How mega trend industry movements will likely impact the evolution of Global Sauna & Spa space

To understand the evolution of the Sauna & Spa Industry combined with the opportunities and threats that the industry faces as a result of mega trend movements, it is important to reflect a bit first on history. 

History of the Sauna Industry 

The history of sauna and the surrounding “sauna culture” extends over 2,000 years, back the time the first wooden saunas were built by the Finns. One of the first written descriptions of a Finnish sauna dates back to 1112. They were not freestanding units but were built on the side of a hill or a large embankment. Over time, saunas were built using wooden logs that stood above the ground.  

They were not freestanding units but were built on the side of a hill or a large embankment.

In the early days, the heat for saunas was produced by burning wood and stones that were heated in a stone fireplace.  The so called “sauna room” would then become very warm, but at the same time it would be filled with the smoke from the fire as these traditional “sauna rooms” did not have a chimney but rather a small air vent in the back wall. Therefore, before anyone could enter the room, it had to be cleared of smoke at the desired temperature level. With no smoke in the sauna room, a residual aroma remained from the smoking wood that created a peaceful and relaxing atmosphere for sauna lovers to enjoy their routine. Back then, it was a half-day process to heat this type of “sauna room”. 

The name “sauna” is thought to have derived from the word “savuna”, literally meaning “in smoke”. Hence, the early day “sauna room” ended up being called a “savusauna”, a traditional sauna that is still used today across the countryside in Finland. As time progressed, wood stoves made of metal became more popular and began to replace these traditional “sauna rooms”. Also, it was discovered that pouring water on the heated rocks would create steam. The combination of steam and high heat (often in excess of 212 degrees Fahrenheit/100° degrees Celsius) was very much appreciated  by sauna users as they soon discovered it created substantial health benefits. These health benefits, and perceived sense of wellbeing are very much the cornerstone of sauna’s growth as an industry.   

As the Finns started to migrate across different areas of the world, they brought their sauna expertise and culture with them to the places they traveled.

The history of sauna usage by Finns strongly indicates that sauna is ideal for cleansing of the body both inside and out. Back in history, it was even used as method for preparing those that had passed away for burial. As the Finns started to migrate across different areas of the world, they brought their sauna expertise and culture with them to the places they traveled. It was first brought to America by Finns who settled in the current state of Delaware in 1638. Modern day life, industrialization and electricity further accelerated the development of sauna technology.  

Around the 1950’s, the first elementary electric saunas were introduced which provided greater accessibility to people living in urban areas, such as in places across the Nordic countries, mainland Europe, and to a lesser degree some areas in North America. At that time, the first entrepreneurs with a mass market focus for sauna manufacturing started to emerge in Finland, with Tapani Harvia (founder of today market leading Harvia Group) pioneering the development, first with wood burning stoves and then in the 1980’s and beyond by introducing fully commercialized electric stoves. Since then, a number of companies have emerged within the industry with Finnish, Finnish-Swedish, Chinese and German companies being the market leaders across different industry verticals. 

There are roughly 17MM sauna installations globally, of which 68% are traditional, 21% steam and 11% infrared.

The market today 

Inderes (a Finnish investor communications company) estimates that there are roughly 17MM sauna installations globally, of which 68% are traditional, 21% steam and 11% infrared. Altogether, in excess of 2,000 sauna manufacturers are active in the Sauna & Spa Industry today, an industry that is highly fragmented.  Of these, the leading five (5) companies with annual turnover of over €50MM (including Harvia, TyloHelo/Sauna360, SaunaKing, Klafs and Sunlighten) have a combined market share of only 10% (Sunlighten is only active in the infrared sauna market and hence has a higher market share representation in that category alone). The second group, consisting of some 25 players that are considered more as local companies, comprise a combined 5% of the market with each having an annual turnover range between €5-15MM; including players such as Narvi, SaWo, TMF, PhysioTherm and Effegibi. The rest, around 80-85% of the market includes over 2,000 small companies with turnovers of less than €5MM. Players such as Ikikiuas, Misa and Stoveman are in this group.  

Our research into the major players within the Sauna & Spa Industry indicates that this accelerated development will continue as we move forward in the foreseeable future.

Fast forward to present day and we can now witness the dramatic acceleration of the role technology plays in sauna. Today, consumers can choose from a variety of heat sources for their saunas that range from wood, gas, electricity, hybrids, to even solar power. They can enjoy both wet and dry saunas that have smoke and steam, or opt for one of the latest technologies with infrared as well. Our research into the major players within the Sauna & Spa Industry indicates that this accelerated development will continue as we move forward in the foreseeable future. LIP’ (Legacy Incumbent Player) such as Harvia and TylöHelo have introduced remote sauna controllability by using a mobile app. Sunlighten in the US leads the way with technological developments in the infrared category.  

We project significant advancements and “shifts of industry equilibrium” beyond the sauna technology itself in the upcoming years.

As a result of key industry mega trend movements, changing consumer behavior and priorities, we project significant advancements and “shifts of industry equilibrium” beyond the sauna technology itself in the upcoming years. These include emergence of disruptive powers, new business designs and consolidation.  

Sauna – The Convergence of the ICT, Wellness and Travel Industries 

Enabled by the enormous $4.8tr ICT industry, the intersection of mega trend movements within the wellness ($3.7tr) and travel ($2.6tr) industries, combined with the convergence of sub-industries within the wellness industry itself, provides for the potential to change the entire Sauna and Spa industry dynamic, impacting value-chains and value creation possibilities.  In 2017, The Global Wellness Institute estimated “wellness tourism” to be a $635 billion global market, growing more than twice as fast as general tourism. Traditional LIP’s with the Sauna & Spa industry will not be immune from this industry movement, as such convergent movement will offer both opportunities and threats to these incumbents (see Table 1).

The impact of this convergence to value chains and value creation opportunities, and its resulting industry movement towards such opportunities could leave LIP’s in the Sauna and Spa industry unprotected from the competitive threat from the entrance of new players into this space offering a DTC business design.  Leveraging this intersection of the technology, travel and Sauna & Spa markets is where this convergent market opportunity lies. 

Creating a Community Culture of Like-Minded Wellbeing 

We envision substantial consumer benefit from sauna at the intersection of health, wellbeing, and community (Figure 1). This isn’t about sauna, or the current hard goods-focused industry that currently supports it, as much as it is about creating a community culture of like-minded wellbeing.  The Global Wellness Institute in their 2017 paper ‘8 Wellness Trends’ states, “Sauna is getting reinvented, and the new directions looks to spread globally.” 

The consumer is “subscribed” to the Product and will continue to receive and pay for it on a regular schedule, often of the consumer’s choosing, until they inform the company that they wish to no longer receive the Product.

What Is a DTC Subscription Model? 

A DTC (Direct-to-Consumer) subscription model is where a consumer engages directly with a company (rather than through a retailer) and agrees to purchase content, goods, services, or the purchase of hard goods (collectively “the Product”) directly from that company where delivery and billing of the Product to that consumer occurs automatically, on a regularly scheduled basis, and payment by the consumer to the company occurs automatically using the consumer’s credit card or other financial information which the company maintains on its database.  The consumer is then “subscribed” to the Product and will continue to receive and pay for it on a regular schedule, often of the consumer’s choosing, until they inform the company that they wish to no longer receive the Product. Often, if the Product includes hard goods that are necessary for its use, those hard goods can be paid for by the consumer on an installment basis, which are then rolled in together which any addition monthly subscription costs. 

DTC Will Drive Innovation in Manufacturing and Productivity 

A migration of the Sauna and Spa industry towards a DTC subscription model would force LIP’s to improve their manufacturing and productivity even further in continuously innovative ways. Such a migration would magnify the need for operational efficiencies that would be necessary to be incorporated into their product-to-market flow to remain competitive from a unit cost standpoint and withstand the resulting competitive cost pressures and threats to their profit margin from industry entrants that leverage the DTC subscription model, along with the growth scale advantages it would provide. Also, it is not unrealistic to foresee the entry of a new start-up DTC competitor that could immediately enter the market unencumbered by the level of CAPEX demands that LIP’s carry on their current balance sheets and would therefore operate and compete at a distinct financial advantage. 

New business designs will emerge that provide a base for entirely new value propositions for entirely new market segments, hence resulting in an increase of the core market of heaters and components (total available and serviceable markets).

These advantages of the DTC model, particularly a subscription model, to the Sauna and Spa industry are numerous. Some of the benefits include, but are in no way limited to: 

· New sauna technologies will emerge that will change the traditional “sauna heater” device and elements, resulting in lower production costs and increased WTP (willingness to pay, Figure 2).

· New business designs will emerge that provide a base for entirely new value propositions for entirely new market segments, hence resulting in an increase of the core market of heaters and components (total available and serviceable markets).

· Access to primary data. In combination with new business designs, LIP’s in the Sauna and Spa industry would have access to an entirely new set of data – primary data. In the long run, those who control the data will control the market, providing pricing premium leverage like never before. 

· Platform developments with seamless integration to “sauna state of mind.” 

· Value migration from the core device (sauna heater) to the platform and the community. 

Infrared saunas can accelerate the diffusion of sauna culture due to their more convenient set-up and requirements where there is no need for a special room like that required for traditional sauna heaters, be they wood, electric or hybrids. Hence,  from a scalability standpoint, this is an ideal vehicle to offer and introduce sauna to the masses. 

Technology is Changing the Experience of Sauna 

Key developments in technological advancement and the growing adaptation of virtual reality will have a huge impact on the Sauna & Spa industry and sub-industries within, increasing preference of personal saunas and spas within the interior of residences through the use technology (smartphones and tablets) in the overall sauna experience, which we believe will be enabled largely by infrared sauna technology. Sales of ready-made infrared saunas have been a huge success. Sunlighten is the biggest player currently in the infrared market, with annual turnover of roughly 50 million EUR. Infrared saunas can accelerate the diffusion of sauna culture due to their more convenient set-up and requirements where there is no need for a special room like that required for traditional sauna heaters, be they wood, electric or hybrids. Hence,  from a scalability standpoint, this is an ideal vehicle to offer and introduce sauna to the masses. 

Adoption of ICT is beginning to grow within the sauna sector, with major LIP’s such as Harvia beginning to focus on leveraging remote control features via the use of app technology. Such employment of technology is also increasing safety with the use of the sauna product, thereby providing the consumer with the comfort of a safe sauna (brand) experience. 

Signs of disruption are also driven by younger generations demanding to be in control of their brand experience, and for that matter any brand experience, regardless of industry.

Millennials and Gen Z Will Demand to Control Their Sauna Experience 

Signs of disruption are also driven by younger generations demanding to be in control of their brand experience, and for that matter any brand experience, regardless of industry. Past disruptive events such as subscription models from Dollar Shave Club (skin care and shaving) and Casper (mattresses) have transformed the landscape of those industries, primarily driven by the younger age demographic.  Combine this demand for brand control along with what we believe will be growing interest on the part of younger age groups towards wellness products, and you have fertile ground to create a disruptive event with the Sauna and Spa industry, creating a particularly challenging position for LIP’s whom will be required to re-package their current offering to appeal to these younger consumers, often living in densely populated regions.

About the authors:

Evan Balzer is partner at HKH Management Consulting and responsible for the Corporate & Business Financial Planning (CBFP) and M&A practice area.

Jari H. Helenius is managing partner at HKH Management Consulting and responsible for the Strategic Planning & Business Transformation practice area.

More on our on-going research into Global Sauna & Spa Industry follow #HKHConsultingSaunaAndSpaIndustry across social media platforms as well as here on hkhconsulting.net.