Each year, The IHRSA Global 25 looks at the world’s top health club companies. Below are some comments we contributed to the 2020 report which is shortly being published. Jon Feld was asking the questions:
Jon Feld: In 2018, a lot of growth was driven by acquisition (e.g., Nordic operator SATS acquired 41 Fitness.dk clubs in Denmark; Town Sports International acquired 12 Total Woman Gym and Spa facilities in California; Equinox acquired a stake in fellow Manhattan operator Rumble; in the UK, Pure Gym picked up 10 Soho Gyms in London, and The Gym Group acquired Easygym clubs). Globally, M&A slowed down in 2019, but how did it impact the health club market?
Ray Algar: Looking across just the European fitness marketplace, there was a total of 17 M&A deals and other strategic moves during 2019. This was seven less than reported in 2018. One significant event was the successful IPO of SATS which operates approximately 250 clubs and serves 700,000 across the Nordic region of Norway, Denmark and Sweden. However, the deal that surprised many was UK-based Pure Gym’s investor announcement in December 2019 relating to the acquisition of Fitness World. This would create an enlarged group of 500 clubs, serving more than 1.7 million members in four countries (UK, Poland, Switzerland and Denmark). Since being founded in 2009 Pure Gym, the low-cost brand had operated only in the UK and so in one big strategic move became Europe’s second-largest operator, measured by members. The deal completed a few weeks later in December 2020.
Jon Feld:Franchise operators were the clear leaders in 2018, with Planet Fitness and Anytime Fitness topping the list of revenue-producers globally. Were franchise operations still strong in 2019?
Ray Algar: Franchise operators continue to power the growth of the global fitness industry. Some of these franchises have such scale that I now compare them to the population of an entire country. For example, Planet Fitness had approximately 14.4 million members in December 2019 which equates to the population of the world’s 74th largest country. Franchises are harnessing some very powerful drivers such as a growing global middle class, urbanisation and rising levels of health consciousness. They also tap into a large entrepreneurial community who are eager to run a business for themselves. I think this and the relatively low entry costs creates a compelling growth formula.
Jon Feld: The low-price, high-value (LPHV) model still appears strong. In France, Basic-Fit, opened nearly 100 clubs. Is the LPHV model still strong?
Ray Algar: Low-cost gyms continue to tap into a very large cohort of ‘competent exercisers.’ These are people that have the physical and mental capability to successfully navigate their way around a ‘self-service’ gym experience. For those that do need support, they can always call on a personal trainer. The European fitness marketplace has been transformed by low-cost operators who now comprise around one-third of the top 30 businesses. Even the UK, after 13 years of constant low-cost gym openings, see a capacity for further growth, driven in part by a move to smaller-format clubs (less than 10,000 square feet) which can be located in less population-dense communities.
Jon Feld:No one has a crystal ball, but given the impact of the pandemic, can you offer any thoughts on what the 2020 club landscape might look like? Are some operators better positioned than others to weather to storm? What attributes will those organizations likely share (e.g., strong cash reserves, good credit facilities, etc.)?
Ray Algar: There remains much uncertainty around what a post-COVID-19 lockdown health club experience will look like. Until a vaccine becomes widely available (with estimates of at least 12 to 18 months), the industry will have to rely on three principal behaviour change functions – environmental restructuring, restrictions and education. As some gyms now reopen in China, gyms are being ‘restructured’ by taking cardiovascular machines out of use, closing down changing areas, while ramping up cleaning and hygiene measures. Additionally, membership levels inside the club are ‘restricted’, along with the time allocated to train. Some parts of the fitness industry can deliver these critical post-COVID-19 lockdown interventions more easily than others without undermining the core brand experience. It may likely also mean that a blended physical and digital experience will need to remain or be in place if consumers are to feel they are receiving good value for money. So agile and responsive leadership will be required.