Why Fitness Franchises Are Booming
Back in February 2012, Anna Dey called her dad in Cleveland with what seemed like an impulsive request. “You’re not happy with your career, and you’re still 10 years away from retiring,” she said. “I want you to help me open a gym.” His reply? “Hell, no.” She’d expected as much. Her dad, Von Hollingsworth, had spent 30 years in the electronics-distribution industry. He had a comfortable, stable career, and he wasn’t going to throw it away on a lark. But to Dey this was no lark. Then 24 and just two years out of college, she was a sales manager for Altria, which used to be known as Philip Morris. Basically, she sold cigarettes. But her real passion was fitness. All day, she thought about her workouts. And when she worked out, she envied the manager of her gym, thinking, Gosh, I wish I had that job. She hired a personal trainer, then got certified as a trainer herself.
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Eventually, Dey decided she wanted to open a gym of her own. The way she saw it, she had the drive and sales-training charisma to be a successful gym owner. She just needed someone with business smarts and the savings to invest. Her father fit the bill.
A month after the initial rejection, Dey sat her parents down for a formal pitch. She presented cash-flow and startup-cost estimates for different gym models, along with reports showing that Americans were becoming increasingly interested in fitness. She showed them a building she’d picked out in Concord, Ohio, and she compared the nearby residents with those in Columbus, which was similarly affluent but boasted far more gyms per capita. Finally, to prove her commitment, she told her parents, “If you provide the startup costs, I’ll move back home and work 12-hour days for free until we start turning a profit.”
Hollingsworth paced while his daughter spoke. The investment seemed too wild, too expensive. He was ready to shut it down until his wife turned to him. “You need to make this work, Von,” she said.
That was it. Within a few months, the united father-daughter team was in contract with Anytime Fitness, a Minnesota-based outfit with 3,600 locations globally. They signed a lease on the 5,500-square-foot building Dey had picked out and started stuffing grand-opening flyers into newspaper boxes around town. By the time the gym opened later that year, they’d already secured 196 one-year memberships. A year later, they had 1,000 members, and Dey and her dad were both earning more than they had at their previous jobs. Plus, they were happier and healthier.
“We both know how beneficial this has been for our lives,” says Dey. “Franchising is the best decision we made.”
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It’s an exciting time to be in the fitness-franchise business: The U.S. market currently brings in about $31 billion annually. About one in 10 of those dollars comes through a franchise, but in recent years, franchise growth has outpaced the overall industry. According to the market research firm IBISWorld, the fitness market as a whole will grow at 1.5 percent between now and 2022, and franchise brands will grow about twice that fast, as they become stronger and entrepreneurs look for more turnkey opportunities.
Analysts categorize Anytime Fitness as a midmarket fitness club, which means that, alongside its franchise competitor Snap Fitness, it offers memberships in the $25-to-$74-a-month range. While these gyms are thriving in many locations, the biggest growth is happening at the high and low ends. A report from the International Health, Racquet & Sportsclub Association found that in 2015, memberships to midmarket clubs grew by 2 percent, while during that same period, premium clubs (with $75 to $99 dues per month) experienced 21 percent growth, and budget-club memberships (less than $25 per month) shot up by an astonishing 69 percent.
On the luxury side, brands like Equinox charge $75 or more per month for fitness bundled with spas, cafés and juice bars. These tend to be corporate-run facilities that don’t franchise. But on the budget end, franchise opportunities abound. Growth is robust among low-frills, high-positivity gyms selling memberships for $10 and $20 a month.
Since it began franchising seven years ago, Crunch, which starts memberships at $9.95 a month with the option to attend group classes for an extra $10 a month, has opened about 200 clubs, and it has another 550 more under contract. Retro Fitness is poised to open more than 60 gyms this year, and Blink, the newest member in the low-cost game, expects to open its first franchise location by the end of the year. (Blink is owned by the people who own Equinox, which goes to prove the industry’s faith in bifurcation: Even the leader of luxe wants a piece of the budget game.)
The pioneer of the low-cost model -- and by far the biggest player -- is Planet Fitness, which today claims more than 10 million members. Of its more than 1,300 franchise gyms, more than half opened in the past four years, and the company expects expansion to be even faster for the next four.
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What’s behind these growth numbers? Chris Rondeau, CEO of Planet Fitness, points to a couple of drivers, the first being what analysts hail as the death of retail. As brick-and-mortar merchandise brands suffer, commercial vacancies rise, making it easier for service industries like fitness to scoop up real estate. “Seven or eight years ago, it was much harder to get good sites,” says Rondeau. “We were fighting with Best Buy and Barnes & Noble. Now landlords are looking for new business to drive traffic, and we’re getting much better locations at cheaper costs.” In other words, gym-goers show up several times a week. That’s routine patronage that strip-mall and shopping-plaza landlords can use to entice other businesses to stick around.
The second driver, Rondeau says, is wellness mania. People want to look and feel better, and to make that happen, they’re deploying wearable fitness trackers, meditation apps and services, weekend mud races, organic-food delivery services and fitness centers. But it’s not a zero-sum game. Rather than choose one service -- or one gym -- consumers are increasingly combining several tools and memberships to build a custom wellness plan. The piecemeal approach is what Bryan O’Rourke, a brand consultant with 20 years of fitness-industry experience, calls “lifestyle design,” and it’s where budget models have an advantage: Consumers view $10 a month as a bargain, even if they only occasionally work out.
There’s also ample room for growth. For every person who belongs to a gym, there are four more who do not, and many of the latter group could greatly benefit from working out. “Despite the unbelievable growth in the fitness space, more Americans are unhealthy,” says Chuck Runyon, CEO of Anytime Fitness. “They are not eating properly, they’re not sleeping very well and they’re not moving very often.” While nobody is celebrating this situation, unfit people do create opportunity, along with a shared sense of purpose, within the industry. “Everybody realizes that we’re not fighting each other,” says Vince Julien, a 38-year industry veteran with 10 Crunch clubs in Georgia and Florida. “The competition is the 80 percent of people that we haven’t gotten off their asses yet.”
So confident is Julien in the industry’s ability to motivate these people that he’s in contract to quadruple the number of gyms he owns. “For 30 years, people have said that as the gym business becomes more crowded, it’s starting to become a commodity,” he says. “I don’t think so. It’s just becoming more fragmented, which means it now reaches a bigger percentage of the population. There are more options for more people.” He likens fitness to other industries. “If you look at a Home Depot, you often see a Lowe’s across the street. And when you look at a McDonald’s, you see a Wendy’s or Burger King nearby. I think the fitness industry is going to get stronger when we see three health clubs on a corner instead of one.”
Five years in, Dey’s experience seems to bear that out. After her first year in business, the competitors moved in. A dozen or so boot-camp and CrossFit-style studios opened up, as did an Orangetheory, a Title Boxing and a Planet Fitness -- the latter just six miles away and charging $25 less per month. Despite that, Dey’s memberships are down only 6 percent from their peak, which likely means that as health club competition heats up, more people are growing interested in fitness.
That leads to a couple of conclusions. First, as competition builds in Dey’s community, more people sign up. And second, customers see value in the add-on services she provides -- services they can’t find at more bare-bones competitors.
Each gym franchise offers a unique value proposition that aims to pull in people with perks like towel service, steam rooms, group fitness classes and so on. For Dey’s Anytime, the higher dues afford members the option to work out one-on-one with a trainer. Dedicated instructors (who pull in an additional fee of $20 an hour) not only help people reach their fitness goals but also create personal relationships that keep them coming back.
In other cities, flexible franchise agreements have allowed owners to install daycare centers or even racquetball courts if that helps them stand out from the local competition. Planet’s budget model, on the other hand, is a strict numbers game: Pack the building with sweaty members by cutting out potential loss leaders and maximizing the number of machines.
The fact that Dey’s Anytime Fitness had higher fees may have even worked to its advantage. With fewer people crowding the gym-room floor, one-on-one services became even more attractive. “Our personal-training growth has always offset any membership decline we’ve seen,” says Dey, who notes that nearly two in 10 of her members now pay extra for the service. “Our business is actually healthier now than it was before those competitors came to town.”
If a franchise gym seems too good to be true, it’s only because you’ve yet to consider the startup costs. For a full-size studio complete with machines, free weights and a trained staff, you need roughly $500,000 to $2.5 million. (Anytime and Snap are generally smaller, so they run a little less.) But from the moment you sign your franchise agreement, you’re still six to 18 months from opening your doors. You’ll scout locations, send out letters of intent and spend two to four months negotiating before calling in architects and working with the city to secure permits. Once green-lit, you’ll solicit bids from contractors, who will need a couple of months to turn your empty space into a fitness mecca.
It’s a tricky and often stressful process, which is partly why franchise brands give preference to growth-minded partners who are willing to sign on for multiple locations. “If you’re a franchisee with a lot of experience running your own business, then you’ll be much more efficient than somebody who just left the financial industry because they wanted to be their own boss,” says Ben Midgley, CEO of Crunch Fitness Franchise. The average Crunch franchisee owns nearly 12 gyms, and only about one in 10 Planet Fitness locations is opened by a first-time franchisee.
That’s not to say newcomers can’t follow their fitness dreams. “If you have the drive, we can teach you,” says Midgley. “We’re not going to let you screw up on your payroll model, place the wrong marketing or pay too much for your flooring. That’s the benefit of a franchise model.” And the upside is reliable cash flow: For a big-box gym, annual revenues between one and three million are common.
But if the initial investment sounds daunting, boutique studios offer an easier inroad to fitness. Franchises with buzzy brands like Orangetheory, Pure Barre, Tough Mudder Bootcamp and 9Round have smaller footprints, and although they generally don’t pull in as much cash as their Best Buy-size counterparts, they don’t require as much up front, either. These brands are growing rapidly by tapping the same tribal devotion as CrossFit: A report from the IHRSA found that while memberships in traditional health clubs grew by 5 percent between 2012 and 2015, membership to boutique studios grew by a whopping 70 percent. And that’s despite typical fees of $20 to $40 per visit.
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Luke Catenacci, 35, went the boutique route. After 10 years as a portfolio manager for a hedge fund with stints in Tokyo and Hong Kong, the New Jersey native moved back to the U.S. to start his own business. “I was thinking about getting into the fitness industry, but I didn’t have any direction,” he says. He explored the options and decided on F45, an Australian-based chain built on complex high-intensity workouts made easy by flat-screen TVs mounted along every wall in the studio. The screens project looped demonstration videos of the day’s exercise class so clients can see how to swoop medicine balls over their shoulder or lurch sideways, Slinky-style, while swinging kettlebells between their knees. (On-site trainers help and motivate anyone who needs it.) “It’s the kind of workout I was looking for, but it also made sense from a business angle,” says Catenacci. “It filled a gap between typical boutique fitness and CrossFit.”
Despite having nearly 500 locations in Australia, only a couple of F45 branches had opened in the U.S. Catenacci emailed the corporate office, and the next day, the CEO called him. “I’ll be in Las Vegas next week,” he said. “Would you like to meet me there?”
Catenacci flew out, and within a few weeks, he’d landed on the ground floor of the company’s U.S. expansion plan. He partnered with his brother, Jeff, and then counterintuitively decided to lease a storefront in a fitness hot zone in Manhattan with nearly a dozen other established boutiques in a two-block radius, like Barry’s Bootcamp, SoulCycle and Fhitting Room. “I wasn’t worried about competition as a negative factor,” says Catenacci. “It’s a high-foot-traffic area, and people are already used to working out here. I felt the exposure could only help us.”
The brothers drummed up $250,000 for a buildout that added locker rooms and five shower stalls. On its opening day in March, F45 had more than a hundred people show up for its first five classes. Daily attendance dropped slightly after membership-drive discounts expired, but it’s been upward growth since, with workouts at popular times nearly hitting the studio’s 36-person capacity.
Of course, there’s a risk with boutiques. They’re at the mercy of shifting consumer interest. Remember step aerobics? Or Billy Blanks’ Tae Bo? As fads come and go, studios devoted to one approach can fall out of fashion. It’s impossible to know which ones will still thrive in a decade. But at least for the moment, the overall trend toward joining and opening fitness clubs -- large or small, budget or luxe, specialized or general -- appears to have legs. “It’s a great time to be in this industry,” Runyon says. “There are still plenty of growth opportunities for all of us.”