Research by PKF shows that US hotel spa revenue is increasing as
more people understand the value of taking care of themselves.
Andrea Foster takes a closer look at spa department performance
By Andrea Foster | Published in Spa Business Handbook 2014 issue 1
The 2013 edition of Trends® in the Hotel Spa Industry by PKF Hospitality Research (PKF-HR) revealed that spa department revenue in US hotels went up 5 per cent in 2012. The researched was based on 125 hotels and the spa department performance compares favourably to the 2.5 per cent increase in food and beverage revenue, the second largest source of revenue for most hotels. In addition, average spa revenue per treatment room per day (RevPATR) was 2.5 times higher than the hotel revenue per available guestroom (RevPAR). Not bad considering treatment rooms are typically a third smaller in size than guest rooms.
The is the second consecutive year that spa revenue has grown at a pace equal to, or greater than, most other non-guest rooms amenities and it marks a significant shift. Historically, spas in hotels have been stigmatised as being a luxurious extra and the revenue they generated initially lagged behind the growth of other revenue sources of US hotels during the early recovery stages from the economic downturn. PKF, however, anticipated the increase and puts it down to a notable change in consumers who are focused more on wellness. Specifically, more people are beginning to take better care of themselves for improved health and quality of life and spas are an important part of this.
Healthy horizon Although it’s difficult to quantify the full effect spas and spa/wellness experiences have in hotels, PKF expects the impact to expand in the coming years. Now, more than ever, there’s more of a focus on healthier lifestyles in the US which is born of both growing awareness and of necessity. With the population’s poor health and resulting increases in healthcare costs, we expect to see more demand for spa- and wellness-related services and experiences, in the spa itself and beyond the spa walls in other areas of the hotel. InterContinental will open its first EVEN wellness hotels in June in Maryland and Connecticut. The brand has been designed to provide solutions for all aspects of travellers’ holistic wellness needs and there are plans to open 100 Even hotels in the next five years. Aspria in Europe and Element by Westin in the US are two other examples of wellness hotel operators.
Inspired by spa, 171 wellness-oriented guestrooms have been installed at the MGM Grand in Las Vegas. The new Stay Well® rooms by Delos have been equipped with special lighting, wake-up and nighttime light therapy, vitamin-infused showers, air purification and water-filtration systems and wellness-focused television channels, to provide a fully-rested and recharged stay.
In many hotels food and beverage menus incorporate healthier selections, including dishes charged with superfoods; gluten-free, dairy-free, and vegan options; and reduced portion sizes to satisfy health-conscious guests. And fitness centres are being made more inviting, are better equipped and offer unique classes or local area-oriented excursions to inspire guests to stay active while away from home.
Many of these new additions are not part of the spa department itself, therefore the resulting revenue generated would not be reflected as spa-related on the hotel’s income statement. However, spas set the foundation for these experiences and, as guests try out and enjoy these wellness-oriented offerings, hotels may then be able to convert them into spa guests.
Revenue yield per guest While revenue in both urban hotel and resort spas grew in 2012 by 7.2 per cent and 3.8 per cent respectively, each achieved their growth in different ways. Urban hotels were able to attract more guests for spa services, as well as rasie prices. The net result was a very attractive 16.3 per cent per occupied [hotel guest] room (POR) increase in total spa revenue at urban hotels. Resort hotels, on the other hand, suffered a 10.8 per cent decline in total spa revenue measured on a POR basis. With resort occupancy levels up by 2.4 per cent, it can be assumed that resort spa managers struggled with the pricing of services, or were unable to up-sell extra treatments to the newly captured hotel guests.
Massage, skincare and body work treatments continue to generate the most revenue at hotel spas. Combined, these services represented 72.6 per cent of total spa revenue and grew by 4.7 per cent in 2012. While these core spa services grew in 2012, salon service revenue declined by 0.1 per cent. It’s a challenge for hotel spas to compete with local hair and nail salons on price and loyalty.
Data from the 2013 spa Trends® report indicates that hotel spas continue to seek customers from the local community to supplement revenues from guests at the property. The combined revenue from facility use and membership fees, fitness and personal training and health and wellness services – such as wellness coaching and nutritional consultations – increased by 4.6 per cent in 2012. These are revenue sources which are most frequently associated with local patrons. Consistently over the last few years, around two-thirds of demand at hotel spas comes from staying guests and the other third is generated from members and local patrons.
Spa managers were also successful at increasing the retail revenue, which grew by 6.6 per cent in 2012.
Expanding expenses While growth in revenue is welcome news, the increase in business volume also carries with it an increase in expenses. Although spa revenues went up by 5 per cent in 2012, total spa department expenses also rose by 5.2 per cent. Accordingly, profit margins in spa departments declined very slightly from 21.6 per cent in 2011 to 21.4 per cent in 2012. With not as much of an increase in volume, it’s not surprising that department expenses grew less at resort hotels (+4.1 per cent) compared with urban hotels (+7.1 per cent). Like all operated departments in a hotel, total department expenses in spas do not include overhead costs such as administration, marketing, maintenance and utilities.
Labour costs are the single greatest expense for spa divisions. The combined cost of salaries, wages, bonuses and payroll-related expenses (benefits) equalled 58.6 per cent of total department revenue in 2012, or 74.5 per cent of total departmental expense.
Due to the high levels of personal service required in spas, it’s not surprising that labour costs increased by a relatively strong 5.7 per cent. Similar to all hotel department heads, spa managers are concerned about the less controllable benefits component of labour costs. In 2012, benefits increased by 8.2 per cent while salaries, wages and bonuses only grew by 4.9 per cent.
Fortunately for hotel spa operators, several therapists work as independent contractors and aren’t always eligible to receive a full package of benefits. Payroll-related expenses in hotel spas averaged 22.8 per cent of total labour costs in 2012 compared with an average of 29.6 per cent for all hotel employees.
Despite the decline in department profit margins, hotel spas achieved growth in departmental income In aggregate, spa department profits increased by 4.2 per cent in 2012. As urban hotel spas had a bigger rise in revenue, they also saw more bottom-line growth compared with resort hotel spas.
Key to success According to the September 2013 edition of PKF-HR’s Hotel Horizons® forecast report, occupancy levels for US hotels in the luxury and upper-scale tiers, in which the majority of hotel spas operate, will remain above 70 per cent through 2017. This minimises the potential for significant increases in guest counts in the years to come. Therefore, the opportunity for hotel spas to achieve future growth will be dependent on their ability to: - Convert more hotel guests to spa patrons - Increase the price of spa services - Raise the number of treatments per guest - Attract greater numbers of local patrons
In a low inflationary and uncertain economic environment, raising prices will be a challenge. Therefore, educating and exposing travellers to the benefits of spa services from a wellness perspective will be a key to success in the future.
Picking up pace There’s been much discussion over the last several years about whether the addition of a spa facility to a hotel results in a higher average daily rate (ADR). It’s been shown that those hotels which do have spas often have a higher ADR than those which don’t, however a causal relationship such as this is inconclusive. Similarly, there’s discussion about what impact a spa has on the occupancy figures of a hotel. Based on travel agent survey data, sourced by Spafinder Wellness, spas do generate travel demand. So it can be concluded that spas do contribute to the occupancy level of the hotels that they’re located in. But is it just the spa facility itself, or is it a broader spa and wellness experience, that drives hotel occupancy and, potentially, room rates?
The broader aspect – namely wellness – is expected to become less directly correlated to the economy than spa. In the US, more people are moving toward a greater understanding of the short- and long-term value of taking care of oneself. As this happens, guest expectations at hotels, restaurants, spas and the like are expected to shift towards wellness-oriented experiences. Locations and brands that have already moved toward a more wellness-focused offering will be ahead of the curve and better positioned to capture the demand and related benefits, as a result.
What’s more, the US lodging industry is picking up pace. It’s at a point in the recovery cycle when occupancy levels have surpassed the long-run average which has allowed hotel managers to raise their room rates more aggressively. In December 2013, PKF HR predicted that revPAR for US hotels will go up by 6.6 per cent in 2014, on top of a 5.4 per cent increase in 2013.
With strong demand levels and limited supply growth projected, lodging increases in the US are expected to remain above long-run averages for the next few years. There’s no better time for spas to market the many benefits of their wellness experiences on-site so that more of these hotel guests can become spa guests too.
To purchase the full 2013 edition of PKF-HR’s Trends® in the Hotel Spa Industry report visit www.pkfc.com/store
ABOUT THE AUTHOR
PKF Consulting’s Andrea Foster is the publisher of the annual Trends® in the Hotel Spa Industry report. She’s been in the US hospitality industry for 15 years and previously headed up business development and marketing at Miraval. She’s consulted on numerous hotel and spa projects.
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