Spa Industry - Essay Example

?Spa Industry Table of Contents Introduction 3 Brief Overview of Spa Sector 4 SPA Industry Analysis 6 PEST Analysis 6 Porter’s Five Forces Analysis 9Opportunities and Challenges in Spa Industry 11 Prevailing Industry Trend and Strategy 14 Financial Attractiveness 15 Future Outlook of Spa Industry 16 Conclusion and Recommendation 17 Reference 19 Introduction The world economies and the global societies are experiencing significant changes due to several reasons like globalisation and modernisation. These two factors have lead to bring major growth and developments in people’s lifestyle and thought process. With globalisation, the trade and business has experienced tremendous growth. It is the backbone of an economy’s growth and success and hence, the government regulatory always aim to develop trade and business by enhancing industrialization. Besides, the lifestyle of modern people has changed as there have been major improvements in their economic conditions and through process. The entrepreneurs have identified opportunities with the changing time and preferences, and they have commercialized their creative mind for business purposes. Due to emerging demands, necessity and innovations, there are a number of new industries have emerged in recent years for example spa industry, higher education industry, medical tourism industry etc. These industries have successfully identified the potential necessities in existing market and the companies in these industries are able to generate higher profitability. This high profitability also attracts a number of potential investors for investments purposes in these emerging industry and business opportunities (English, 2001, p.70). This paper will attempt to analyse the global spa industry and its market for UK. The spa industry is a new emerging industry, and due to its increasing demand of spa treatments, the industry growth rate is high. The primary of aim of this industry analysis is to assess the investment opportunities in spa industry. The industry will be analysed using various business analytical models like PEST, Porter’s five forces and SWOT analysis. Next, the prevailing industry trend and its strategies used by its major companies will be explained followed by an analysis for the industry’s present financial attractiveness. Then, a brief report will be presented showing the future outlook of this industry. Finally, based on analyses and findings proper recommendations will offered for making investments in this industry. Brief Overview of Spa Sector The hospitality and leisure industry are one of the booming industries. The increasing disposable income of people and their changing lifestyles has led to bring significant developments in this industry. Hospitality and leisure industry includes a number of sectors like tourism, medical tourism, hotel, spa and other entertainment sectors. As this paper will deal with spa sector, this section will provide a brief introduction of spa sector. Spa is an emerging service industry that provides body and beauty care treatments. Spa treatments includes non-medical measures like for aromatherapy, hot tub treatment, various types of massages and baths, yoga, meditation etc. These treatments are meant to provide relaxation to human body for increasing the physical wellness. The increasing popularity of these services raises the innovations in this sector and many spa companies are now introducing multiple medical treatments (Ellis, 2009). The following chart shows the different services categories that are included in Australian spa industry. Figure 1: Structure of Australian Spa Industry (Source: Smith and Puczko, 2008, p.123) As per industry life cycle, this industry is at its growing stage and profitability of this industry is expected to increase at higher rate. Generally, the major players in hotel industries have taken forward integration strategies and offer spa services. However, the increasing popularity has led to develop retail spa sector. This industry targets large group consumers including female, male and unhealthy aging people. In order to expand the target market, the companies are trying to offer lower cost services. The following table shows the total market worth of spa and other wellness industry. Table 1: Spa and other Wellness Industry (Source: SRI International, 2010) SPA Industry Analysis PEST Analysis PEST is a useful tool for analysing the macro-economic factors influencing an industry or a company. PEST includes four major areas of an economy which play very crucial role in shaping the structure of an industry. These macro-economic factors are political, socio-cultural, economic and technological (Grant, 2005, p.68). In order to analyse the spa industry, PEST model has been used below for its UK market. Political: The primary aim of government is to bring economic and social development by controlling entire affair of an economy. The UK government is also committed to bring growth and development by supporting trade and business. Politically, UK is a stable and strong European country. The queen is the head of state and prime minister is the head to government (CIA, 2011). Spa industry is an emerging industry and UK government is trying to enhance this industry and it is also trying to attract more number of investors in this sector by offering multiple benefits. Economic: The economic conditions of state and population are major factors in determining the availability of customers, suppliers and investments. Economically, UK is a developed country and it is one of the most important financial centre and trading power of Europe. UK’s GDP as per purchasing power parity was $2.123 trillion and per capita GDP was $34,200 in 2009. The service sector has the major contribution to overall GDP growth i.e. nearly 77.1% (CIA, 2011). This implies that spa industry of UK has higher opportunities to grow. The household income of UK is also very crucial to determine availability of potential consumer for spa industry. The following graph represents the UK’s House income. Figure 2: UK Household Income. (Source: Office for National Statistics-a, 2010) Socio-culture: Social and cultural factors are important to understand the consumers’ perceptions and preferences for spa industry. The literacy rate, cultural background and age are three major factors influencing their consumers buying and expenditure behaviours. Literacy rate in UK is nearly 99% and 80.4% of total population are employed in services sectors (U.S. department of state, 2010). The following figure shows the final consumption of expenditures made by UK people. Figure 3: Consumer Expenditure (Source: Office for National Statistics-b, 2010) The above table shows that UK consumers are ready to increase their expenditures for services that imply greater opportunity for spa industry in UK market. Age is another major factor for spa industry to analyse the consumers. The following figure shows percentage of age in respect of total population. Figure 4: Age and Population in UK (Source: Office for National Statistics-c, 2010) Technological: With the increasing demand of spa services and growing opportunities in this industry, the constant technological innovation for spa treatments has been a major trend. The major companies are using IT software, internet for marketing and promotional activities. Besides, technology is also used for bringing product development. Technological advancement has facilitated this industry’s activities. Porter’s Five Forces Analysis In order to assess the profitability of an industry, it is necessary to analyse the degree of competition within that industry. In this respect, the Porter’s five forces model is very useful. This model includes five major forces of an industry which are responsible for intensifying competition. There forces are bargaining power of customers and suppliers, threat from substitute and potential entrants and rivalry from existing players (Hill and Jones, 2009, p.43). Porter’s five forces models have used for determining the degree of competition in spa industry. Bargaining power of suppliers: the suppliers group in this industry includes skilled people for delivering services and suppliers of medicines and material required for body care treatment. Suppliers group can be categorize into three types i.e. for equipments, product and skilled labour. However, the increasing demand of spa industry has also increased the number of its suppliers and hence, power of suppliers is moderate in spa industry (Tabacchi, 2010, p.111). Bargaining power of customers: spa industry is an emerging industry and there is little number of brand names in this industry. However, expenses for spa in considered as luxury expenses and after the financial crisis of 2007-2008, buyers have reduced their luxury expenditures. This pulled up the barging power of consumers as they want spa treatments at lower prices. Threats from substitute products: Threat from substitute products are low for spa industry as there are hardly any substitute available for professional spa treatments. However, many consumers prefer to self-help in this respect. Besides, the medical treatments for health and beauty care can be considered as a substitute, but spa provides a range of luxury services for beauty and health care. Threat from potential entrants: Spa industry is at its growing stage, and probability of greater profitability remains high. Hence, a large number of new players are willing to enter in this industry. Besides, the existing hoteliers are also introducing spa services within their hotel to serve their customers. However, spa business requires high investments, expertise and brand name that create high entry barriers for new entrants (Tabacchi, 2010, p.112). Rivalry from existing competitors: since last five there has been an increase in number of spa service providers. “Since the beginning of April 2007, there has been a 6% increase in the number of spas” (Allured Business Media, 2008). At present, this industry is remained fragmented but gradually, it is proceeding towards concentrated industry due to increasing number of competitors. The branded companies have gained higher market share whereas, other small spa services providers have their own small base of local customers. Opportunities and Challenges in Spa Industry Understanding the major opportunities and challenges of spa industry is very necessary for analysing the attractiveness of this industry. Major opportunities and threats of this industry are discussed below. Opportunities: increasing health and beauty related concern of people raise the demand of spa services. Unhealthy food habits and lifestyles have led to increase the obesity and other diseases. The following figures show the increasing obesity and other diseases in society. Figure 5: Obesity and Overweight (Source: SRI International, 2010) Figure 6: Causes of Diseases (Source: SRI International, 2010) The above two figures explain reasons for increasing health awareness. Therefore, people are now trying to denote their time and money to lead healthy lifestyles. This has caused increase in the number of spa goers. The following figure shows this Table 2: Spa Goers Statistics (Source: SRI International, 2010) Government’s initiatives and technological advancements also offer great opportunity for this industry. Earlier, the spa and other beauty care treatments were popular among young female consumer but at present, the male and older women are also major target consumers of this industry. The following figure depicts percentage of female and male consumers for spa treatments. Figure 7: Male and Female Percentage for Spa Treatments (Source: Mintel International Group, 2009) Threats: As this industry is fragmented, it suffers from the weaknesses of fragmented industry. Lack of skilled labour for offering treatments is a major threat for spa industry. It is service industry and hence, importance of physical evidence is very necessary. Besides, in order to control this industry and to develop standard business benchmark, proper regulatory guidance is very necessary. Government has been trying to regulate this industry but there is lack of availability of standard and accreditation. The hotel groups are major threats for spa retailers as they have their brand name and other core competencies (Cohen and Bodeker, 2008, p175). Prevailing Industry Trend and Strategy The existing spa industry is trying to develop their market by implementing various promotional strategies like awareness programmes. Spa services are expensive for the middle income group of people and hence, the companies primarily focus on niche market. However, the number of middle income group of people is higher than rich people that limit the availability of consumers. Hence, spa services providers are trying to offers cheaper and faster services to expand the target market (MASSAGE Magazine, 2011). Besides, spa services providers are trying to gain expertise in all types of spa services for offering wide ranges of services to consumers. The companies are experiencing more number of aging consumers and hence, they are trying to bring new services to serve this group of consumers. In order to create brand image in the market, most of companies are focusing on their advertising activities. The following figure presents the advertising spending on salon. Figure 9: Advertising Spend on Salon (Source: Mintel International Group, 2009) Besides, the companies are also using internet media, websites and social networking site to promote their brand name. The following table shows the websites used for disclosing spa news and advertisements. Table 3: Websites Used for Spa Advertising (Source: Goldstein, 2010) Financial Attractiveness Spa industry is a growing industry and hence, spa business is attractive in terms of financial benefits. As per the above tables and figures, people’s expenditures for health care services are increasing. Hence, the companies’ revenues are growing at higher rate. A study conducted by PricewaterhouseCoopers and the International Spa Association (ISPA) disclosed that “the spa industry had revenue of $5 billion in 1999, the last year for which data exists, and the number of spa locations doubled from 1994 to 1999, with an annual growth average of 19%” (Valhouli, 2006). This growth rate expected to rise in coming years. New venture for spa business includes the capital investments for procuring land & buildings, and equipments and variable cost includes health care products and labour charges. The following table represents the changes and revenues as per treatments rooms in spa business. Table 4: Global Changes and Revenues as per Treatments Rooms (Source: Tabacchi, 2010, p.107) Future Outlook of Spa Industry There are number of factors that affect the spa industry and its major trends. Growing health related concerns are and increasing disposable income of people are two major reasons for the growth of this industry. Therefore, it is expected that the industry will keep growing at higher rate with developing economy and increasing population. The UK and global spa industry is expected to grow significantly by the end of 2011. “The industry in Malaysia is still growing and it is expected to reach 250 outlets by 2011, according to Euromonitor International 2007 Country Sector Briefing” (Aviation Herald, 2010). At present, government and other global spa organisations and association are trying to bring academic developments in spa treatment skills. The increasing demand of spa treatment leads to attract government’s attention and hence, industry will be regulated with proper standards and benchmarks. Global Spa Summit of 2010 has disclosed key facts about the industry and its future directions. Some of the facts are given below. By the end of 2014, consumer expenditures for healthcare and wellness will grow to $130 billion. The number of aging people is increasing at higher rate and “by 2020 more than 15% of the U.S., Australian, Canadian, and UK populations will be 65-plus” (Global Spa Summit, 2010). By the end of 2014, the market for anti-aging products will grow by 45%. Spa tourism will also grow at 4% each year till 2014 (Global Spa Summit, 2010). Conclusion and Recommendation The above analyses and discussions have revealed the key facts regarding spa industry. This industry is a fragmented industry but currently, it is proceeding towards a large industry category. This industry is at its growing stage and the increasing demand of spa industry depicts higher chances of profitability. Major opportunity of this industry is increasing health consciousness and enhancing economic condition of people. Besides, government has also found economic importance of this industry and hence, government is preparing to take initiates for bringing development in spa industry. Therefore, it is the proper time to invest in this industry. The existing companies are expected to experience a long term financial success. The risks associated with this industry like country risk and market risk etc are lower. Higher availability of consumers raises the chances of generating higher revenues. Reference Allured Business Media. June 25, 2008. Spa Industry in U.K. Sees Growth. [Online]. Available at: http://www.skininc.com/spabusiness/global/21410884.html. [Accessed on January 14, 2011]. Aviation Herald. July 9, 2010. Spa industry sees huge growth. [Online]. Available at: http://aviationherald.org/2010/07/spa-industry-sees-huge-growth/. [Accessed on January 14, 2011]. CIA. January 3, 2011. The World Factbook: United Kingdom. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html. [Accessed on January 14, 2011]. Cohen, M. and Bodeker, B. 2008. Understanding the Global Spa Industry: Spa Management. Butterworth-Heinemann. 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