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 than hotel bedrooms.

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.

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