An extensive franchise support structure makes Hand & Stone Massage
a relaxing investment for its operators.
By Tim O’Connor
There comes a point for many young companies when growth plateaus. They reach a profitable point within their niche market, but the operation just kind of stays in place. Existing locations remain profitable, but new openings are rare and the business loses momentum.
Hand & Stone Massage and Facial Spa found itself in that situation by the tail end of the 2000s. Physical therapist John Marco founded the company in 2004 and began franchising two years later. By 2009, Marco realized he needed the help of a franchising expert if Hand & Stone was going to continue to grow. Franchising veteran Todd Leff joined the company as president and CEO that year and quickly assembled a new management team capable of scaling the organization.
Like with most things, growth requires dramatic change. Hand & Stone was a successful business, but it needed a change in strategy if it was going to reach beyond its plateau. Leff and his management team began to rethink the company’s business model. The company’s strategy mirrored most of the massage industry: Customers signed long-term contracts that locked them into services.
But the country was just beginning to emerge from the recession in 2010 and the public’s faith was shaken. People were worried about their job security and did not want to enter extended agreements for luxury services when they weren’t sure if they would still have a paycheck in a few months. Hand & Stone adjusted to the new market reality and dropped its long-term commitments in favor of monthly memberships that granted customers flexibility.
The new model fit Hand & Stone’s strategy of bringing massages to the middle market through lower prices and greater convenience, but it was still seen as a risk. The long-term contract model created guaranteed customers. Monthly plans made it easier to terminate agreements and Hand & Stone expected an increase in customer attrition.
To counteract that, the company elevated its level of service by adding a robust customer feedback system and skin care programs helping transform Hand & Stone from a purely massage business into a complete day spa experience. The plan worked, and contrary to expectations, the company actually saw more people renewing their memberships. “We shifted the entire model to a monthly membership that significantly increased our membership retention and sales,” Leff says.
With a new business model and under Leff’s guidance, the company grew from 28 locations in 2009 to 300 today. Hand & Stone has steadily added 50 to 70 franchises for the past three years in the United States and Canada.
The company is looking to enter or expand in cities such as Atlanta, Boston, Minneapolis, Charlotte, N.C., and regions such as Southern California, South Florida, the Midwest and Arizona. In all, the company has more than 100 signed franchise agreements in various stages of the opening process, from letters of intent to real estate negotiations and construction.
Stability and presence are key ingredients of that growth. When entering a new market, Hand & Stone wants its franchisees to commit to at least two locations to ensure brand presence. Once a market is established, the company accepts single-unit franchisees - about one-third of its system is multi-unit owners.
Franchisees come to Hand & Stone because they know the company offers a service that exceeds the rest of the industry. Third party industry surveys ask customers whether they’ve visited competing spas and how the experience at Hand & Stone compares. Leff says Hand & Stone consistently outscores the competition and ranks closer to premium day spas while delivering service at about 60 percent of the cost of its high-end competitors. A one-hour massage typically costs $59 for members and $89 for non-members while consumers often pay more than $125 for the same massage at a premium day spa.
The locations themselves make a difference. The entire industry is trending toward larger facilities and most massage businesses in the market are 1,600 to 1,800 square feet in size. Hand & Stone locations are even larger. The average footprint is 2,800 square feet with some as large as 4,000 square feet. “We find that is a big differentiator in the level of service you can offer the customer,’ Leff says.
Hand & Stone leads the industry when it comes to service, but the company also views itself as a leader online. Hand & Stone has followed the shift away from traditional media during the past several years and now focuses much of its advertising efforts on digital and social platforms. The company’s in-house advertising agency aggregates and manages all the advertising dollars for its franchisees and promotes locations online using SEO practices and social media posts.
Digital marketing has even led the company to revamp how it launches new locations. Now, whenever a franchise is preparing for a grand opening, the advertising team offers free services to the community over Facebook. “We’re getting the word out quickly in a more viral way,” Leff says. The results have been immediate. Hand & Stone locations that had social media promotion around their launch are able to acquire members much more quickly in the first 90 days and see higher first-year sales rates, creating better sustainability in the long run.
A robust in-house marketing strategy is critical not only for promoting the Hand & Stone brand, but in how it supports franchisees. Many operators start with no experience in the health and wellness industry. “The bulk of our franchisees who come in have never owned a business before,” says Bob McQuillan, Hand & Stone’s vice president of franchise development.
The Hand & Stone team holds franchisees’ hands throughout the startup process. The company helps operators develop a business plan, negotiates and approves real estate agreements, provides architectural design templates, reviews contractor bids to ensure specifications, and leverages national discount deals to procure equipment and furniture to fill the facility.
Two different operations teams also work with the owner. The first operations team is dedicated to the initial six months after opening, a critical period in the reoccurring revenue model as the business establishes a customer base. “We want to get them in process as quickly as possible, ramping up those numbers in the first year,” McQuillan says.
Once those six months are up, Hand & Stone assigns a permanent operations manager to the franchise who handles all the locations in the market. The operations manager then coordinates weekly phone calls with the franchisees to discuss benchmarks and share data so each location can view their relative performance in the market. “We are data hounds when it comes to every piece of this puzzle,” McQuillan adds.
The level of support Hand & Stone provides to its franchisees breeds a strong brand culture. More than 500 franchisees and managers attended the company’s recent national convention in Philadelphia, representing about 80 percent of all Hand & Stone locations. “They’re really single minded on the service they deliver and how they treat the customer and their employees,” Leff says of the operators.
In turn, those franchisees are driving a lot of the excitement over the future of Hand & Stone. The company expects to open between 65 and 70 units next year, on track with its projections for sustainable growth. Leff credits the appeal of the health and wellness industry with creating those opportunities. “I consistently hear one of the motivating factors is people want to do good in their own community,” he says. “[Franchisees] are elevating the health and wellness of their community.”