Roger Allen: Investors to run spas if operators can't drive a profit
Roger Allen of full service management consultancy Resources for Leisure Assets – which launched in February – discussed several ways in which hotel spas can make more money and keep investors happy during a speech at the Forum Hotel & Paris last week.
Most hotel spas don’t really make much of a profit, according to Allen, which means investors are keen to see spa management maximise every ounce of profitability. “A spa isn’t necessarily a good bedfellow for an investor because margins are tough,” said Allen.
Alongside a long list of areas a spa could seek to find untapped profit, there are several key obstacles to profitability highlighted by Allen. These include the problem of over-invested spa development, poor performance management and dated employee pay incentives.
Overdeveloped spas pose the most common hurdle to creating a profit for an investor, according to Allen, because the facility is often too big or over-equipped – meaning the financial investment is significantly more than it should have been.
Questions at the beginning of development planning need to include ones such as “What will the capture rates and the average daily rates be if we change the size?” said Allen. “If you get this wrong to begin with, it’s harder to drive spa profitability.”
Allen believes the spa industry is guilty of poor performance management: “There is too much focus on KPIs [key performance indicators] in the industry and people don’t know how to use the data they already have,” said Allen. “These numbers just become an observation.
“Spas need to get back to actually making money by keeping it simple and creating cash flow – something I’ve never really seen in any spa business,” added Allen.
The reason for this lack of cash flow, according to allen, is that the planning that goes into spa budgeting doesn’t come with much explanation or details. The elusive planning behind incremental increases in budgets is not clear to investors and suggests there is no strategy behind the budgeting process.
“This is down to laziness, and what’s worse is that there is usually no post-performance evaluation either. If you aren’t doing this, you aren’t optimising the profitability of the spa – the operator isn’t maximising the asset’s profitability for the investor.”
Allen predicts many more investor-controlled business structures – where investors take back leisure aspects of assets to run them more profitably.
Commission structures are also not optimised to keep average and low performers motivated and engaged, according to Allen. The spa industry does not use the concept of individualised commission, which means poor performers are overvalued and star performers are under-valued. Caps on commission also decrease the motivation levels of high performing staff.
“You have to feed the eagles,” said Allen, referring to the star performers in the spa industry.
In conclusion, Allen illustrated that investors are testing a spa management team’s resourcefulness and if the operator fails, an investor may take back the asset and run it more efficiently if elusive planning and over-investment leads to poor profitability.
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