold.

It is critical to monitor this indicator over time, because consistently increasing the average spend per booking will help increase the overall financial performance of the spa.

The message is to drive the top-line through selling more treatments and services. However, there may be trade-offs to be made between higher revenue per bookings via high prices and the utilisation rate.

This is due to consumer price-sensitivity, which can make discounts and promotions necessary. As volume of business is integral for survival, spas should not be afraid to promote affordable options to boost utilisation.

The highest contributors to total spa revenue are treatments and fitness. However, there are opportunities to maximise revenue from retail — according to the Spa Benchmarks from January to July year-to-date, retail contributes around 10% of total spa revenue.

However, in certain top performing spas, retail contribution to total spa revenue has almost touched 30% in a couple of months.

In addition, with staffing one of the most significant expense items in a spa’s P&L, operators need to work on offering an excellent service with fewer personnel.

Hence, it is important to promote efficiencies via cross-training and targeted performance-based incentives for productivity, sales, new and repeat bookings, etc.

2. ADOPT Innovative yield management STRATEGIES

The EY Spa Benchmark Survey tracks a relatively unused metric, RevPATH (Revenue per Available Treatment Room Hour), which is conceptually similar to RevPAR for hotel operations. RevPATH allows for a true evaluation of spa performance by distilling the revenue generated by a spa over a universal metric – an hour of time.

Not only does RevPATH allow for fair comparison between different types of spas, but an interesting way of utilising this KPI is to use it as a means of comparing spa rooms with hotel rooms.

For instance, the chart overleaf presents the RevPATH found at Dubai beach hotel spas (on a daily basis, assuming 12 hours of operation) compared to the RevPAR at leading Dubai beach hotels over the period January to May, 2009.

It is interesting to note that the revenue generated by spa treatment rooms is not that much lower than the revenue generated by hotel rooms on a daily basis, and in fact even trumps the latter in the month of May.

This is especially note-worthy given the fact that spa treatment room sizes are significantly smaller in size than a hotel room and much less expensive to fit-out. This comparison highlights the revenue generation potential of a spa treatment room which can be turned over far more times than a hotel room per day.

This takes us directly to the topic of yield management; analysing RevPATH patterns on a monthly and daily basis can help identify peaks and troughs in demand and so assist in creating strategies for effectively maximising "yield" or revenue via creative ways to package and promote treatments to appeal to clients.

The key is to research each element of the spa operation — peak times, low times, most popular treatments, least popular treatments, guest profile during different times of the day and other spa offerings in the market.

This research should then be used as the basis to create a spa menu with different prices and targeted promotions to match different customer needs. The main objective is to fill the spa rooms for as many hours of operation as possible, since an unoccupied treatment room hour symbolises revenue lost forever.

Not enough attention is paid to yield management within the spa setting and spa operators tend to shy away from utilising it either due to lack of specific software or the view that it creates unfair price differentials.

However, many spa-oriented point-of-sale systems, such as SpaSoft, Resort Suite and SpaBooker, incorporate essential and user-friendly reporting techniques with many revenue management features.

Plus, in a post-Expedia age, differential pricing strategies for airlines and hotels is a standard practice and even expected by the customer. The same pricing strategies can easily be applied to spas in order to optimise revenues.

3. Pursue differentiation

To establish a differentiated position in the market, it is important that spa operators make an effort to understand their customer mix and cater to the different needs and perceptions of value of their guests.

Best value for money is a major concern for every spa guest and packaged all-inclusive spa offerings prove to be more attractive to customers than individual treatment bookings.

Spa experiences should be designed to keep guests at the spa as long as possible, including time spent before or after treatments in the fitness centre, relaxing in the spa lounge, or having a healthy meal.

It is only logical that the longer the time spent by the guest at the spa, the higher the chances for increasing the money spent there. Additionally, given consumer inhibitions to spend on long vacations and international travel nowadays, there is a great opportunity for spas to offer full-day ‘daycations’ and ‘spacations’.

Hoteliers should also ensure full integration of the spa, meaning that every touch point with the hotel guest is identified and treated as an important sales point for up-selling the spa.

Last, but not the least, it is important that spa operators create a concise and compelling sales and promotional plan which can readily be understood and executed by the members of the spa staff.

Internally, the plan should highlight up to five items to be focused upon such as capturing the guest, increasing bookings, increasing retail sales, etc. Accordingly, appropriate performance-based incentives should be set in place; and any conflicts between the set targets should be minimised.

Externally too, the marketing and promotion plan should highlight three to five distinguishing features and services of the spa so as to strengthen brand awareness. The ‘swollen menu syndrome’ and tendency to be everything to everyone at all times should be curtailed.

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