Wellness Hospitality and Hospitality Wellness
A thought-provoking collaboration between Celine Vadam from WE (i) Think and Founder of Meraki Bespoke Wellness Strategies, Lindsay Madden-Nadeau, define how wellness can be profitable while gaining a stronger ROI within Corporate Hospitality.
Together, Lindsay and Celine represent a combined 40 years of hospitality experience, many of those spent convincing hospitality owners, shareholders, and investors on what makes wellness successful depending on its degree of integration in the business model, from soft to integrative. At times, failing to get the buy-in due to a perceived lack of returns.
There are several profit models and concepts within the industry, too many to include in this article. However, through continued conversations, Meraki will expand the conversations in a second article that will touch on the other models of success – urban and remote – focusing on some of the newest and legitimate trends in hospitality and wellness.
For now, Lindsay and Celine share their valued expertise and perspectives on how Wellness Hospitality and Hospitality Wellness can successfully support different operational and financial structures.
HOSPITALITY WELLNESS
The Hospitality Wellness model is supported and driven by the hotel's Average Daily Rate, where the room department is the revenue driver. Wellness services become secondary or even quinary as an operating department in this structure, generally representing less than 10 percent of total revenue. Typically, we refer to this guest as a secondary Wellness Traveller, wellness is exploratory for them, and they are curious to experiment and try new experiences. This model doesn't discount wellness, far from it. The profit models are set up differently to accommodate the direction of the concept, and, in many cases, the spa and wellness offer is well positioned within the property.
There are many reasons why spa or wellness services are successful within a hospitality model, where the size of the spa, location, positioning, product, and services are fundamental parameters. When it's driven by the initial concept and strategy development, it creates a purpose-built space for a specific offer.
For as many reasons for success, there is an equal opportunity for these robust operations with outstanding designs and exceptional treatments not to succeed.
Over the past seven to eight years, the wellness industry has witnessed a transition of the "spa and fitness" movement towards the expansion of wellness and wellbeing. Surprisingly, despite adding dedicated spaces and new services, the profit model stayed the same – with a significant impact on the spa department's profitability.
How? The supplementary services of yoga, meditation, in-room rituals, and fitness activities are being offered as a complimentary service to enhance the wellness offer. The additional costs associated with the Spa are being absorbed with no financial compensation.
Typically, in Hospitality Wellness, the Spa operates as a smaller department that can't hold the additional costs and payroll for services while being a complimentary offer to hotel guests. The room department receives the collateral revenues linked to the benefit of offering spa services, and the spa department gets a share of the room rate.
So, how can we place an ROI on wellness services in hospitality?
Accurate Internal Cross Charging
To understand this concept, we focus on a simple sunrise yoga class offered to all hotel guests as an added value experience and performed by a yoga instructor. Depending on the size of the spa and recreation facilities, this employee typically sits on the Spa, fitness, or recreation payroll.
This example confirms a service that adds value to the overall guest experience but drains the spa profit and loss. Instead, the Spa could cross-charge the cost of this employee with the room department, or the Spa could charge a fee to the room department for each guest who takes part in the class. Either way, this would strengthen this employee's actual cost or revenue gain.
Without considering this internal cross charge, we have an unbiased picture of how profitable your Spa is when complimentary guest services continue to drain spa revenues. At the same time, this means wellness remains unsuccessful without a clear ROI or services that bring value to the property financially while increasing the attractiveness to those visiting the hotel or resort.
Our solution takes the time to evaluate your business model versus the complimentary services offered while understanding how employees, costs, and amenities are accounted for. This can also be a good exercise to track the daily usage of the spa, gym, and other wellness facilities and how popular they are with guests to understand the value wellness adds to the overall attraction of guests to the hotel or resort.
Cost to Build Versus Cost of Real Estate
There is a general misunderstanding of what wellness costs to build, making it hard to value it. This naturally comes up in the design phase, where technical services estimate the cost to build based on available space, not the actual cost. We had failed attempts to expand wellness facilities several times due to overbudgeting versus revenue to support this approach.
Our solution is to work with design experts that understand these costs combined with a strategy and financial structure that demonstrates solid returns for the Spa. For example, the cost of having an enhanced wet area facility consisting of more than just a standard sauna and steam room but a journey through a series of hot and cold experiences that genuinely add a therapeutic value to the guest experience.
These often dramatically increase the costs at the design development phase, not to mention onboarding a good wet area consultant to build it properly. However, if you have this built into the strategy from the beginning, you can create a revenue framework to charge guests for the use of this area. This can either be an added fee the guest can see or something that is absorbed into the cost of the hotel room, cross charged at the end of the month so the Spa can absorb the costs to build, towels, water, and other proportioned costs attached to having this space. It no longer becomes a cost center but a revenue driver.
ROI Reference for Wellness in Food & Beverage
Wellness has evolved over the years and is being incorporated subtly throughout the entire guest experience. One area of the hotel that can often dominate this demand is Food & Beverage. Healthy menus, food programs, or concept restaurants dedicated to the guest's wellbeing.
This brings wellness up from the spa and fitness areas and into the main hotel. What is the best way to account for the 'nutrition' or healthy food items sold on a restaurant menu and bring a revenue value to wellness without segregating the entire costs and payroll?
The aim is to show the impact these food items contribute to the demand for wellness ROI and ensure wellness gains the reputable credit it deserves, adding to the hotel's overall profitability. Our solution is a software system that pulls out these particular menu items and categorizes them under 'wellness'. Each month, in the same way, you separate food and beverages sales, you can highlight revenues dedicated to this category. It is also interesting to review costs of wellness cuisine as they can typically be higher as they are not as accessible and can be more difficult to source.
WELLNESS HOSPITALITY
Wellness Hospitality relates to a property where wellness programs are the main driver of the hotel – not the guest rooms. This wellness model isn't so concerned with benchmarking its daily room rate. It is focused more on how many wellness programs they sell, diagnostics, treatments, and other services that complement the wellness programming. We refer to this client as a Primary Wellness Traveller where the intent of their trip is a purpose-led program or preventative diagnostics. Often times the actual 'destination' places a role in the success of the programs and has a link to ESG or regenerative or sustainable goals.
Food & Beverage support the programs through nutrition and clean eating, and we naturally see repeat guests as essential to this profit model with almost 60 percent repeat guests. Typically, these guests return for the dedicated program, connection, and trust with the doctor. As a result, driving brand loyalty. We have outlined some of the considerations when working towards a Wellness Hospitality model;
Retention of Experts and Costs Associated
In this model, wellness programs are one of the key drivers of the business, along with the potential of medical diagnostics, which elevate revenues even more. Whether we compare a medical model or a model with softer, more approachable therapies, we know that when revenues are high, costs are high, too, when combining highly technical equipment with highly qualified practitioners or doctors to facilitate the programs.
The cost of employees, particularly for medical wellness, can reach 70 percent of total costs. This means finding the right pricing while understanding your costs is fundamental to making this model work. Acquiring and retaining doctors can be difficult, depending on the location and salaries offered. However, doctors who have adapted and take particular interest in prevention, longevity, functional medicine and view health and wellbeing holistically are sure to create trusted wellness programs that a primary wellness traveler desires.
Profit Models and Strategy
The Wellness Hospitality model has a different set of measurements for success. We know the driver is wellness programs. Therefore, a key KPI (key performance indicator) becomes the number of programs and diagnostics sold rather than focusing on room nights or average room rates.
When guests engage with this model, they are not booking a hotel room. They are booking a well-defined program that bundles accommodation, food, consultations, wellness services, and treatments included in the program. Additional and incremental revenue comes from diagnostics, visiting practitioners' treatments, or extra treatments outside the initial program offer and a retail strategy if one is applicable that consists of supplements, skincare products, wellness technology, or anything else that supports the concept.
An expected service is the ongoing virtual connection with the client that holds them accountable for their program goals and provides additional support through consultation, follow-up, resources, and online classes. This ensures the client won't abandon the program, leaving behind the progress they made on retreat. These incremental can yield a lot of surplus revenues if they are structured well.
It is equally important that we understand this profit model has a lot of blurred lines. Our research with other operators shows that revenues are not split between the different offerings like hospitality, where we see spa, fitness, food & beverage, and rooms separated. Cost centers in Wellness Hospitality are all combined. Medical diagnostics are the main revenue provider; however, it supports the costs associated with the rest of the program because they are charged as inclusive for food, accommodation, treatments, staffing, and other associated wellness treatments or experiences. This is key to understanding this model.
Environment and Capital Expenditure
Finally, we examine the environment of the surroundings, which can sometimes be difficult to compare in Wellness Hospitality, as the focal point is not the accommodation or design. It's the excellence and credibility of doctors, holistic experts, programs, location and its natural surroundings, the advanced technology, testing, and the extended research and development that goes into building trustworthy programs. This is where we see year-on-year capex being spent rather than on keeping up appearances.
We know capex expenditures focus on FFE, advancing technology systems, and ongoing renovations worthy of a guaranteed three percent of total yearly revenues in the Hospitality Wellness model. This sometimes disrupts the guest's expectation, who may be used to a more luxurious and comforting experience and adapt to a less permissive and ostentatious environment.
About Meraki Bespoke Wellness Strategies
Wellness has a place in all businesses but getting the right strategy, and recipe for success is fairly individual until you decide your business driver. At Meraki Bespoke Wellness Strategies, we first help you define what role wellness plays in your business while coaching you on the best profit model to support a strong strategy. Having worked in Hospitality Wellness for over 20 years, our desire is to show owners and investors that wellness adds value to the overall guest experience and can also show up as a financial success when structured with true transparency.
About WE(i) Think
WE(i) Think offers an innovative and collaborative generation of hospitality and tourism development and operation services, with guests, employees and communities’ wellbeing at its core. We translate your idea into a unique viable project, bridging the gap between commercial concept and design vision, development and operations, while providing a holistic and integrative approach of wellbeing, radiating in all part of your project.