In my previous article I looked at the idea of benchmarking and how you can benchmark against yourself (previous performances), your competitors (those that are near you) and the industry as a whole.
All of this is in context of the South African Spa Benchmark report and how it can be put to practical use for you as an owner of either one or many spas.
The benefit of benchmarking against yourself is fairly evident, ie when you compare your current performance is it better or worse than previous performances.
The benefit of benchmarking against your competitors (although more difficult) is also quite obvious and is linked to benchmarking against yourself. For example, if your close competitor is improving and your performance is getting worse then it could be that they are taking business away from you and vice versa. If you are both improving then it could be an indicator that the market in your location is very healthy and is able to supply enough business for both of you. It also means that if you can supply a better product and service then you could grow your business by taking business from a competitor.
However, when benchmarking against an entire industry the benefits are less obvious but that does not mean that there are no benefits.
Therefore, this month I would like to look at some of the specific information contained in the South African Spa Benchmarking report to see how it can be applied to individual spas.
Reflecting on the previous report
In working through the previous report (2007/8) my first feeling was that there was a lot of information to digest and that it was quite broad and somewhat irrelevant. Also some objections to the report include points like the report cannot be applied to my spa because my spa is bigger than most, or my spa is different than most or my spa is unique in a particular way and at first these objections seemed to make sense but as I read through it I started to get a real feel for the overall trends in the spa market place in a way that was different to the knowledge that I already had.
Objective: Define “Spa”
The first objective in compiling the report was define “spa” in the national market. This in itself provides a marketing opportunity to spas who do qualify according to this definition to advertise this fact and so add value to their brand. For spas that don’t qualify it affords the opportunity to make the necessary adjustments to qualify and thus boast the same credentials, else redefine themselves and get a clearer sense of who they are in the market place and thus what their objectives should be. For example, it is no use defining yourself as a spa if you are not and then trying to compete for market share with other spas who do actually qualify when in fact you should perhaps be competing with the beauty salons in your area who may be getting ahead of you because they have a clearer picture of who they are in the market place and who their target market is.
Objective: Define Spa Size and Profile
In trying to achieve this objective the report starts with determining the number of spa’s in the local market (as per their definition of spa). I was surprised to learn that in the previous report the numbers was marked as 204 spas in South Africa. This seemed very low to me, considering the number of businesses that seems to use the word “spa” in their name.
However, what was more interesting to learn was that over three years the number had grown 10% from the year before. This indicator helps give insight into the outlook of the spa industry and is a very positive indication. If the number of spas is on the rise it means that either the market of spa goers is big enough to sustain the rise in spa numbers, or that spa’s will lose profit margin if the market is not big enough, or that a bubble will burst resulting in closure of spas with some emerging even stronger as they pick up clients who frequented spas that have closed down.
I do think, however, that regardless of whether spas are on the rise the same principle of aggressive and competitive business applies. More spas means more competition, therefore you need to compete more. Less spas could indicate a shrinkage market place and also more competition for the smaller number of spa goers. Either way you need to be on top of your game and not become complacent.
The fact that the report categorises the spas into Day Spa, Hotel Spa and Resort Spa does not, in my opinion, mean that you should only look at your little segment of be concerned because you don’t fall into any of these segments because at varying levels these three types are often competing with each other for local business. Hotel spas often cannot produce decent results by simply relying on hotel occupancy rates and need to tap into the local client base in order to do so. Certain types of treatments are usually offered across the board and if it’s a unique leisure experience that clients are after they may chop and change between spas that offer different types of healing and relaxation.
The fact that the value of the spa industry in 2008 was R380 000 000 does not mean that much except for the fact that it may show that our industry is smaller/larger than another country or smaller/larger than another type of industry. What is immediately more interesting was the fact that the value dropped from 2007. This would be something to watch and compare with your own trends. If the value of the spend on spas is declining it could affect you directly. Things like a recession, or other ways for consumers to spend their income can affect this. An example is the effect that online music availability has had on the traditional institutions that have been around for many decades selling Records, Cassettets and CD’s over the years. Also the effect that online shopping is having on physical retail outlets that need to consider redefining themselves in order to still attract people into their shops.
In understating the change in spend over the years more clearly you would need to know whether it was because more/or less people are visiting spas, or whether it is because on average they spend more/or less per visit.
I was surprised to see the average turnover per spa as I thought that it was relatively low. But knowing this information gives you a good idea of how you would fit into the context of the benchmarking report.
Spa Industry Visits
To answer the first question the benchmark report determined that from 2007 to 2008 there were less spa visitors. Again it’s the trend that is more revealing that the number of total spa visitors in the year.
This is an obvious problem because without feet through the door you must increase spend per visit. Feet through the door will tie in to your staff and room occupancy levels and force you to ensure that you are maximizing spend per visit. Also, you will now need to compete more aggressively with your competitors as you potentially compete for the same clients.
Understanding which clients are not returning will help you to focus on addressing the problem at hand. For example is there an increase/decrease in male or female clients, new or regular clients, clients of a particular age bracket. Answering each of these questions for yourself enables you to take the action that will have the best results.
A big factor for hotel/resort spas is whether the guest is a local resident or a hotel guest. Limiting yourself to hotel guests means that you have limit in terms of number of guests whereas tapping into the local residents means that the sky is the limit. The secret will be to determine how you can get the best of both worlds.
Spend Per Visit
As mentioned above the second part of the puzzle in determining the increase or decrease of overall spend at spas is the spend per visit. Spend per visit was up considerably from 2007 to 2008, although it was forecast that there would be a drop in 2009 and 2010.
The increase in spend per visit would explain why the drop in number of clients was proportionately far greater than the drop in total revenue. This means that there has been a “cleansing” of price sensitive spa goers to the more serious die hard (or perhaps affluent) spa goers.
One comment made in the report was that spa clients were becoming increasingly price sensitive, yet there was a decrease in the number of packages sold. If packages are made up of discounted items then why are they not on the rise? It may be that spas need to rethink the packages that they offer and look at smaller packages that attract clients because of the discount incentive and do not put them off because of the total cost of a package.
Also, Retail sales only made up about 16% of total revenue. This is very low for and industry, which falls under the “Beauty” banner. Retail sales are the most effective way to increase revenue without increasing overheads. You don’t need to hire more staff, you don’t need more rooms, you don’t need a bigger premises, you don’t need more equipment and you can sell more than one at a time. Spas therefore need to consider how they are going to take market share from the big retailers that are doing big numbers without any professional consultations.
In terms of linking spend per visit to number of clients it would help you to know which of your clients segments, (male/female, new/regular, young/old) spends the most and then focus on winning and retaining those clients.
To secret seems to be then to somehow attract price sensitive clients as well as maintain the balance with the bigger spenders in order to keep your numbers and your spend per visit up.
I was interested to see that labour costs were up (due to more staff being employed) even though the number of visitors was down.
I was also interested to see the cost of goods sold figure go down even though retail sales were up. This would indicate that products with a greater profit margin were being sold, which could be due to the exchange rate at the time or different brands with more favourable margins being sold. Either way, on paper, it drives home the point again that retail sales is where the focus needs to lie. Bigger margins and no increased overheads is a no brainer in my opinion.
There are other parts of the report that I could comment on but I think I have said enough for now. To summarise then, I believe that there are at least two major ways that you can benefit from the spa benchmark report. The first is from a marketing perspective, ie if you can advertise and offer something else that the majority of spas (or so called spas) are not offering and advertising then you can give yourself a competitive advantage. Secondly, the better your knowledge of the trends taking place in the market place in general the better equipped you will be in order to be pro-active in order to ensure the survival and growth of your spa.