HOTEL SPAS - The New Recreational Vehicle For Hotel Profits

by Andrea Foster and Robert Mandelbaum

While the spa experience may once have been considered a luxury to hotel guests, hotel owners and operators are fast realizing that it is necessary to have a spa to meet guest expectations and to remain competitive. In resort locations catering primarily to groups and individual leisure travelers, golf was once the buzzword for guest recreation and enjoyment. Now with a trend toward better lifestyles, an increase in disposable income, and less available time, spa treatments are better accommodated in a tight schedule than a leisurely round of golf.

But guests of resort hotels are not the only ones expecting to get a massage following check-in. Corporate guests are now looking for spa services while they travel on everyday business. Why? Busy work schedules, high stress levels, and a growing focus on one's health and well-being are nudging more people to spas for regular massages and treatments. In response to this demand, spas are growing in numbers in urban and convention hotels, as well.

The demand patterns and trends in the spa industry are illustrated by the financial performance of hotel spa operations. To present a complete picture, we have analyzed information from the 2003 and 2004 operating statements of 88 properties in the United States. Included in this group are both hotels with dedicated spa facilities and properties that offer spa services through their health club. The data comes from Trends in the Hotel Industry, PKF Hospitality Research's database of 5,000 hotel financial statements.

Contributing Revenue

In 2004, spa revenue for the hotels in our sample averaged $2,076 per available room, or 2.3 percent of total revenue. Revenue contribution did vary by property type. As would be expected, where the length of guest stay is longer, spas at resort properties contributed a greater percentage of revenue to the overall hotel operations, as opposed to the spas within urban full-service and convention hotels. At resort hotels, spa revenue was $3,117 per available room, or 3.4 percent of revenue. For urban hotels, spa revenue averaged just 1.3 percent of total revenue, or $1,187 per available room.

Missing from our analysis is the square footage of the spa operation. Obviously, the size of the spa facility will have an impact on its ability to generate revenue. However, by sorting our data by the total revenue generated by each spa, we found that hotel spas generating over $1 million in revenue contributed an average of 5.3 percent of the total revenue for their properties. At the other end of the spectrum, spas that achieve less than $500,000 in revenue represent less than one-half of one percent of the total revenue at their hotels. Enhanced health clubs made up the majority of small revenue departments, while the million dollar operations were primarily true dedicated spa facilities.

Diverse Services

Depending on the size of the operation, revenues are derived from a variety of sources. The simplest of health clubs offer fitness and training facilities, as well as a basic massage package. On the other end of the spectrum, extensive dedicated spa operations provide a full menu spa services that includes specialty body treatments, salon services, and spiritual / wellness guidance. In addition to services, spa operations earn revenue from membership fees and retail spaces offering a variety of clothing and spa-related merchandise for sale.

Larger spa operations will operate a healthy snack bar or full-service restaurant serving "spa cuisine." Consistent with the spa focus on health and well-being, spa cuisine is typically low in fat and calories, and prepared with fresh ingredients. Due to standard hotel accounting practices, food and beverage revenues are classified within the Food and Beverage Department and therefore are not included in our analysis.

Why have spa treatments become such a revenue-generator for hotels? Among other reasons, hotels originated from personal, attentive service. As we as a society becomes busier, and process more information in less time with increases in automation and electronic solutions, hotels have followed suit. Hotels have responded to guest demand for increased efficiency and do-it-yourself solutions, such as in-room business services and kiosk check-in. But in this process, the personalized contact is depleted. Stated otherwise, with increases in "high tech" the hotel industry is less "high touch". Spas, by nature, fill the void for personalized, human attention.

Just as spa treatments by design are tailored to meet guest needs, spas have begun to individualize their spa offerings to establish a signature reputation. This is particularly found in larger resort spas. Treatments are created that showcase a particular brand of products, which creates an additional retail opportunity, or the spa might look toward ancient spa and "bathing" traditions from other cultures and create a unique experience that incorporates these rituals.

Massage services are clearly the greatest source of revenues for hotel spas. On average, massage revenue accounted for 43.5 percent of all revenue at the hotel spas in our survey sample. Spa treatments, the second biggest source of revenue for hotel spas (22.1%), include facials, body scrubs, mud masks and seaweed wraps, and water-related treatments such as Vichy and watsu. Club/membership dues (11.0%) and salon treatments (10.1%) also represent the other major sources of revenue.

The mix of revenues did differ somewhat by the type of property. Urban hotels frequently market to local residents and businesspeople to become members of their club. Therefore, club/membership dues represent 24.9 percent of revenue at urban hotels, compared to just 4.8 percent at resort properties. At resort hotels, where the spa operations are typically more expansive, revenues from spa treatments, salon services, and clothing/merchandise sales are more evident.

Spa Growth - Comparatively Strong

While one year does not constitute a trend, it is interesting to note that spa revenue at the hotels in our sample grew 11.2 percent from 2003 to 2004. For comparison purposes, total revenue increased 8.8 percent and rooms revenue grew 9.6 percent during the same period for these properties.

For further comparison, we also analyzed the growth in recreational revenues for a set of hotels that offer both golf and spa services. Within this sample, golf revenues showed a decrease of 2.1 percent per occupied room between 2003 and 2004, while spa revenues increased by 3.4 percent. As stated earlier, 50- and 80-minute spa treatments fit better into a busy schedule than does a round of golf, and revenue per spa treatment is typically higher than revenue per round of golf. And as a bonus, spa treatments do not require any skills on behalf of the guest…just the abili