News for the Hospitality Executive
Hoteliers Grapple with the
in Spa Financial Reporting
With the continued explosion of hotel/resort spa facilities, hoteliers need to determine how they frame the financial expectations and performance of their spa. A spa is not a simple business; there can be seven or more separate departments - from massage to retail or hair to fitness - each with components that all require attention and analysis by top management. To date, there have been no large sample, reliable benchmark studies because of the many variations in how spa financial results are reported. Though there have been a number of attempts, the most basic question of what should be measured still has not been definitively answered.
So, you’re a hotel or resort General Manager who, amongst everything else you are charged with leading, also has a spa facility that demands your attention. Most General Managers and corporate leaders are alumni of the “rooms division.” Sure there are GMs who have a sales and marketing background or a finance experience, and of course there are some who are former Food and Beverage professionals, but there are only a handful of GMs with spa experience. So, how do you use your experience to mentally frame a spa that will guide it and your spa team to success?
You can argue that a spa is analogous to the rooms’ division. After all, a hotel has rooms and a spa has treatment rooms, a hotel has a front desk and a spa has a front desk, rooms are concerned with housekeeping and a spa must be concerned with cleanliness and sanitation.
The terms “occupancy,” “Average Daily Rate” and “REVPAR” are so imbedded in a GM’s managerial DNA that they apply the same variables to spa measurements. Thus is it any surprise that most GMs and corporate offices want to manage and measure a spa’s performance in “rooms” language? Well, the simple answer is that, of course, utilization, average revenue per treatment, spa contribution to hotel REVPAR and the spa’s REVPTR (revenue per spa treatment room) are all important, but I would offer that a much more accurate analogy occurs between spa and food and beverage.
Let’s bear in mind that room sales are very linear. The room’s division is selling one product - the guest room - one time within a 24-hour period. I believe that most GMs would concede that while maximizing room’s revenue might be a challenge, it is not complicated when compared to managing all of the variables associated with an expansive food and beverage operation or spa operation.
Similarities Between Spa and F&B
So, what are the compelling similarities between spa and food and beverage that a general manager must bear in mind when leading a property with a spa operation? First of all, simply look at the F&B and Spa Departmental financial statements. Within food and beverage, there are several businesses; you may have a three-meal restaurant, a fine dining restaurant, a room service department, plus an entertainment lounge or grill and a significant catering department and so on. A spa is likewise a myriad of businesses, with the core being massage, skin care, hair and nail departments, plus fitness, retail, perhaps even membership and consultations, etc. The point is that they both have a number of businesses within the division that require significant attention from the division leader.
Typically, a resort financial statement will have a consolidated F&B statement just as a spa would have a similar summary departmental statement. For F&B, these statements are backed up with sub-schedules for room service, a fine dining restaurant, catering and so forth; for spa, this would entail sub-schedules for massage, hair, nails, skin care and fitness, retail, etc. On these sub-schedules, the revenues are reported for each outlet or spa department along with the direct labor for its employees - be it room service waiters or hair stylists - so the general manager can view a snapshot of each outlet or spa department.
Both F&B and spa have support costs reported on its own page, such as the kitchen schedule in F&B and for guest reception and attendants for the spa operation, which are not allocated to each revenue component but identified separately since they serve the entire operation.
Additionally, when hotels benchmark there rooms’ performance, it is against other hotels in the served market. For restaurants and spas, you not only include other hotel restaurants and spas but free-standing restaurants as well. Like a free-standing restaurant, a day spa can hold its head high knowing that it must include all expenses on its financial statements and thus must earn its stripes everyday when compared to a restaurant or spa in a hotel.
For example, when measuring business activity in a restaurant, you would never take each seat or table and multiply by the number of operating hours to determine the restaurant seat or table occupancy rate. The industry standard for food and beverage is “turns,” or how many times that seat or table is used during the meal period. So, why is there fervor for determining spa treatment room or nail station occupancy? While a hotel that is running 60-65% occupancy is considered marginal and one running 70-75% is doing well, truly successful hotels are achieving 75-85% occupancy.
The problem is, it is a lot different selling a guest room one time within a 24-hour period than it is to find a buyer for a 9 a.m. massage. If a spa reports a 35-40% treatment room utilization (occupancy), any hotel veteran would judge it underperforming. But in F&B terms, the same GM would applaud a restaurant that achieved 3-4 turns. Granted, turns can be translated into occupancy rates, but it is the productivity framework by which the operation is judged.
Both F&B and spa have a cost of goods sold. For food and beverage, it is food cost and beverage cost and in the spa it is retail cost of goods sold or professional product cost per treatment. In both the case of F&B and spa, these are critical measurements that require intense management and analysis.
One such analysis is “average check,” which is a critical F&B measurement; for spas, it’s the “average revenue per treatment.” But the eternal question in food and beverage is “What is a cover?” How about the guest who comes into the restaurant and just has a cup of coffee with his colleagues or just a dinner salad and iced tea? How does that compare with the guest who comes into a spa for a simple 10-minute brow wax? Is that a treatment? The question remains open for discussion in both instances.
Hotel and resort restaurants are very focused on ”capture rates” of hotel guests in the same way a spa must work to achieve a high capture rate for spa services from hotel guests. More importantly, both must receive support from local clientele to be successful, and marketing strategies must be developed to attract local guests into the restaurant and the spa as well.
Gift certificates are a valuable opportunity for both restaurants and spas as the gift card can create new guests for each. There are very few gift certificates sold for hotel rooms. We have often times heard the adage that a hotel makes its profit in rooms but earns its reputation with its food and beverage operation. The same may be true for the spa as local clientele will form its opinion of the entire property based on a spa service experience.
One would not say that you concept a hotel room. Although there has been significant emphasis on tweaking the hotel guest room, from the comfort of the bedding to the technology that would be included in the room, but basically a room is a room. On the other hand, there is always a concept discussion for restaurants to define its personality, its brand. Will it be a regional American cuisine restaurant or an Asian fusion restaurant or a steakhouse? The same fundamental discussion is held with the spa concept. Will the spa have an Asian influence? Will it emphasize water-based therapies? Will it connect with guests as a healthy living educational center? Just as it does for a restaurant, the opportunity to create a unique brand for a spa is imperative to capturing the market and maintaining a strong clientele.
Finally, both F&B and spas will achieve about the same department profits. No F&B department or spa will ever achieve a room’s departmental profit of 70-85%, so forget about it. A realistic expectation from a spa would be to perform at approximately the same level as the food and beverage division.
So while studies continue to answer the questions surrounding spa benchmarking,
the answers may already be out there in the F&B world.
John Korpi is a 38-year veteran of hotel and resort management, having spent his first 15 years with Radisson Hotels headquartered in his hometown of Minneapolis. He then joined Buena Vista Hospitality Group of Orlando, managing resorts including PGA National Resort and Spa, French Lick Springs Resort and the Luxury boutique resort Barnsley Inn and Gardens outside Atlanta. Korpi was also Vice President of Operations for AmeriWest Hotel Company, responsible for the operations of 21 hotels in the western United States. In 1994, he left the hotel business to join Randall International, the premier developer of luxury bath and body spa products for four- and five-star resorts around the world. Founded in 1999, Korpi has his own recruiting and consultancy company, SpaQuest International.
|Also See:||Examining the Findings of PKF's Inaugural Edition of Trends in the Hotel Spa Industry / John R. Korpi / May 2008|
|Hotel Spas as Independent Profit Centers / PKF / March 2006|