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The Real Estate Lens: Where the Money in Wellness is
16th January 2023

The Real Estate Lens: Where the Money in Wellness is..

The hotel business is relatively transparent, and competition is fierce - everyone is selling essentially the same thing: rooms, food and beverages and meeting rooms… If you throw a wellness option into some type of room package, you change the dynamic. This is one simple yet effective way to get away from the transparent and fierce competition and create more revenue.” - Leekyung Han

The strategy of most hospitality and wellness professionals these last few years has been reactive - survival first and then recouping as much profits as possible while the leisure market picks up strongly. And if you want to stay in business, that is most certainly a smart strategy to stay afloat. Cash is king.

However, it is sometimes all too easy to get caught up in the daily grind of operations and drawn into the fierce competition. And when we’re in this state, we sometimes lose sight of the big picture - we no longer are able to see the wood from the trees.

Next in my Wellness in Hospitality series, I reach out to Leekyung Han, a true visionary in the field of real estate development to understand what investors and real estate developers are looking for in the hospitality product portfolio and where wellness fits in.

Interview Highlights:

1. You're heavily involved in hotel projects, before their inception. Tell me a little about what investors are looking for at this stage?

One of the first things investors are asking is the market position of a product and its financial feasibility. Investors’ nature is basically to create a target revenue from day 1 and to have an exit strategy. However, more sophisticated investors are looking to create a more unique product to differentiate theirs from the rest in the market, by tweaking an existing product or creating a brand new product. Among these investors, some tweak changes in product offering and slowly and steadily invest over a longer period of time, others want to invest more on the front end to be the leader in the market. For example, in my case in China, we opted for the latter approach; we audaciously decided to invest more upfront because we were creating a wellness product which had not been seen in China before. In order to do that, we needed to educate the market and convince them so we could sell. Once this could be done successfully, achieving a target revenue would not be a daunting task as there would be no competition in the market.

2. I often talk about balance sheet thinking, about building your hotel's asset ecosystem. Where do you see wellness play a role?

I think wellness is a great and lucrative way to make the balance sheet more attractive. If you look at the financial model of the traditional hotels, most of the income comes from the sale of room nights, food and beverages, and perhaps meeting rooms. In these revenue resources, it is hard to increase even a dollar unless one has a great reason to back it up. As you know, the hotel business is relatively transparent, and competition is fierce - everyone is selling essentially the same thing: rooms, food and beverages and meeting rooms. How the hotel business measures its success is evident from its accounting and reporting system - USALI (Uniform System of Accounting for the Lodging Industry). If you throw a wellness option into some type of room package, you change the dynamic. This is one simple yet effective way to get away from the transparent and fierce competition and create more revenue. 

3. What is the number one mistake hoteliers make when it comes to wellness?

Many hoteliers unfortunately do not understand the spirit of wellness; they tend to think that it can be run just as per a manual like many other things in a hotel. A snapshot of this scene can be found in a hotel spa. Guess how many hotel companies have swung back and forth from a direct management option to outsourcing? Many hotel and general managers come from either Rooms or F&B, and mistakenly underestimate the complexity of the wellness business. Wellness is a business dealing with humans, thus a better understanding of people and their needs is mandatory to create a more catered service so there is an impact on the guest experience (and ultimately your team’s experience). Something like omotenashi (Japanese hospitality concept) would better fit in the service when wellness is involved. So I would say that the number one mistake hoteliers make is that they are looking at the wellness component with an old hat of traditional hotel operation - Rooms, F&B and meeting rooms. It’s a limited lens.

4. How can hoteliers go about fixing that mistake? 

A two-pronged approach is needed:

  1. I think hoteliers need to experience a wellness program in a quality wellness resort or retreat and actually practice wellness. If they have not experienced it and they do not walk the talk, how could they even know how to offer a genuine top quality wellness experience?
  2. I also think hoteliers need to open their minds and have a more forward-thinking mindset. The hospitality industry is evolving (all industries are evolving), and wellbeing is an important component of this evolution. 

5. How can wellness build a track record of stellar performance?

It’s a misfounded conception that wellness doesn’t make money or that wellness takes time to make money. Let’s take the example of a wellness retreat. In my experience, a wellness retreat is another hospitality product, so break-even can take some time, just like a traditional hotel. However, if a wellness retreat (or any traditional hotel business) can be developed with a for-sale residence option which offers a 24/7 wellness lifestyle to its customers, a substantial revenue gain can be created from the sale. This, in turn, can reduce a burden on the operation (irrespective of whether it is a hotel or a wellness retreat). 

If you want to continue the conversation, join me in the LinkedIn Live session on Thursday 19th January at 11h Central European Time as I chat with Leekyung Han to uncover further insights on where wellness really fits in hospitality from a real estate lens.