Executive Summary
Silver Spa is a new entrant in the Saudi Arabian spa industry. The company will be based in Jubail City. Its aim is to provide high-quality spa services, which include body massage, facials, and physical fitness training. Silver Spa will serve the integrated health spa market segment. This market consists of middle-income earners who are looking for high-quality spa services to improve their health and lifestyles. The company will be positioned as a premium brand to attract customers. It will focus on innovation to differentiate its services. Silver Spa expects to realize a net profit of SAR 81,046 in the first year. This will increase to SAR 152,348 in the third financial year. The increase in profitability will be supported by the expected strong economic growth in Saudi Arabia.
Company Description
Silver Spa is a new limited liability company that will provide high-quality spa services. Its services will include massage, facials, anti-aging treatment, physical fitness training, and body treatments. The business will be located in Jubail City in the Eastern Province of Saudi Arabia. Its target market includes the middle-income earners who live in Jubail and other cities such as Dammam. The company will also serve people who visit Jubail occasionally for business and tourism.
Silver Spa’s vision is to be a provider of the eco-friendly and memorable spa experience. The goal of the business is to pamper its clients by providing them with the most complete and fulfilling spa experience. Silver Spa aspires to be a one-stop destination where customers can find a variety of high-quality services at affordable prices.
The mission of the business is to improve the wellness of its clients consistently by offering unparalleled spa services. The company will maintain the highest level of professionalism by adopting green practices, as well as using organic products and state-of-the-art equipment to serve its customers. The values that will guide the operations of the company are charm, consistency, comfort, and courtesy. These values will be the 4C’s of service quality that will set Silver Spa apart in the market. Currently, the business is at the stage of raising start-up capital. The milestones that have been achieved include product design, location selection, and acquisition of relevant licenses.
Industry Analysis
Industry Size, Growth Rate, and Sales
Saudi Arabia’s spa industry is the largest in the Middle East. Currently, the industry is worth approximately SAR 4.5 billion. It boasts of nearly 2,750 treatment rooms. In addition, over 150 hotels in Eastern Province provide spa services. The industry employs over 2,500 therapists who provide specialized services.
The industry expanded by 13.2% in 2014. This double-digit growth is expected to continue for the next five years due to robust economic growth. In 2014, the economy of Saudi Arabia grew by 3.6%. It is expected to grow by 3.9% in 2015 and 4.2% in 2016 (Samba Bank 1-10). Strong economic growth will boost the demand for spa services, thereby increasing sales.
The spa industry enjoyed robust growth in sales in the last three years. The average room occupancy rate increased from 60% in 2012 to 72% in 2014. The average revenue per treatment room is approximately SAR 55,000 per annum. However, large spas that are operated by major hotel chains earn as high as SAR 90,000 per room annually. The industry is expected to realize a 15% increase in sales in the next three years. This means that the room occupancy rate will reach 87% in 2017. Similarly, the average revenue per room will increase to SAR 63,250.
Industry Structure
The industry has a low concentration. The emergence of several day spas in major cities in Eastern Province and other regions has made it difficult for a few companies to dominate the industry. Nonetheless, competitive rivalry is very high. One of the factors that increase competition is the large number of spas that compete for the same customers. Small spa businesses exist in most cities and towns. Moreover, nearly every hotel has established a spa in order to improve revenue and customer loyalty. This has led to intense competition. Customers have moderate bargaining power due to their low switching costs. They often shift from one spa to another to obtain the best service quality. The resulting reduction in brand loyalty makes it difficult to defend market share. More companies are likely to join the industry in the future due to the low capital requirement. However, brand loyalty is likely to prevent new entrants from gaining market share rapidly.
Companies in the Industry and Their Sources of Success
The companies that are already in the industry include hotels, resorts, fitness clubs, and day spas. Hotels are providing spa services to increase their room occupancy rate. Their main reason for providing the services is to attract customers rather than to make a significant amount of profit. Resorts, on the other hand, provide spa services as core products to enable their guests to relax. Most resorts organize themselves as commercial establishments or towns that offer spa tourism as a key product. Fitness clubs focus on providing spa services that improve their customers’ wellbeing. Day spas are often small and located in strategic locations such as shopping malls. However, they provide a variety of high-quality spa services as their core business activity.
The success factors in the industry include service quality, location, and price. Service quality is the most important success factor because it determines how customers feel in their heart and soul regarding the provided services. Spa customers expect instant results such as improved appearance after receiving a treatment. Thus, only companies whose services help customers to meet their health and lifestyle needs are able to survive in the industry. Location is also important, especially in busy cities such as Jubail and Dammam. Companies that operate in locations that are easy to access tend to have more customers than those that are located in remote areas. Price is an important determinant of success in the industry due to high competition. Although customers are willing to pay premium prices to access high-quality services, they often appreciate discounts. Companies that are able to provide high-quality services at affordable prices often attract and retain customers easily.
Trends and Long-term Prospects
Customers are increasingly using spa services for treatment rather than relaxation. They expect to achieve improvements in their skin appearance and overcome body pains through services such as massage. Coaching customers on wellness and beauty is another significant trend in the industry. Customers expect to acquire skills to maintain their wellness without frequent visits to therapists. The teen spa is also an emerging trend. The demand for spa services among teenagers and young adults is increasing tremendously due to the need to remain young.
The prospects for the industry are great. The young wealthy population, coupled with the expected increase in tourists, will increase demand for spa services in the future. Improved service quality will lead to the delivery of result-driven spa services. This will increase demand and expand the industry.
Market Analysis
Target Market
The spa industry has three main segments, namely, luxury spa, integrated health, and cosmetic medical spa. The luxury market consists of affluent customers who are looking for high-quality spa services for relaxation or leisure. This segment is dominated by five-star hotels that are known for luxury services. The cosmetic medical spa market consists of customers whose main need is to enhance body appearance. This segment is still small and requires a lot of expertise to serve. The integrated health segment consists of customers who are interested in improving their health and beauty through spa services. Silver Spa will serve the integrated health spa market due to its large size. The segment consists of adults and the old who are financially stable. The increase in lifestyle diseases such as obesity, diabetes, and stress also ensures high demand in this segment.
Buyer Behaviour
Nearly 25% of customers visit spas in Saudi Arabia for relaxation and improvement in appearance. Additionally, nearly 18% and 14% of customers visit spas for maintenance treatments and physical fitness training, respectively. The process of making a purchase decision often begins with detailed research concerning the services provided by various companies. The main sources of information include the internet, TV, radio, and magazines. Customers are willing to spend up to two hours and travel for 50 miles to access spa services. Willingness to pay depends on spa characteristics such as functionality and reputation.
Competitive Analysis
Porter’s Five Forces Analysis
The main suppliers in the spa industry are vendors of professional supplies such as body creams, spa stones, and towels. Suppliers have low bargaining power due to their large numbers. Nearly all major supermarket chains and specialty cosmetics shops supply the products that spa businesses need. This means that high competition limits suppliers’ bargaining power. Spas have low switching costs since they can easily shift from one supplier to another. Low supplier bargaining power makes the industry attractive since it enables spas to negotiate for favorable prices for their supplies to improve profits.
The buyers in the industry are individuals who are interested in various spa services. Buyers have moderate bargaining power. The industry has thousands of buyers. This means that a single buyer cannot influence prices. Nonetheless, buyers have low switching costs, which improve their bargaining power. The moderate buyer bargaining power means that Silver Spa can penetrate the market if it offers high-quality services at affordable prices.
The substitutes for spa services include cosmetic surgery, medication, and self-administered workout routines. Cosmetic surgery and medication are very expensive methods of achieving wellness and beauty needs. Moreover, they are inferior to spa services in terms of effectiveness. Similarly, self-administered workout routines are ineffective because most people lack physical fitness training skills. This means that the industry is attractive because the threat of substitutes is low.
The threat of new entrants is moderate. Most companies in the spa industry have a strong brand image, which enables them to retain their customers. However, new entrants can easily join the industry since establishing a spa business does not require a significant amount of financial capital. The moderate threat of new entrants means that effective marketing strategies must be used to avert competition.
Competitive rivalry is high because every company has focused on differentiation. A large number of hotels and resorts that offer spa services also increase competition. Overall, the industry is attractive because competition can be countered by offering services that meet the market expectation.
Competitive Analysis Grid
The direct competitors of Silver Spa include day spas, hotels, and resorts. Indirect competitors are physical fitness clubs. Future competitors include hospitals that are likely to offer spa therapies to treat their customers. Tables 1 and 2 show that Silver Spa’s major competitors in the Eastern Province are not located in Jubail City. Moreover, none of them specializes in serving the integrated health spa market.
Table 1: Direct competitors.
Table 2: Indirect competitors.
Competitor Analysis
The main competitors of Silver Spa include Pearl Spa, Astralis Spa, and Shine Spa. Astralis Spa has the largest market share of approximately 16% in Saudi Arabia. It also offers both health and beauty spa services. However, Astralis Spa charges high prices. It also serves only women who are at least 16 years old.
Pearl Spa has a strong brand image that is known for its comfort and memorable spa experience. The company is strategically located in Sunset Beach Resort. This enables it to serve a large number of tourists. However, the company focuses on providing relaxation rather than wellness services.
Shine Spa provides both luxury and health spa services. It is the largest spa in Eastern Province in terms of the number of treatment rooms. It also enjoys customer loyalty because it uses a variety of organic ingredients. Nonetheless, Shine Spa is a luxury spa that focuses on serving only the affluent.
The indirect competitors are Golden Belt Fitness Centre and Crowne Plaza Health and Fitness Club. Silver Spa has a competitive edge over these companies due to their narrow product range. For instance, none of them provides beauty services such as facials and manicure. Moreover, Crowne Plaza provides only one type of massage, whereas Golden Belt does not provide massage services.
SWOT Analysis
Silver Spa has the following strengths. First, its services provide health and beauty benefits. This is likely to ensure a high demand. Second, the company will operate in Jubail City, which lacks major specialty spas. Third, the management of the company has extensive knowledge and experience in the industry. This will facilitate the provision of excellent services.
The weaknesses of the company include the following. First, Silver Spa lacks a strong brand image since it is new in the market. Second, the company has a limited room capacity (only ten rooms). It cannot easily compete with large hotels whose spas’ have as many as 50 treatment rooms.
The opportunities that are available to Silver Spa include robust economic growth and high-income levels, which will support the demand for its services. Lack of close substitutes is also an opportunity since it will reduce competition from other industries. Moreover, low supplier bargaining power will enable the company to access cheap supplies to provide affordable services.
The main threat to Silver Spa is high competition from large spas that operate in various cities in the country. Attracting customers from the incumbents is likely to be difficult since they have strong customer loyalty. The high threat of new entrants is also a risk since competition will increase as more firms join the industry.
Marketing Plan
4P’s
Silver Spa’s product strategy will focus on differentiation. The company will provide holistic spa services to heal the body, mind, and soul of its clients. Product differentiation will focus on improving the health and beauty benefits of the services. In this respect, the company will use only high-quality organic ingredients to serve its customers. All services will be provided by talented therapists to ensure customer satisfaction.
The company will adopt a competition-based pricing strategy. It will charge prices that are comparable to those of its competitors. Charging premium prices will limit market penetration due to the existing high competition. Low prices, on the other hand, are likely to trigger a price war since the incumbents are capable of reducing their prices to retain customers. Thus, undercutting the incumbents can lead to serious losses and business failure.
The promotional strategies that will be used include advertising, loyalty programs, and public relations. Adverts will be posted on lifestyle magazines, as well as popular radio and TV channels. Social media websites such as Facebook will also be used to advertise the services. They will also be used to create a community of loyal customers who will act as brand ambassadors. Loyalty programs will involve rewarding regular customers to increase sales. Loyal customers will receive special gifts and coupons that will allow them to enjoy discounts of up to 5%. Public relations initiatives will involve publishing articles in print media and online blogs to create a positive attitude towards the company’s services.
The company will provide its services directly to customers. The services will be offered at the company’s premises in Jubail City. As brand popularity increases, two branches will be opened in Dammam City in the first five years to serve more customers.
Positioning
Silver Spa will be positioned as a premium brand that can be trusted by customers who are looking for exceptional integrated health spa services. Incremental product innovation will be used to differentiate the services by adding more features to satisfy emerging needs. Given the high competition in the spa market, differentiation is necessary to attract and retain customers. Silver Spa’s brand promise will be to provide several personalized services that satisfy the unique tastes and preferences of each customer. Clients will enjoy the convenience, affordable prices, and result-oriented services since the company will focus on solving common health and lifestyle challenges.
Management Team
The management team will consist of the owner of the company and three managers, as shown below. As the owner, I will be the CEO of the company. The talent and qualifications that make me suitable to run the business include the fact that I have worked in the spa industry as a therapist for over six years. I have also worked as a senior marketing executive in the industry for three years. The operations manager will be required to have at least five years of experience in managing day-to-day activities in a busy spa. The sales and marketing manager will have at least four years of experience in marketing. The corporate services manager will manage the finance and administration department.
Operations Plan
Silver Spa will adopt different techniques to provide its services. To begin with, the Swedish massage will be provided by therapists. It will involve using organic oil to massage clients gently in long strokes for about 60 minutes. Hot stone massage will be provided using sanitized smooth stones of various sizes. The hot stones will be placed on various body parts, such as legs, to massage clients for 45 to 90 minutes.
Facials will be provided by trained estheticians. The services will involve cleansing and exfoliating the skin using steam, masks, and a combination of high-quality organic creams. Facial, head, neck, and hand massage will also be provided to men and women for about 60 minutes. Manicure and pedicure services will be provided by estheticians. Yoga and physical fitness programs will involve training clients on a workout, relaxation, and meditation techniques.
Hydraulic tables will be required to provide massage services. Esthetician equipment such as hydraulic chairs and facial systems will be required to provide manicure services. Gym equipment such as stability balls, weight plates, benches, and leg press machines will be required to provide physical fitness training. Apart from machines and equipment, professional supplies such as spa stones and oils will be required. Services will be priced according to the time and products used to deliver them.
Silver Spa will be based in Jubail Mall on the ground floor. The Mall is located in the central business district of Jubail City. It can be accessed by car, bus, or train from various cities in Eastern Province. Visitors will have to walk for only 10 minutes from the train station to reach the mall.
Service Design and Development Plan
Silver Spa will design its products as packages that provide a combination of services to customers. A typical package will have standard services and additional ones, which a client can choose to purchase or ignore. For instance, a relaxation package will consist of a particular type of massage as a standard service. However, customers will be allowed to add services such as spa cuisine and nutrition advice. The packages will also be designed in terms of standard service delivery time. Massage services will take a minimum of 50 minutes, whereas facials and manicure will take at least 15 minutes. Flexible service packages will ensure affordability by allowing customers to purchase only the services that they need.
Therapists will be trained on a regular basis to improve their skills and knowledge about spa services. The company will adopt total quality management (TQM) principles to improve service quality. TQM involves optimizing and integrating various business processes to deliver services that excite customers. Identifying key suppliers and furnishing the premise are the main tasks that still need to be done.
Acquiring infectious diseases is the main risk associated with spa treatments. Skin diseases can be acquired due to poor hygiene standards or sharing materials. Injuries can also occur if very hot steam or stones are used. These risks will be minimized by maintaining high safety and hygiene standards.
Financial Projections
Sources of Funds
The main sources of funds will be the owner’s savings and a long-term loan from the Prince’s Trust Programme. Table 3 shows that SAR 256,350 will be required to start the business. The owner will raise SAR 191,350 from savings, whereas the remaining SAR 65,000 will be borrowed.
Table 3: Start-up balance sheet.
Assumptions Sheet
All financial projections are based on the following assumptions. First, the economy of Saudi Arabia will maintain a robust growth to support demand. Second, the business will realize an annual increase in sales of at least 7%. Third, the spa industry will remain popular, especially among middle-income earners.
Pro Forma Income Statement
The company expects SAR 650,500 in revenue in the first year, as shown in table 4. Net profit is expected to grow from SAR 81,046 in 2015 to SAR 152,348 in 2017. The company expects to achieve rapid growth in net income through aggressive marketing and cost-cutting strategies.
Table 4: Pro forma income statement.
Pro Forma Balance Sheet
The company will have assets worth SAR 258,400 at the end of the first financial year, as shown in table 5. The value of the assets will increase to SAR 579,856 at the end of the third financial year. This growth is attributed to the expected increase in accounts payable and cash balance as the business grows. The company will not invest in any long-term assets to avoid liquidity constraints.
Table 5: Pro forma balance sheet.
Pro Forma Cash Flow Statement
Table 6 presents the projected cash flow statement. Cash balance is expected to increase from SAR 222,400 in 2015 to SAR 516,326 in 2017. The increase is attributed to the expected rise in net cash flow, which will be supported by robust growth in revenue from operations.
Table 6: Pro forma cash flow statement.
Ratio Analysis
Table 7 shows the relevant financial ratios. The gross margin will remain above 70% in the first three years. Net margin is expected to increase from 12% in 2015 to 19.54% in 2017 as revenue increases. Return-on-equity is expected to remain above 35%. This means that the business will generate an income of at least 35% of every riyal invested in it. The decrease in debt-to-equity ratio means that the company will progressively shift its financing from debt to equity to achieve stability. The debt-to-assets ratio shows that the number of assets financed through debt will decrease from 35.45% in 2015 to 27.69% in 2017. The current ratio shows that the company will be able to pay all its current liabilities.
Table 7: Financial ratios.
Overall, the financial analysis shows that the business will be profitable. It will also be financially stable, as indicated by its low leverage and strong liquidity. Thus, the business is viable and is likely to succeed.
Feasibility Study
Introduction
The proposed spa business will be referred to as Silver Spa. The founder of the company is (insert your name). Silver Spa will be a specialty day spa that will be based in Jubail City in Saudi Arabia. It will provide a variety of high-quality wellness and spa services, such as massage and physical fitness training. Silver Spa will target middle-income earners.
Service Feasibility
Silver Spa’s services have the following strengths. First, they will improve the health of customers. For instance, massage services usually enhance blood circulation, whereas workout routines prevent lifestyle diseases such as obesity. Second, beauty services, such as manicure, will improve clients’ appearance. Third, the services will provide deep relaxation and healing experience.
Spa services have a high demand in Jubail City. Buying intention surveys indicated that 80% of respondents would definitely buy Silver Spa’s services. Overall, providing spa services is viable. Feasibility will be improved by providing support services such as nutrition advice to customers.
Industry/ Market Feasibility
The industry has high potential because only a few specialty spas operate in Jubail City. Moreover, the industry is fragmented and has a high growth rate of over 10%. Silver Spa intends to serve the integrated health spa market segment. This market consists of a few (less than 10) firms in the Eastern Province of Saudi Arabia. The existing service offerings are not able to satisfy customer needs due to a lack of differentiation. Thus, the industry is attractive. The window of opportunity for providing spa services will remain open in the long-term because people are increasingly using spas rather than medication to improve their health.
Organizational Feasibility
As the founder, I have adequate management skills to run the company. I have a college education and over six years of experience in the spa industry. The management team will consist of creative and highly experienced individuals. Resources such as office space, employees, and spa equipment are readily available in Saudi Arabia. Organizational feasibility will be improved by training employees regularly and selecting a location that can be accessed easily.
Financial Feasibility
At least SAR 200,000 will be required to start and run the business. Nearly 70% of the financial capital will be obtained from the owner’s savings. The remaining 30% will be borrowed from the Prince’s Trust Programme. The company expects to earn SAR 64,800 per room annually, which is slightly higher than the SAR 55,000 earned by similar firms in 2014. The revenue is based on a minimum treatment fee of SAR 30 and 72% room occupancy rate. Silver Spa expects a net income of at least 12% of its revenue. Thus, it is likely to make a net income of SAR 7,776 per room. This is slightly lower than the average net income of similar firms, which is SAR 8,750. The net income is low due to the initial start-up costs. Overall, the business is financially attractive.
Overall Assessment
The feasibility study shows that spa services have benefits that customers need in Saudi Arabia. The demand for spa services will continue to rise as more people adopt healthy lifestyles. The spa industry is attractive due to its high growth rate. Silver Spa is likely to succeed since its management will consist of a team of experienced professionals. The company expects to make a positive net income in the first year. Therefore, the proposed business is viable.
Business Model
Core Strategy
The mission of Silver Spa is to improve the wellness and lifestyles of its customers by offering unparalleled spa services. The aim of the company is to provide services that improve health and beauty to enable customers to maintain a fulfilling lifestyle. The company will adopt a differentiation strategy to provide a wide range of spa services. These include massage, facials, yoga, physical fitness training, manicure, and pedicure. Silver Spa will concentrate on these services because they will facilitate the achievement of its mission. For instance, massage and physical fitness training will improve customers’ health. The company will concentrate on serving middle-income earners who are interested in health and beauty spa services.
Strategic Resources
Silver Spa’s core competency is in providing integrated health and beauty spa services. The founder and staff of the company have extensive knowledge and skills that will ensure effective service delivery. The company has also selected a strategic location, which will improve access to its services.
Partnership Network
Silver Spa will collaborate with independent celebrity therapists to provide high-quality services. It will also collaborate with nutritionists to provide nutrition advice to customers. Moreover, the company will be a member of the International Spa Association to access market information at a low cost.
Customer Interface
Silver Spa will provide its services directly to customers with the aid of its therapists. The support services that will be given to customers include nutrition advice and spa cuisine tips. The company will use hourly rates to determine the prices that customers will pay for its services.
Works Cited
Alistair, Johnson. Spa Creators 2012 UK Spa Market Analysis, London: Spa Creators, 2012. Print.
Amstrong, Gary and Philip Kotler. Marketing: An Introduction, Upper Saddle River: Pearson Education, 2011. Print.
Ellis, Susie. Top 10 Global Spa and Wellness Trands Forecast, New York: Spafinder, 2014. Print.
Samba Bank. Saudi Arabia: Baseline Macroeconomic Forecast, Riyadh: Samba Bank, 2015. Print.