In February 2015, private investment firm Bain Capital Partners bought a 100 per cent stake in Japanese hot springs and hotel operator Ooedo Onsen Holdings, in a move to capitalise on tourism ahead of the Tokyo 2020 Olympic Games.
Ooedo Onsen runs a chain of hot springs and hotels – including 23 inns and six onsen theme parks – in Japan employing 3,000 people and attracting 50 million customers a year. The business is on a strong growth trajectory, with sales increasing about 30 per cent year-on-year and a projected turnover of JPY35bn (US295m, €271.4m, £207.1m) in 2015.
One of the leading private equity firms in the world, Bain Capital was co-founded in 1984 by Mitt Romney – later a US presidential candidate. A subsidiary of the company, Bain Capital Ventures, is also a backer of spa software supplier Booker.
Bain doesn’t often invest in travel hospitality, so this move represents a departure for the firm. However, it does have a track record in consumer services, having grown chains such as Burger King and Domino’s Pizza. It saw great potential in Ooedo and was confident that it was the firm to help develop it.
Scaleable business
Onsen – Japan’s take on hot springs – are an important part of Japanese culture, with thousands of locations throughout the country due to natural volcanic waters.
The Ooedo Onsen chain originated from Tokyo’s large-scale onsen theme park, Odaiba Ooedo Onsen Monogatari, which houses a variety of baths using water from natural hot springs whose source is located 1,400m under ground.
As well as multiple baths and thermal experiences, the theme park includes an Edo-era theme festive mall and multiple restaurant choices. Spa treatments, including massages, exfoliation, reflexology and fish foot therapy are also available. Entry costs range from JPY1,000 (US$8, €7.5, £5.5) for four to 12-year-olds and go up to JPY2,680 (US$22, €20, £14.5) for adults at the weekend.
“This is a very scalable business,” David Gross-Loh, MD of Bain Capital, tells Spa Business. “Ooedo Onsen has enormous growth potential, both in existing branches and through expansion. There’s a lot that Bain Capital is equipped to help with, including looking at the cost base and finding ways to improve it, looking at pricing, and looking at how we attract and retain customers.”
Gross-Loh feels Bain’s experience working with retail chain operations will also help it optimise and grow the hot spring business. “In Japan, we’ve found that many businesses in this industry are facing founder succession and transition issues,” he says. “We leverage our industry expertise, deal track record, experience and scale to partner with business.”
Favourable market
Gross-Loh points out that onsen are a very traditional form of leisure in Japan, with over 400 years of history, which in itself provides a very stable market. And with consumers aged 50+ accounting for 50 per cent of the total hot spring business, Japan’s ageing population makes for a favourable demographic shift.
“We developed a very close relationship with the founder for three years prior to the deal, so this is a business [and market] that we had come to know extremely well,” says Gross-Loh.
Another advantage is that the Japanese government has positioned tourism as a core growth strategy. Gross-Loh believes this will give Ooedo Onsen the opportunity to capture demand from the growing inbound tourism market.
Expansion plans
Bain has started building out the pipeline of new sites and has identified and conducted due diligence on 17 new sites over the past few months. It has also built and implemented a strategy to drive growth, profitability and market share.
“This covers a few areas – pricing, marketing and cost optimisation – to ensure we are effectively allocating our resources,” says Gross-Loh.
The company has also added to the existing management at Ooedo Onsen and continues to do so; currently, it’s looking for a chief acquisition officer to help with the expansion.
With the 2020 Olympic Games set to take place in Tokyo, Bain is keeping its eye on the prize.
“If you consider that the number of tourists travelling to Japan grew from 6 million in 2004 to 13 million in 2014, then you can already see the scale of the opportunity,” says Gross-Loh. “In 2020, Japan expects to receive 20 million visitors.”
