Spa Market Research and Feasibility: Compiling the data required to support the investment

Making the decision to build a spa involves a substantial capital investment in a business that has unique nuances and is very different from the hotel business. Today, spa is a requirement in most five star properties and is considered an advantage in most four and even three star properties. As spa has become a must-have facility, it has also become much more important to make sure the spa facility...

  • Complements the project in style and ambiance.
  • Is operationally sound.
  • Will meet the expectations of the target market.
  • Will provide an edge for hotel-wide marketing.
  • Does not exceed the construction budget.

In most cases, a market research study has already been conducted for the hotel. While this study may have outlined that the property needs a spa to be competitive, it is unlikely the report contained the data needed to make constructive decisions regarding the size and scope of the spa project, and the return on the investment.

There are five primary objectives in completing a successful Spa Market Research & Feasibility Study.

1) Project Objectives and Parameters

The party constructing the study will need to understand the objectives and project parameters of ownership/management prior to the data collection ensuring that everyone is on the same page. Additionally, it should be determined how the property fits into the portfolio and the intent for future growth of the spa division.

The data gathered to support this objective will...

  • Evaluate the potential of the spa as the primary amenity at the hotel resort.
  • Determine the optimal location for the spa for operational efficiency, maximize the aesthetic and complement the hotel structure.
  • Analyze the cost and return on investment (ROI) associated with positioning the spa within an existing structure or building a new structure.
  • Determine if building a spa as a reaction to a competitor building is necessary and viable.
  • Measure the potential of the spa to become a market leader, giving the property and the hotel portfolio notoriety.

Example: The market resource report for a property in the southeast United States showed the property would support a 12,000-square-foot spa. The owner had the budget and his heart set on building only 10,000-square-foot spa.. Realizing from the report that not only could the property support the investment, but a competitor was already building in the same range, the 12,000-square-footspa was constructed.

2) Market Opportunity Analysis

An analysis of the market place will show all opportunities for revenue and provide a snap shot of the competitive environment. It will assist in defining the spa positioning to provide the competitive edge needed in today's rapidly growing spa industry.

The data collected for Market Opportunity Analysis will need to...

  • Outline the minimum requirements to meet the spa and the hotel guests' expectations.
  • Analyze the competition's specifics including treatment menu composition, pricing, packages, facilities and more.
  • Look at local travel and hospitality demand indicators.
  • Identify all opportunities for differentiation from competition and satisfy guests' expectations if they are not being met by existing establishments.

3) Determine the Potential Customer Base(s)

The hotel guest obviously comes to mind as the primary base for spa usage and revenue. To ensure the spa reaches or exceeds projected occupancy demands, it is advantageous to know and understand where additional customer bases exist. In general, this will materialize in the form of day spa guests or members. Maximizing the use of the facility and planning for off-peak periods can make a significant difference to the ROI.

This data gathering and compilation will need to include...

  • Historical and forecasted occupancy (with seasonal fluctuations).
  • Guests per occupied room.
  • Guest Mix (Group/Leisure/Other).
  • Average length of Stay.
  • Any current or future residential components planned.
  • The local day guest market from which the spa can draw.
  • Golf /fitness membership opportunities.

This data is essential to determine demand and revenue potential and to realistically calculate the ROI.

Example: Membership was not initially a consideration for a desert property with spa and residences; the report outlined that competitive spas in the area were promoting fitness and spa membership for the sale of residences. The membership component was introduced to the desert property.

4) Determine Demand and Revenue Potential

When there is a significant investment, it is wise to analyze demand indicators to accurately project a project's potential. These indicators come from a variety of sources and can be based on different formulas. For example, identifying a property as urban or as a resort can yield valuable information. Areas to consider include...

  • The percentage of available guests who will use the spa.
  • The feasibility and/or desirability of a spa membership component.
  • The percentages and breakdown by treatment category.
  • Efficiently creating a treatment room inventory to meet demand during high seasons without over constructing a property.
  • The optimal price of an average 50-minute treatment.
  • The cost of sales (treatment products) and applicable tariffs.
  • Local payroll and staffing requirements.
  • Any additional operating expenses that the spa may incur such as lease and advertising rates, port fees, or per pound laundry expenses.

Spa metrics should always be used to determine performance indicators including revenue per square foot, revenue per treatment room (RevPAT), revenue per guest, and payroll percentage of revenue.

5) Calculate ROI

The final objective is calculating the return on the investment. The marketing and feasibility will give you the information needed to...

  • Develop an architectural program based on the demand forecast.
  • Consider treatment room inventory, reception and retail, support spaces, locker spaces, specialty and signature spaces.
  • Provide the build-out cost per square foot.
  • Assess at which point the spa will break even.
  • Ensure the business model meets management and ownership objectives.

Example: A recent market research report conducted on the west coast USA proved constructing a spa would not be a good investment due to the size of the property, the proposed location and construction costs.

Ultimately, when investing capital in a project that has the ability to increase the value of the asset, taking the initial steps to define the market research ensures that the size, scope and concept always pay dividends.

Elaine Fenard, recognized as a spa industry visionary, became an important third partner of Spa Strategy Inc. in spring 2006. With more than 25 years of experience in spa development and operations with the world's largest hotel company and the leading international spa operations company, Fenard joins the partners in their pursuit to create innovative, luxurious and profitable spas for their clients. Ms. Fenard was vice president of Spa Development and Operations for Starwood Hotels & Resorts where she oversaw spa development and operation for over 750 properties in more than 80 countries. She championed the Starwood Spa Collection, a group of 34 unique spas, in addition to overseeing the development of many successful individual spas under the Starwood umbrella. Ms. Fenard can be contacted at 303-573-8100 or [email protected]

This article first appeared in Hotel Executive