2010 UK Low-cost Gym Sector Report

< 2010 UK LOW-COST GYM SECTOR REPORT > A STRATEGIC INVESTIGATION INTO AN EMERGING MARKET

Researched and written by Ray Algar MBA, MA (Marketing), Oxygen Consulting, in association with

OXYGEN CONSULTING COMPELLING STRATEGIC INSIGHT FOR ORGANISATIONS CONNECTED TO THE GLOBAL HEALTH AND FITNESS INDUSTRY

ISBN: 978-0-9553826-1-1 Price: £275 €325

First edition; May 2010 2010 UK Low-cost Gym Sector Report – A strategic investigation into an emerging market

An Oxygen Consulting publication in association with Precor. Researched and written by Ray Algar MBA, MA (Marketing), Oxygen Consulting

Reference: Read, discuss, learn from, and share this report. Please reference Ray Algar, Oxygen Consulting, 2010

3 2010 UK LOW-COST GYM SECTOR REPORT

CONTENTS

CHAPTER 1 06 — Welcome to the 2010 UK low-cost gym sector report 06 — Acknowledgements 07 — Report scope 08 — Foreword by Precor 09 — Introduction 09 — The low-cost phenomenon 10 — Definition of a low-cost gym 11 — Strategic analysis of low-cost gyms 12 — Key market drivers 14 — A new consumer proposition

CHAPTER 2 17 — The emergence of low-cost gyms in Europe 21 — Interview with Rainer Schaller, CEO, Mcfit 22 — Interview with Theo Hendriks, CEO, Sport and

CHAPTER 6 51 — 52 — 53 —

Interviews with other UK Stakeholders Interview with Steve Philpott, CEO, DC Leisure Interview with David Stalker, Executive Director, Fitness Industry Association (FIA)

CHAPTER 7 54 — How an independent club converted to low-cost Case Study: Active4less Stevenage, Hertfordshire

CHAPTER 8

23 — Interview with Herman Rutgers, Executive Director,

57 — How The UK social enterprise sector is responding to low-cost gyms 58 — Interview with Rob Whitehouse, Managing Director, Slough Comm’ Leisure 60 — Interview with Peter Crowley, Managing Director, Wave Leisure

European Health & Fitness association (EHFA) 24 — Interview with Hans Muench, European Director, IHRSA

CHAPTER 9 61 — The potential demand for low-cost clubs in the UK

Leisure Group, Netherlands

26 — Interview with Kilian Fisher, CEO, Ilam Ireland

CHAPTER 3 27 — What do UK consumers think about low-gost gyms?

CHAPTER 4 37 — Summary of leading UK low-cost gym brands

CHAPTER 5 41 — Interviews with UK low-cost leaders 42 — Interview with Kenny McAndrew CEO, FitSpace 44 — Interview with John Treharne, CEO, The Gym Group

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46 — Interview with Ben Silcox, Managing Director, Nuyuu Fitness 48 — Interview with Peter Roberts, CEO, Pure Gym 49 — Interview with David Beattie, Group Brand and Marketing Director, Energie Fitness

CHAPTER 10 68 — Concluding remarks CHAPTER 11 71 — Further reading and discussion 73 — Appendix 76 — About the Author

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FIGURES & TABLES

10 — Figure 1: Definition of a low-cost gym 11 — Figure 2: Key market drivers 13 — Figure 3: Member visit status report – 4,000 member mid-market club 15 — Figure 4: Low-cost gyms: A new consumer proposition 16 — Figure 5: Strategy canvas for a low-cost gym versus mid-market health club 19 — Figure 6: McFit membership growth (2007 – 2009) 38 — Figure 7: Leading UK low-cost brands – Launch timeline 62 — Figure 8: UK grocery market share leading companies (consumer spend) – At April 2010 63 — Figure 9: Ryanair v British Airways – Passenger growth 2007 - 2009 64 — Figure 10: Structure of German gym market –- Leading 17 brands (by membership) 66 — Figure 11: UK low-cost gyms – 2011 forecast 67 — Figure 12: UK private health clubs: Present and future market structure

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20 — Table 1:

Mcfit financials 2007

38 — Table 2:

Leading UK low-cost brands – Number of clubs

39 — Table 3:

Leading UK low-cost brands – Location and property strategy

40 — Table 4:

UK Low-cost gym providers – Leading players – Marketing and product features

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CHAPTER 1 THE 2010 UK LOW-COST GYM SECTOR REPORT

WELCOME TO THE 2010 UK LOW-COST GYM SECTOR REPORT

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CHAPTER 01

2010 UK LOW-COST GYM SECTOR REPORT

RAY ALGAR MBA, MA (MARKETING), OXYGEN CONSULTING

I have been researching the emergence of low-cost gyms for the past five years. I write articles about them, feature them in my conference presentations, blog about them, and discuss them endlessly with industry colleagues.

Given that low-cost gyms have been in the UK for several years now, I believed it was an appropriate time to write a more comprehensive report on this exciting new club sector.

So, here it is; the 2010 UK Low-cost Gym Sector Report, supported by Precor.

Acknowledgements As you read the report, you will see contributions from the following people:

Ben Silcox,

Managing Director, Nuyuu Fitness, UK

David Stalker,

Executive Director, Fitness Industry Association (FIA), UK

David Beattie,

CEO, ILAM Ireland

Peter Roberts,

CEO, Pure Gym, UK

Peter Crowley, Managing Director, Wave Leisure, UK

Group Brand & Marketing Director, Energie Fitness Clubs, UK

Rainer Schaller,

Declan Ryan,

Rob Whitehouse,

Managing Director, Active4less Club, UK

Managing Director, Slough Community Leisure, UK

Hans Muench,

Steve Philpott,

CEO, DC Leisure, UK

European Director, International, Health, Racquets and Sports Association (IHRSA)

Herman Rutgers,

Executive Director, European Health & Fitness Association (EHFA)

John Treharne,

CEO, The Gym Group, UK

Kenny McAndrew, CEO, FitSpace, UK

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Kilian Fisher,

CEO, McFit, Germany

Theo Hendriks,

CEO, Sport and Leisure Group, Netherlands

ACKNOWLEDGEMENTS – Continued

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2010 UK LOW-COST GYM SECTOR REPORT

I wish to thank everyone for their cooperation and transparency. Only two people declined to be interviewed for this report and that was due to investors being hesitant about disclosing commercially sensitive material close to their official launch.

I wish to especially thank John Treharne, CEO of The Gym Group who allowed unrestricted access to allow me to interview members at their Hounslow, Middlesex club. Thank you to Carina Botha, Gym Manager at Hounslow, and her colleagues, who patiently encouraged members to be video-interviewed by a stranger, asking many questions. The members were very enthusiastic in sharing their opinions, and made a large contribution to this report. Also, thank you to Rob Gregory of LoveTheGym.com for his numerous comments and analysis, and Niels Gronau from Deloitte Germany for statistics on the German club market.

Finally, my appreciation to Precor for supporting this report. Precor has a deep understanding of the low-cost gym sector because they have been supplying some of Europe’s leading low-cost operators for several years.

Consequently, they immediately recognised the need for the wider industry to gain a better strategic understanding of this exciting and relatively new part of the UK industry. Precor’s support also means that the full 2010 report is available free of charge.

RAY ALGAR

MBA, MA (Marketing), Oxygen Consulting

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REPORT SCOPE This report’s primary purpose is to help readers understand “why” low-cost gyms are beginning to emerge in the UK. This means that large sections of this report focus on strategy, trends and consumer insight. This helps the reader to understand the broader context for low-cost gyms, and what I believe, will be their enduring attractiveness to consumers.

For those seeking data, you will find some broader industry numbers, but not detailed operational statistics. There are several reasons for this. Primarily, it is because this report has a strategic perspective, but it is also because UK low-cost operators are choosing not to put detailed operational statistics into the public domain. Until very recently, some CEO’s were declining media interviews, choosing instead to quietly focus on building a new type of gym business that ‘disrupts’ the accepted wisdom of what a health club brand looks like.

Future editions of this report will capture more numbers, but for now, it is fundamental to understand why low-cost gyms are emerging, and to discuss how they will influence the future industry structure.

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FOREWORD BY PRECOR

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2010 UK LOW-COST GYM SECTOR REPORT

Welcome to the 2010 UK Low-cost Gym Sector Report, which Precor is proud to be associated with. The fitness industry is passionate about encouraging more people to be more active, more often, and so Precor is delighted to support the low-cost sector, which creates more opportunities for this to happen.

MILES RIMELL

HEAD OF MARKETING, PRECOR, EMEA & APAC

With consumers becoming increasingly discerning, ‘low-cost’ is no longer seen as a cheap alternative. From using no-frills airlines to sharing discount codes online, it is more often an educated lifestyle choice.

Making your business the consumers’ choice, means knowing their needs, and creating an offering that fulfils them. Member experience is something Precor feels strongly about.

We invest heavily in research to make sure our products meet the rigorous standards of both clubs and members.

Research ensures Precor stays at the cuttingedge of innovation and creativity, whilst offering the quality products, services and value for money its customers need.

It believes the research and information contained in this report will prove equally useful to operators in this rapidly growing sector.

Finally Precor would like to thank their customers and other leading low-cost clubs who contributed to this report. Their expertise is invaluable to creating meaningful research that will benefit the entire industry.

MILES RIMELL

Head of Marketing, Precor, EMEA & APAC

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INTRODUCTION

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2010 UK LOW-COST GYM SECTOR REPORT

The UK health club market is undergoing an exciting period of change. Since late 2006, UK consumers started to enjoy a new breed of ‘low-cost’ health club, based on a well-established operating concept in Europe and the United States.

This report explores this emerging trend, and how its arrival in the UK presents an exciting new exercise concept for consumers. Before exploring low-cost gyms, let us first understand more about the broader emergence of low-cost propositions.

THE LOW-COST PHENOMENON So, are you a Waitrose or a Lidl shopper?

A few years ago you would have been one, neither, but certainly not both. How things change. Now, British consumers are running rings around marketers by being a Waitrose shopper on Monday and a Lidl customer on Wednesday. Marketing textbooks tell you this should not be happening. Prospering consumers used to shop at premium-quality outlets, while those of more moderate financial means shopped at their local low-cost shop; not anymore. Furthermore, it is not just groceries where UK consumers now display promiscuous buying behaviour.

Chief executives now fly easyJet, people mix and match a £500 Hugo Boss suit with a Debenhams shirt, and sales directors drive their luxurious Mercedes to sleep at a £29 per night Premier Inn. How can this be? What we bought, and from where, used to represent an accurate indicator of who we were, and where we were going, but this is no longer so.

Precision-guided purchasing is the new game in town and if the best price for illy espresso coffee is found in the local Aldi store, then off to Aldi we go.

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So what has changed?

‘Cross-shopping’ appeals because consumers are fast realising that lowcost operators are not peddling inferior goods. You can sleep well at a £29 Premier Inn, easyJet only uses the sophisticated Airbus A319,1 and Aldi was voted ‘Best UK Supermarket’ last year by Which? Magazine.2 Consumers are increasingly compelled to look at low-cost providers, often with some dinner-party encouragement from friends, and they start thinking: ‘Why do I need to pay more?’ It is now a badge of honour to pay less; it demonstrates wisdom.

Simultaneously, low-cost operators are furiously benchmarking their own products against established branded lines to ensure that shoppers do not have to trade-off important features, for a lower price.

Consumers are also finding the web a liberating and far more enjoyable experience to search, check and ‘comparison shop’ now that the UK is migrating from clunky dial-up to super-fast broadband connections.

It also has one of the youngest and quietest fleets in the world Europe’s largest consumer rights organisation, with over 700,000 members

Ray Algar, Oxygen Consulting, 2010

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2010 UK LOW-COST GYM SECTOR REPORT

THE LOW-COST PHENOMENON continued

63% of all UK households now have broadband,3 and a mouse click takes us to PriceRunner where we can interrogate the competitiveness of a retailer’s offering, along with many others, together with intelligently written and unbiased consumer reviews. Never has there been so much pricing transparency and consumers are enthusiastically embracing this therapeutic sense of power.

The shift to low-cost has gained momentum over the past year as the recessionary environment has encouraged more consumers to test low-cost brands. ‘Can I pay less?’ is therefore an obvious question that many ‘savvy’ gym-going consumers are now asking. Also, do not expect consumers to automatically flock back to premium goods and services after a recession, as there is growing evidence that consumers’ preference for premium goods, and a willingness to pay more, begins to erode once they have experienced the quality of low-cost products.4

3

4

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he recent Digital Britain White Paper states an T ambition that every UK home will have broadband by 2012 (search: Digital Britain Report 2009) ow the recession has changed US consumer H behaviour, McKinsey Quarterly 2009

DEFINITION OF A LOW-COST GYM I believe an ‘authentic’ low-cost gym has the following characteristics: It is the presence of these five characteristics that helps to create a new and exciting consumer proposition that fundamentally ‘disrupts’ the rules5 upon which the industry was first built.

During my research for this report, I discovered a range of companies that have embedded several of these characteristics into their propositions.

Some have chosen not to operate 24 hours, or to provide online joining.

Others6 have decided to add a group exercise studio, or retain squash courts when converting from a ‘legacy’ club to a low-cost gym. I see these gyms as hybrids; they are related to low-cost, but not pursuing a narrow and ultimately more authentic, lowcost strategy. Hybrids, such as Fit for Free,7 in the Netherlands, can be extremely successful, but I prefer the ‘purity’ and simplicity of a gym-only low-cost proposition.

Ray Algar, Oxygen Consulting, 2010

Minimum of 50% lower than average industry price

Scope to operate 24 hours a day

Heavy technology and web use

DEFINITION OF A LOWCOST GYM

Ability to operate club with a single person

Gym-only proposition

Figure 1: Definition of a low-cost gym Visual insight Ray Algar 2010

or example, a rule saying that memberships F have to be ‘sold’ following a scripted sales tour 6 See the Active4less case study later in the report 7 See fitforfree.nl 5

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STRATEGIC ANALYSIS OF LOW-COST GYMS KEY MARKET DRIVERS Low-cost gyms have the ‘midmarket’ health clubs in their sights. The competitive play used to be mid-market versus premium clubs, with the former claiming they could offer ‘more for less’.

‘Affordable fitness’ was the Fitness First slogan as they redefined the small club proposition.

The problem now is that these ‘affordable’ mid-market clubs now look ‘flabby’ compared to their super-lean low-cost upstarts.

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CHAPTER 01

SIMPLICITY

INCONSPICUOUS CONSUMPTION

AFFORDABILITY

Figure 2: Key market drivers Visual insight Ray Algar 2010

MARKET DRIVERS FOR A LOW-COST GYM

CONSUMER SENTIMENT TOWARDS TRADITIONAL CLUBS

SPORADIC ATTENDANCE TO TRADITIONAL CLUBS

KEY MARKET DRIVERS

Inconspicuous consumption

I see five key factors that are driving growth in the UK low-cost gym segment.

Not so long ago, conspicuous consumption prevailed. Surrounding oneself in ‘aspirational’ items and showing them off at every opportunity helped to define our place in the social ‘pecking order’. People fretted over the type of credit cards in their wallets, working their way slowly through the spectrum of colours (dreaming of one day owning an Amex black card). The places people frequented and the cars we drove mattered, as they were seen

Ray Algar, Oxygen Consulting, 2010

as ‘symbols of success’. Today, inconspicuous consumption prevails as consumers seem less concerned with purchasing ‘status’ and more interested in receiving genuine value.

Increasingly, this is creating consumers who are more willing to ‘mix and match’ premium and ‘low-cost’ brands. This means there is no longer any contradiction if a barrister chooses to join a low-cost gym instead of their local ‘full service’ premium racquets and health club.

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STRATEGIC ANALYSIS OF LOW-COST GYMS KEY MARKET DRIVERS Consumer sentiment towards traditional clubs There is also a pervading undercurrent of mediocrity in many businesses, including gyms. Paying a premium price for a cruise, hotel, restaurant meal, or health club is no longer a guarantee of a memorable experience. Our service expectations are rising, while actual delivery is often, merely adequate.

Consumer sentiment towards the UK gym experience is very mixed. A quick look at reviewcentre.com (a website that collects gym reviews) reveals very mixed sentiment. When I have investigated online gym sentiment, opinion around the tangible experience tends to be positive (what people are saying about the physical club environment, equipment, facilities etc). However, the sentiment turns sharply negative when the conversation reverts to membership contracts (especially long notice periods), and issues around staff support (e.g. updating exercise programmes, staff on-hand to provide advice, and just a general sense of being valued as a customer).

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When was the last time you were left pleasantly surprised and delighted by a leisure experience?

Consumers are responding by demanding that service providers ‘unbundle’ the proposition into a menu of parts, which are then ‘re-bundled’, according to budget and preference. Mobile phone companies have begun this process.

Why choose a phone tariff that includes unlimited text messaging when you rarely text?

It is a more compelling consumer proposition if individuals choose the service elements that have specific personal value. So, if someone only uses treadmills and bikes, then a low-cost gym may be an ideal solution. It is the antithesis of ‘feature-creep’, where service providers continually add more and more to their offer, both as a means of justifying a higher price, and because they are unclear of what consumers really need.

McFit, the German low-cost gym operator charges members €0.50 cents for a shower.

Some may think that is foolish, because the accepted ‘wisdom’ is that this is included in the membership price. However, the reality is that many gym members do not like using club showers, especially women.

Ray Algar, Oxygen Consulting, 2010

CHAPTER 01 So showers ‘included’ provides no utility or value to these members. In fact, if we really think about it, all health clubs ‘charge’ members when they shower. McFit is just being more transparent in opening their costs to members and then letting them choose. ‘There is no such thing as a “free carrier bag”, is how one low-cost food retailer puts it.

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STRATEGIC ANALYSIS OF LOW-COST GYMS KEY MARKET DRIVERS Sporadic attendance to traditional clubs Many UK members attend clubs very infrequently. It can be quite common for a significant proportion of a club’s members to attend only once per month, or less. Given that the average cost of membership to a UK private club is approximately £43 per month,8 this can make ‘traditional’ clubs look poor value relative to substitute products.

The following figure shows the attendance at a £50 per month private health club with 4,000 members.9 It vividly illustrates the challenge; 57% of members had not visited this club in more than 46 days.

CHAPTER 01

Member visit status report 100% Old: Last visited between 6-12 months ago

80%

60%

Dormant:Visited between 46-180 days

40% Recovery:Visited in last 15-45

20% Active: Member has visited in the last 14 days

0%

Private 8 9

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Source: The Leisure Database Company Source: GG Fit 2010

Figure 3: Member visit status report – 4,000 member club Visual insight Ray Algar 2010

Ray Algar, Oxygen Consulting, 2010

14 2010 UK LOW-COST GYM SECTOR REPORT

STRATEGIC ANALYSIS OF LOW-COST GYMS KEY MARKET DRIVERS

CHAPTER 01 A NEW CONSUMER PROPOSITION

Simplicity A low-cost gym is very easy for consumers to understand. Stripping away the facilities normally associated with a ‘full-service’ club, apart from the gym, makes the proposition very clear. Coupled to this, is the pricing policy, which is reduced to a maximum of one or two prices (monthly leaveat any-time price, or a lower contract price).

Compare this to a traditional club that may have many membership types/prices, requiring a sales consultant to discuss (and sell) the many options (e.g. peak single membership, off-peak, corporate peak/off-peak, peak single with/without group classes etc). Choice is often good, but too much can lead to ‘choice trauma’.

The following figure 4 illustrates the quest to eliminate all non-core elements such as a swimming pool, crèche, café bar, health/ beauty, retail, and studios, as well as some of the terms and conditions that fuel negative sentiment, such as contracts and long cancellation notice periods. Aligned to this is a philosophy of reduction, a zealous approach to scaling back to achieve harmony between efficiency and delivering the brand promise.

Once stripped back, there is a focus on raising and creating new features that fundamentally transforms the gym experience - join online, web bookings, 24-hour opening, web-based account management and regular email communication. Finally, add a membership fee that can be up to 77% below the industry average, 10 and you have an exciting new consumer proposition that attracts people who have never used a gym, as well as low-attending ‘gym switchers’.

Affordability Many first-time gym users are being attracted to try a low-cost club for two fundamental reasons: • A price-point that is at least 50% lower than the UK average rate.

• A ‘no-contract’ proposition which means that consumers can try, safe in the knowledge that they can leave at any time.

This has the affect of creating a low-risk offer that is very attractive to first-time gym consumers.

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Ray Algar, Oxygen Consulting, 2010

Based on a pre-opening rate of £10 per month

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STRATEGIC ANALYSIS OF LOW-COST GYMS A NEW CONSUMER PROPOSITION

CHAPTER 01

RAISE

REDUCE • Facilities offered and club size

• Technology use – on-line joining, membership card dispensers, customer relationship management system

• Capital requirement

• Operating efficiency – members per square metre /machine utilisation

• Membership types

• Quality of membership data

• Membership fee - as much as 77% below industry average

• Use of the web and social media

• Quality of club fit-out

• Programmes/courses • Materials/sundries – towels, chemicals • Staff count – payroll, recruitment and training expenses • Energy use • Number of suppliers

Low-cost gym: A new consumer proposition ELIMINATE

CREATE • Simple to understand proposition • Super-sized gym

• Loss-leading facilities – swimming pools, creche, café bar, health and beauty, retail, studios etc • Traditional staff roles – instructors, sales personnel, receptionists

• Flexible/hybrid staff roles • Self-service environment • Longer opening hours – 24 hours, seven days per week

• Paper-based systems • Membership contracts

Figure 4: Low-cost gyms: a new consumer proposition

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Ray Algar, Oxygen Consulting, 2010

Visual insight Ray Algar 2010

16 2010 UK LOW-COST GYM SECTOR REPORT

STRATEGIC ANALYSIS OF LOW-COST GYMS A NEW CONSUMER PROPOSITION

CHAPTER 01

Figure 5: Strategy canvas for a low-cost v mid-market health club The following diagram illustrates how a low-cost gym changes the rules upon which health clubs have traditionally operated.

High

Mid market health club

Medium Low-cost health club Low Price

Join online

Opening hours

Club design/ ambience

Range of facilities

Customer Hospitality relationship management technology

Core factors The above figure shows nine core factors on which clubs traditionally compete. The red line illustrates the ‘mid-market’ proposition and the emphasis placed on each of these nine factors. A higher score means the club invests more to provide extra to members.

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The strategic profile for a low-cost gym is very different. It chooses to eliminate, what it views, as ‘non-core’ facilities and invest less in building design and fit-out. It then increases use of the web and technology to create a self-service environment. The self-service environment,

Ray Algar, Oxygen Consulting, 2010

Salaried staff

Range of courses/ programmes

Visual insight Ray Algar 2010

coupled to the intelligent use of technology and a simple gym-only product means the gym can operate with less staff. This drives the lower price that excites consumers and encourages on, and offline, word of mouth recommendations.

17 2010 UK LOW-COST GYM SECTOR REPORT

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CHAPTER 2 THE EMERGENCE OF LOW-COST GYMS IN EUROPE

Ray Algar, Oxygen Consulting, 2010

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LOW-COST GYMS IN EUROPE CHAPTER 02

2010 UK LOW-COST GYM SECTOR REPORT

RAINER SCHALLER CEO, MCFIT

Several European countries, such as Germany and the Netherlands identified the low-cost gym trend almost a decade before FitSpace opened its first Bournemouth gym during December 2006. Who was the initial pioneer? It was Rainer Schaller, an industry ‘outsider’, who had the mind-set of a low-cost operator running through his veins.

McFit gyms in Germany

• swimming pool

Rainer Schaller founded McFit in 1997. What is very interesting about Schaller is the occupation of his parents. Schaller senior is in the German grocery business and has spent his entire life competing against world-leading discounters such as Aldi and Lidl.

• restaurant

So, Rainer Schaller posed the question: Could a low-cost business model, similar to that pursued by Lidl be applied to the gym industry?

His low-cost gym was first tested on the top floor of his parents store, with family and friends.

They liked it and so McFit was born. The McFit concept was simple; locate good quality gyms (1,700 – 2,500 sq m)11 in towns with at least 100,000 adults, at a price of just €16.90 (euro)12 per month - a price, which he believed, was affordable to most people.

To drive down costs, he then eliminated many expenses associated with traditional health clubs and gyms:

• café • therapy rooms • child care • tennis and other racquets sports • group exercise classes With these facilities removed, the staff traditionally associated in operating these areas, are no longer required. Technology is then added, where possible, to improve the efficiency of the business – computerised exercise programme terminals that allow members to receive exercise advice and update schedules. 13 years later, McFit has fundamentally changed the structure of the entire German club industry and has spawned numerous low-cost imitators. Over a half13 of all members at Germany’s leading 17 club brands now choose low-cost.

18,299 – 26,910 square feet £14.38 per month at 1st May 2010 13 Source: Deloitte German Fitness Market Report January 2010 11 12

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Ray Algar, Oxygen Consulting, 2010

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LOW-COST GYMS IN EUROPE CHAPTER 02

2010 UK LOW-COST GYM SECTOR REPORT

MCFIT December - 2007

89

December - 2008

101

December - 2009

120

6,180 700,000

6,931

850,000

7,083

24% 900,000

800,000

700,000

600,000

500,000

400,000

300,000

16%

200,000

Average annual club growth (2007-2009)

AVERAGE MEMBERS / CLUB

550,000

100,000

Average annual membership change (2007-2009)

MEMBERSHIP

CLUBS

FITNESS FIRST GERMANY December - 2007

107

285,000

2,664

December - 2008

108

286,000

2,648

December - 2009

102

281,000

2,755

900,000

800,000

Ray Algar, Oxygen Consulting, 2010

700,000

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600,000

Figure 6: McFit membership growth (2007 â&#x20AC;&#x201C; 2009)

500,000

400,000

300,000

-2.0%

200,000

Average annual club growth (2007-2009)

-1.0% 100,000

Average annual membership change (2007-2009)

Visual insight Ray Algar 2010

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LOW-COST GYMS IN EUROPE CHAPTER 02

2010 UK LOW-COST GYM SECTOR REPORT

McFit had 850,000 members at December 2009 across its 120 clubs. Average members per club stood at 7,083, up from 6,180 at the end of 2007. McFit asks members for a 12-month contract agreement, and this contact-only option has not hindered McFit becoming Germany’s number one gym14 operator. Table 1 summarises some headline numbers for McFit at the end of 2007:

McFit Financials 2007 Turnover

Euros (millions)

Turnover

86

EBITDA 15

28

Interest charge

0.1

Net assets

34

Staff costs

3.4

Clubs Turnover/club Staff costs/club (Based on an average of 75 clubs for the year Price/month

% turnover

32%

3% 88 0.97 €46,500 €16.90 (Germany) €18.90 (Spain/Austria)

Table 1: McFit financials 2007

Based on membership Earnings before interest, tax, depreciation and amortisation 16 Search ‘CAGR’ for a definition 14 15

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The arrival of McFit has influenced the fortunes of Fitness First Germany, which operates in the mid-market at a published membership tariff of approximately €55 per month. McFit membership has grown by a compound average growth rate 16 of 24% since the end of 2007, while Fitness First membership has declined by 1% for the same period. Based on present rates of quarterly growth, McFit should exceed 1 million members by the end of 2010.

Ray Algar, Oxygen Consulting, 2010

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LOW-COST GYMS IN EUROPE INTERVIEW WITH RAINER SCHALLER, CEO, MCFIT

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2010 UK LOW-COST GYM SECTOR REPORT

Images show McFit gym, Mallorca, Spain

RAINER SCHALLER CEO, MCFIT

Please explain the moment you saw the opportunity to bring the low-cost business model to fitness?

RS “When I founded McFit, everyone was placing their emphasis on wellness.

My principle was to swim against the current. McFit’s success has demonstrated that future trends are not the only truth, and not the only recipe for success.”

Germany has some of the world’s leading low-cost companies. Why is Germany so dominant in low-cost industries?

RS “We have understood offering quality, at a good price. Also, to leave out what the target group is not prepared to pay for. This means low-cost is not cheap, but well calculated.”

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Why are you choosing not to franchise McFit? RS “McFit is a company that benefits strongly from its organisational culture.

We believe that employees who identify with the company, and who are proud to work for us, are worth their weight in gold. We have always strived for this. With franchisees, one cannot maintain this philosophy. Therefore, franchise would hurt us, more than help us, at this point in time.”

Would you consider operating clubs without members having to sign a 12-month contract?

RS “This question is not relevant for us, as the 12 month contract is part of our total concept.”

Ray Algar, Oxygen Consulting, 2010

What aspect of the McFit strategy are you most proud?

RS “McFit’s success proves that breaking rules and setting trends yourself is the right strategy.”

You now operate clubs in Germany, Spain and Austria.17 Where will you take McFit next, and why?

RS “We will continue to expand our McFit network in Germany, Austria and Spain. We want to offer our members the possibility to work out everywhere in these countries.”

17

McFit had eight clubs in Austria and Spain at May 2010

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LOW-COST GYMS IN EUROPE INTERVIEW WITH THEO HENDRIKS, CEO, SPORT AND LEISURE GROUP, NETHERLANDS I know it took some years before the UK adopted ‘spinning’ classes. Perhaps we are a bit more progressive in these kind of things.”

but they were in poor locations, with bad numbers. I have also witnessed smaller low-cost club businesses in poor locations, closing down.”

Do you think that the price of low-cost gyms in Holland will fall below €15 per month?

What do the financials look like in a successful Dutch low-cost club?

TH “Fit for Free18 with 28 clubs is the best example. In general, we can conclude in Holland that almost all the low-cost clubs are more or less McFit clones. McFit was the first in Europe.”

TH “Prices are already falling below €15 per month. 19 Many clubs are now at €2.95 per week (€13 per month). However, if you look deeper, sometimes you have to pay extra for exercise classes and €1 for a shower.”

Why did low-cost gyms develop much earlier in Holland compared to other European countries?

Is there evidence in Holland of low-cost gyms closing as competition rises?

TH “It is not easy money. The average club needs to be around 1,000 sq m20 and requires between 1,500 – 2,500 members to break-even, subject to property expenses. To break-even, we are talking in the range of € 250,000 € 300,000 per year. In successful lowcost clubs, I have seen 4,000 – 6,000 members (sometimes higher), with a turnover greater than €900,000, and a EBITDA of 40%.”

What are the earliest examples of low-cost gyms in Holland (less than €15 per month)?

THEO HENDRIKS CEO, SPORT AND LEISURE GROUP

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TH “I think that Holland is always sensitive to trends across a range of businesses. A strange comparison, but a lot of good music bands achieved their first hit in Holland. I was the first with cycle ‘spinning’ in Holland in 1993 and suggested to Harm Tegelaars, who was my mentor at the time, to convert some squash courts to spinning, but

TH “Yes there is. I know some smaller chains are having problems. In my opinion, the main reason is that you need at least 20 clubs to professionally manage the business (property acquisition, PR, marketing and sales, management controls, operating procedures etc).

I know some Dutch owners with one to five clubs who are in trouble and want to dispose of some clubs, or sell the entire business. We have looked at some clubs,

About the Sports and Leisure Group (SLG) SLG operates nine centres under the Family Fitness and Capital Sports brands. IHRSA presented Theo with the 2009 IHRSA European Club Leadership Award.

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fit4free.nl / 19 £13 at 1st May 2010 / 20 10,764 sq ft

23 2010 UK LOW-COST GYM SECTOR REPORT

HERMAN RUTGERS EXECUTIVE DIRECTOR, EHFA

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LOW-COST GYMS IN EUROPE HERMAN RUTGERS, EXECUTIVE DIRECTOR, EUROPEAN HEALTH & FITNESS ASSOCIATION (EHFA)

What is EHFA’s position on low-cost gyms given that they operate a self-service, low staff business model?

Do you believe low-cost gyms are helping to meet EHFA’s purpose to encourage more people to exercise?

HR “In many industries a low-cost formula exist. It is a natural evolution of our sector that low-cost now features in fitness. In Germany, where the lowcost formula has been established for 10 years, approximately one-third of all members now belong to this category. It is our belief that in the end the consumer will decide what kind of service they want, and the amount they are willing to pay. The development of low-cost forces all operators to re-think their offering. Staffing will become an important point of differentiation for higher priced clubs.”

HR “This is difficult to say, as there is no real research to support this. However, we believe that in general a lower price will make fitness more affordable, and as a result will help to increase the market.”

How does EHFA see the continued growth of low-cost gyms across Europe over the next five years?

HR “We believe that they will continue to grow to the levels now reached in Germany. However, here too there is a certain saturation point, and we will see low-cost gyms offering more services (e.g. personal training and group exercise classes), for an extra price. Also, the mid and premium operators will find ways to compete on elements, other than price.

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We strongly believe that effective programming, through quality staff, will help consumers to become more active and achieve their desired longer term results.”

About EHFA A not-for-profit organisation representing the interests of the health and fitness sector in Brussels with the EU, the International Olympic Committee in Lausanne, and the World Health Organisation in Geneva.

24 2010 UK LOW-COST GYM SECTOR REPORT

LOW-COST GYMS IN EUROPE INTERVIEW WITH HANS MUENCH, EUROPEAN DIRECTOR, IHRSA21

Why do you believe German consumers are so enthusiastic about low-cost gyms?

HANS MUENCH EUROPEAN DIRECTOR, IHRSA

HM “Germany has a history of low-cost industries. Foodstuffs are cheaper in Germany than in most other European countries thanks to Aldi, Lidl and others.

Budget hotels, airlines (Air Berlin, German Wings) and electronics (Media Market) are but a few examples. A stereotypical mindset for Germans is: ‘Geiz ist Geil’. Translated, it means that it is cool to be stingy!”

Do you see evidence across Europe that lowering the price of gym membership is encouraging new consumers to try a club for the first time?

HM “Absolutely. The 2009 German market report by the DSSV Federation, produced with the help of IHRSA showed an increase of over 1 million members last year. Two-thirds of this growth

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came from the low-cost sector. However, separate empirical evidence is still being gathered to determine if these members are new to clubs or trading down.”

Why do you think that the low-cost gym segment is less advanced in markets such as France and Spain?

HM “The Spanish market actually has ample low-cost offerings in the form of community centres and non-profit associations. Several hundred of these clubs were opened in the last few years.

The Associations charge as little as €150 per year,22 per person for families. This is one reason why the statistics show high consumer penetration23 rates in Spain.

France has low-cost offerings, but they are generally less attractive than in other markets like the Netherlands or Germany.”

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Do you see any European markets where a low-cost gym business at €16 or less would not work?

HM “In Portugal, laws prevent clubs from being open 24-hours, or being unsupervised. The Portuguese also now have a law compelling clubs to employ university-graduate sport students (the same applies in Catalonia, Spain).

This adds to the cost.

In Norway, Sweden and Finland clubs place a large emphasis on high quality group training, so the consumer expects to find this in Scandinavian clubs. Also markets with high property costs will have trouble making the model work.”

I nternational Health, Racquet and Sportsclub Association 22 Approximately £11 per month 23 Percentage of adults belonging to a club/centre 21

25 2010 UK LOW-COST GYM SECTOR REPORT

LOW-COST GYMS IN EUROPE INTERVIEW WITH HANS MUENCH, EUROPEAN DIRECTOR, IHRSA - Continued

CHAPTER 02

What is IHRSA’s position on “self-service” style low-cost gyms?

HM “IHRSA wants the industry to grow, but our mission is also to protect the industry. Increasing the number of people who exercise is one of our mandates. In many markets, a low-cost gym provides excellent value, while also offering service (i.e. personal training) to those who need it. The market, in the end, drives the price, and market/price segmentation will exist across all products. However, IHRSA does push for minimum standards. If the consumer places a value on safety, or if this is mandated by law (e.g. use of a defibrillator), and low-cost gyms cannot meet these criteria, then they may be potentially harmful for consumers and the wider industry.

A consumer who has a bad first impression or experience may shun all types of clubs. However, low-cost gyms can also be seen as entry level exercise starting points, where upgrades to better facilities can occur.”

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Your Health low-cost gym, Netherlands

Ray Algar, Oxygen Consulting, 2010

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LOW-COST GYMS IN EUROPE INTERVIEW WITH KILIAN FISHER, CEO, ILAM IRELAND

CHAPTER 02

2010 UK LOW-COST GYM SECTOR REPORT

How do you believe Irish consumers will respond to a self-service, high technology fitness proposition?

Low-cost gyms have featured in previous ILAM Ireland Conferences. How advanced is the low-cost segment in Ireland?

KILIAN FISHER

CEO, ILAM IRELAND

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KF “Whilst there has been a lot of discussion on this and several organisations have been looking at Ireland, there has been very little development. Ben Dunne who has three full-service gyms in the greater Dublin area has recently opened a low-cost gym in south west Dublin advertising at €175 per annum (€14.50 per month), against an average national membership rate of approximately €600 per annum.

There are a large number of ‘Curves’ and ‘Cuts-style’ circuit-based clubs in Ireland, with several Irish brands as well. However, there have been closures, as a result of the recession.”

KF “From anecdotal feedback I believe that the future in Ireland is full-service gyms offering increased value, more personal service, and innovative programming. For example, personal training is increasing in popularity, along with fitness classes. During times of severe recession and rising unemployment in Ireland, people are seeking more social outlets. If gyms can provide a social experience and exercise, then they will benefit. Off-peak usage is increasing in swimming pools and gyms by “professionals” due to high unemployment among accountants, solicitors, architects, engineers etc.”

In what ways do overseas fitness operators normally customise their proposition for Irish consumers?

KF “They tend to include more personal training as part of the membership fee, or at low-cost. They also add value via fitness classes, and by introducing new and novel activities, such as ‘boot camps’ in underground car parks.”

Low-cost gyms have fundamentally changed the structure of the Dutch and German health club industries. What is your view on how the Irish industry may change over the next five years?

KF “A year ago I would have thought there could have been a similar effect on the Irish market. However, currently there is no significant change in sight and existing gyms are now offering better value for money. They are also offering Irish consumers more choice via month-to month memberships, and even pay-as-you-go options.”

About ILAM Ireland ILAM is the Irish Leisure Industry Body for all Sports, Fitness, Aquatic, Health Spas and Associated Facilities.

Ray Algar, Oxygen Consulting, 2010

27 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 3 WHAT DO UK CONSUMERS THINK ABOUT LOW-COST GYMS?

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An important part of this report is to gain insights into why consumers are attracted to low-cost gyms. Consequently, I am grateful to The Gym Group who granted permission for me to spend a day at their Hounslow club to interview members. This access allowed me to conduct in-depth video interviews with individual members to better understand why they had chosen to join a low-cost gym.

In-depth one-on-one interviews are a valuable form of qualitative research for exploring the reasons that ‘drive’ an individual’s attitude and behaviours. It helps to explain ‘why’ someone is attracted to a low-cost gym.

The main interview findings are summarised in the following pages with further details in the appendix.

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About The Gym Hounslow, Middlesex This was the first club opened by The Gym Group on 30th June 2008. It occupies part of the ground floor within the Blenheim Centre, a £220m mixed-use, retail and leisure development in Hounslow, which is 13 miles South West of London. The club opened as a brand new 160-exercise station gym within 1,393 sq m of space.24 The company announced that 5,000 members joined the club, before its official opening, taking advantage of a £9.99 introductory price, compared to its normal price of £14.99 per month. An additional 30% of floor space was recently opened, along with more equipment, to support demand. The club operates 24-hours a day and is operated by two salaried staff, and seven freelance personal trainers. A core part of the company’s strategy is to bring gyms to designated regeneration areas as measured by the UK Government’s Index of Multiple Deprivation.25 Images show The Gym Group, Hounslow 24 25

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15,000 sq ft See: http://tinyurl.com/2ujf9ps

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Previous gym experience

What prompted you to join?

Members had a mix of previous club experience, but most had not left a club to directly join the Hounslow gym. For some, there had been a break of several years, and the arrival of a new gym with an enticing £9.99 pre-opening offer, had attracted them back.

Some members were trying a gym for the very first time and were attracted by its convenient location and price. One young female member described herself as previously being “scared of gyms”.

For those trying a gym for the first time, it was a combination of convenience and price that prompted them to join:

a significant incentive to stay. Leaving, and then re-joining for these members, would mean a 50% increase in their monthly membership fee.

“It’s close for me, and quite cheap.”

Female member

How did you hear about this gym?

“It’s so convenient; it’s on my bus route. I get off the bus outside the gym, come into the gym and then into the supermarket (Asda), do my shopping, get on the bus, and go home.”

Male member

How long a member?

Several people were ‘founder’ members who had been using the club since its June 2008 opening (21 months). One member had left and then re-joined following the gym’s expansion. The `founder’ members joined at the £9.99 pre-opening rate and now had

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Ray Algar, Oxygen Consulting, 2010

Word of mouth was cited by several members: “Someone told me it’s a good gym, and cheap.” Male member “Someone in the church told me its £15 and I thought it was too good to be true.”

Male member Other members were prompted by an article, adverts in the local newspaper and banners on the building: “I live locally and I saw it advertised in my local paper.” Female member

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“I was shopping in Asda, which is next door, and I saw the big notices for the gym and at £10 per month, I thought that’s not bad.” Male member For others, there was scepticism: “Opening a gym in Hounslow, I think I was a bit dubious, because this isn’t one of the greatest areas, but then when it was £10 per month and I saw it was brand new equipment; that was very appealing.“ Female member

Do you miss anything about your previous club?

wind-down after a workout is quite important.” Male member

Joining a low-cost club means that facilities found in traditional clubs such as a swimming pool, café bar, crèche, racquets facilities, relaxation areas (steam, sauna, spa etc) are removed. Are people that have left other clubs, missing these facilities?

However, members also realise that with extra facilities comes higher fees:

“Not really. I think it depends what you’re after out of a gym. I’m just here to work out and use machines.

If I was after anything else, I would probably look to pay a bit more, but I’m not really.” Female member Several members were missing their post-workout sauna: “I would definitely be prepared to pay a bit more on my membership for more facilities (steam/sauna); that kind of

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Ray Algar, Oxygen Consulting, 2010

“Obviously if you have more facilities, you pay more.” Male member Other members now use several different venues for different activities: “It would be nice to have a sauna, which I had at other gyms. What I sometimes do when I’m not coming here, is go for a swim.” Female member “I was a swimming pool user. I now swim elsewhere, but it still works out cheaper coming here and paying separately for swimming.”

Female member

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First impression on seeing the gym

How did you join?

Views on membership contracts

Members remarked on the spacious building, friendly staff and adequate equipment:

Members can visit the website and join online, or they can choose to visit the club first and join using one of the web terminals at the gym.

The Gym Group does not ask members to sign a contract. Members were asked about the importance of this no-contract feature:

“Visited the club first. I don’t live far.

I came to see what it looks like, and then I looked on the website and joined.”

Male member

“Very important. Sometimes you are motivated for 2-3 months, and then you’re not, and you have to pay for the full year. Here you can stop whenever you want to stop. The previous gym I belonged to wanted at least a year and the only way to get out of it is if you’re ill.” Male member

“I felt comfortable…that’s the most important thing. The staff were quite friendly. ” Female member “I looked around and thought there is everything here that I need because I do ‘cardio’ mainly; I don’t do body building.” Male member

“I looked on the web; they had a visual tour which showed all the machines.”

Female member

The induction process During the online joining process, the member has the option of booking an induction: “On the gym website you are asked health check questions and then they ask you to book an induction slot. My induction took about 20-25 minutes, it can be longer.

After the induction, they said, “if you are not sure, we are always here”.

Female member

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Ray Algar, Oxygen Consulting, 2010

“That’s quite important. I was in Northampton and I had to leave the gym because my job took me elsewhere, and I had to pay the remainder of my contract, even though I wasn’t using it.”

Male member

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Some members would have signed a contract to join Hounslow: “It didn’t make a difference to be honest as I like going to the gym to keep active and fit.” Female member “It doesn’t bother me at all really; I would have signed a contract.”

Male member

How important is 24-hour opening?

24-hour gyms remain a novelty in the UK, so what did members think?

“I’ve come here at 1 in the morning, sometimes I’ll finish work at 11-12, go home, but instead of going to bed, I will work out for a little while.

Sometimes I come at 5am which is ideal for the lifestyle I lead.”

Male member

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“It is important. I am a bar manager in a 5-star hotel and my shifts are very different, so I can go in the morning and night. I usually train no later than 10-11 pm.”

Female member However, there was also a slight contradiction among some members who stated that 24-hour opening was important, but then only visited mid morning and at lunchtime.

“Why join? It’s open 24-hours. I normally come late morning, because I then work in the afternoon, until late at night.”

Female member This is reminiscent of members talking about their health club having a swimming pool, but then never using it. With 24-hour opening, it seems that some members have comfort in

Ray Algar, Oxygen Consulting, 2010

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the knowledge, that should they ever have the desire to workout at 4am, they can. Members were also astute in understanding that long opening hours help to smooth demand.

“I work late, so I don’t use the club at night, but I think it does somehow help indirectly, because you don’t get the place overfilled in the day.“ Male member I asked female members how safe they felt training very late at night: “I feel safe. Not everyone can enter the gym as you have to use a code. I feel I can trust people that workout here at night.”

Female member

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What is the gym atmosphere like?

A low-cost gym with several thousand members, and no communal areas, is unlikely to have a sense of `club` or `community`, so what is the atmosphere like?

“It’s quite a big gym so it tends to be a little bit de-personalised. I find the atmosphere fine.” Male member “It’s quiet, and everyone is getting on with their workout. If you want to socialise, you can. It just depends on the person.” Female member Sometimes, being anonymous at the gym has advantages: “You don’t really see people you know which is sometimes quite good if you’re sweating like a pig!” Female member

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I also wanted to understand what it was like for members exercising during peak time: “I never visit the gym around 5pm.

I visit either before that or after 8pm. I do not like to wait too long for machines.”

Female member “Sometimes it gets a bit too crowded.

At 6pm there’s loads of people coming in - about 6-8pm every day. Sometimes, I will come after school at about 4pm.”

Male member

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“I just get on with it, but there’s plenty of staff around. They’re incredibly helpful and friendly.” Male member “Well once I collapsed here, and they were very supportive. I probably trained a bit too hard, and I fainted for about 30 seconds.” Female member Once inducted, the emphasis reverts to self-service, but how visible are staff if you need help?

The club publishes its member usage statistics (by hour) in the changing rooms so that members can adjust the time of their visits, if possible.

“Very visible. If there are one or two machines I am not familiar with it’s just a case of calling Carina (Manager) over.” Female member

Support and staffing

“Usually I can see them all the time.

There is always someone that I see going around.” Female member

Low-cost gyms employ less staff, which helps to keep membership fees down, but how supported do members feel?

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Members were asked if they could name the Manager, or other gym staff: “I know Leon (PT) and Carina (Gym Manager), and there is Kerry who was the original Manager.” Female member

“I get an email; I think it’s once a week. They tell you their top tips...(for example), how you can get the most out of your exercise.” Female member

“No, I can’t name the staff. It’s not their fault, it’s me, I tend to come here, do what I have to do and go.” Male member

Sometimes, the email arrives, but is not always read:

How does the gym stay in touch?

“I do sometimes with their tips, but most of them I know already, because I’ve been in sports since I was quite young...I’ve never received any contact from previous gyms that I’ve used.” Female member

On-line joining means that the gym is in an enviable position of having an email address for every member. The gym uses email as a primary means of regularly communicating news and information. Members were not quite sure of the frequency, but they do remember receiving mail.

“I read the header, and if it’s interesting, then yes. (she reads)” Female member

“I have seen emails from the club, but I don’t bother reading them.” Male member

Pricing and value for money Members were unanimously delighted with the membership price. During my interviews, all members rated the gym 8 or higher in terms of value for money (based on a 0-10 scale).

Connected to this was the fact that many were very regular attenders, with most visiting at least three times weekly. For those members who had joined on the pre-opening rate of £9.99 per month, this was the equivalent of just £0.77p per visit.

“When something looks so cheap you are a bit suspicious. I was really interested to know why was it so cheap?

I’ve never been to a gym that is £15 before. I thought I would walk in and find a lot of broken equipment.”

Male member “I pay £14.99 (per month), which is a giveaway (big smile). It’s for free really!”

Male member

“I’ve opened one that said how to lose weight in 10 easy steps. I thought that was too good to be true!, but I had a read of it.” Male member

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“I think it’s quite reasonable…you definitely get value for money.”

Female member

“I probably would pay a bit more, but not too much more considering you are only using a gym.” Female member

How important is a low price?

Would they recommend the gym to friends and family?

“Price is very important. I finished University last summer. Obviously, I didn’t want to fork out something close to £50 per month to go to the gym. At that stage, I wasn’t certain I could come in every week. For this gym, even if you’re paying it, and some weeks you have a off week, it doesn’t matter, it’s still so cheap.” Female member Would they pay more?

“I would have joined at a slightly higher price. I don’t actually look at the price of the gym. At the time it was just convenient.” Male member

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When asked if they would recommend the club on a 0 -10 scale (where 10 represents definitely recommend), members scored the gym an 8 -10, with several scoring it a 10.

“Well I have recommended to a number of people. My friends are very jealous that I go to a gym that costs me £10 per month (pre-opening price)”. Female member “For a certain person, if you just want to workout, yes, definitely. If you want saunas and all that sort of thing, then definitely not. It’s more of a training club, than a health club.” Male member

Ray Algar, Oxygen Consulting, 2010

Exercise results With members visiting frequently, there was a strong sense of progress: “Its done me the world of good. I can run for a bus now. When I first came here I had to pull myself up the stairs, now I can run up two at a time.” Male member “I’ve seen massive improvement, especially coming back from University.

I was a fat slob at University!, so I’ve done quite well I think.” Female member

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Future intention

Overall observations

Do members still see themselves at the same gym in 12 months time? Again, using a 0 -10 rating, members rated between 8 and 10.

‘Contented members’ was the predominant impression I was left with after leaving the Hounslow gym. This business had clearly defined that the core proposition was to create a great gym experience, and nothing else, at a price that would genuinely surprise many consumers. Through the process of simplifying the proposition, it had far less things to focus on, and a much greater chance of executing well.

“If I don’t need to move residence or work, then I will be here in 12 months time, 10 out of 10.” Male member “If I am still living in this area, then I will still be coming here.”

Female member “I would say very likely. I am moving to Hampton Court, which is about seven miles away, but I still think I’ll come back and use this gym. I don’t think it’s the price, it’s just a nice gym to come to.

I don’t want the hassle of joining another gym, starting again, getting to know people there. I feel very comfortable coming here.” Male member

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On the occasions where members felt the gym was under-delivering (inadequate showers and over-crowding issues), the business took remedial action. This is fundamental to the success of a low-cost business because the philosophy is to do less; what remains is done well; obsessively well. This is because consumers are choosing to trade off unwanted facilities, but not features that impact the ‘workout’ experience (such as the joining process, the cleanliness of changing rooms, condition of equipment, the gym atmosphere etc).

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A fundamental strategic error is made if someone interprets ‘low-cost’ as ‘cheap’.

Members paying £15 per month, or less, expect to feel safe when visiting the club, to have access to equipment that is great to use and a club that is as clean as one costing fivetimes more. So, if you are reading this report and thinking you can set up a low-cost gym business by executing ‘cheaply’ (a building with low ceilings, inadequate natural light, lightcommercial equipment, a hard-to-navigate website etc), then think again. During these recent interviews, I heard for myself, that when features are wrong, members leave, even at £15 per month. Put them right, and they return.

Some readers may look at these member comments and think that the price is perhaps too low, but a ‘can we charge more?’ is not the mind-set of a genuine low-cost operator.

Theirs is a: ‘how can we charge less?’ philosophy. Why?, because word-of-mouth fuels this type of business, and with the web that is now rocket fuel.

37 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 4 SUMMARY OF LEADING UK LOW-COST GYM BRANDS

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SUMMARY OF LEADING UK LOW-COST GYM BRANDS CHAPTER 04

2010 UK LOW-COST GYM SECTOR REPORT

The following table shows the leading UK low-cost club operators at April 2010. The ‘leading’ low-brands for the purposes of this report are defined as those with at least two trading clubs.

Leading UK Low-Cost Brands Rank

Brand Name

Number of Clubs26

1

FitSpace

8

2

The Gym Group

6

3

Gym London27

6

4

Nuyuu

5

5

Fit4Less

4

6

Pure Gym

4

7

Springslite

3

8

Fitness4Less

2

Presently there are no overseas companies featuring in the top eight brands. However, this is likely to change at the next report with the author aware of significant overseas interest. For example, Gym4All,28 a Dutch-owned company, opened its first club in South London at the end of 2009 and has confirmed its intention to open a further four UK clubs before the end of 2010. Inevitably, other overseas operators will follow and could play a significant part in the future.

Figure 7: Leading UK low-cost brands – Launch timeline

Visual insight Ray Algar 2010

2006

2007

2008

Fitspace The Gym Group

MiFit29

26 At 30 April 2010

27 This is a low-cost gym-only proposition at selected GLL centres across London (see gymlondon.org) 28

See gym4all.com Table 2: Leading UK low-cost brands – number of clubs

29

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eveloped by JJB Sports as a low-cost pilot (mifit.com). National roll-out now on hold due to the D sale of its health club division to DW Sports Fitness in 2009

Ray Algar, Oxygen Consulting, 2010

2009 Nuyuu Fit4Less Pure Gym Fitness4Less Gym London Springslite

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SUMMARY OF LEADING LOW-COST GYM BRANDS CHAPTER 04

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Leading UK Low-Cost Brands â&#x20AC;&#x201C; Location and Property Strategy Brand Name

Club Locations

Property Strategy

FitSpace

Belfast, Bournemouth Cardiff, Islington Mitcham, Lincoln, Nottingham, Woolwich

Have focused on a property partnership with Fitness First. This entails taking over existing Fitness First clubs and re-branding to FitSpace

The Gym Group

Guildford, Hounslow Liverpool, Leicester, Manchester, Vauxhall

Focusing on acquiring building shells and then fitting out to an agreed corporate specification

Nuyuu

East Grinstead, Livingston, Slough, Newbury, Stevenage

Convert existing health clubs. This includes acquiring clubs from LA Fitness

Fit4Less

Canterbury, Inverness, Tynemouth, Swindon

Convert existing health clubs

Pure Gym

Edinburgh, Leeds, Manchester, Wolverhampton

Focusing on acquiring building shells and then fitting out to an agreed corporate specification

Fitness4Less

Bristol, Birmingham

Convert existing health clubs

Gym London

Various London boroughs

Combination of existing leisure centres and building conversion

Springslite

North-East England (Kingston Park, Gateshead, Newcastle)

Using existing gyms and converting to a low-cost business model

Table 3: Leading UK low-cost brands â&#x20AC;&#x201C; location and property strategy

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Ray Algar, Oxygen Consulting, 2010

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SUMMARY OF LEADING LOW-COST GYM BRANDS CHAPTER 04

2010 UK LOW-COST GYM SECTOR REPORT

UK LOW-COST GYM PROVIDERS - LEADING PLAYERS – Marketing and Product Features Brand Name

Website

Join online

24-hour opening

Contract policy

Price point (month)

Marketing slogan/ Communication theme

FitSpace

fitspace.co.uk

Yes

No

Monthly and 18-month contract options

£10 (18-month contract) £17.00 month-to-month

Small price, big results

The Gym Group

thegymgroup.com

Yes

Yes

None

£14.99

Achieve a healthy balance…

Join The Gym

Nuyuu

nuyuu.com

Yes

No

Monthly and 12-month contract options

£19.99 (12-month contract) £24.99

No fuss, no gimmicks, just a damn good place to keep fit

Fit4Less

f4l.com

Yes

No

None

£16.99

No frills, small bills

Fitness4Less

fitness4less.co.uk

Yes

No

None

£14.99

We offer an incredible facility for an incredible price

Gym London

gymlondon.org

Yes

No

None

£19.95

Affordable easy to join gym only membership for customers who know exactly what they want

Pure Gym

puregym.co.uk

Yes

Yes

None

£15.99

Enjoy fitness

Springslite

springslite.com

Yes

No

Monthly and 12-24-month contract options

£19.95 (12- month contract)

Fantastic facilities at incredible prices

Table 4: UK low-cost gym providers - leading players – marketing and product features Back to Contents

Ray Algar, Oxygen Consulting, 2010

41 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 5

INTERVIEWS WITH UK LOW-COST LEADERS An important component in appreciating how the low-cost gym sector will develop in the UK is to understand the growth strategies of the leading players. I am very grateful to all the following contributors who responded to my interview request. As you read these interviews, I hope it gives you a clearer picture of why they embarked on the low-cost pathway and how their businesses will develop.

KENNY McANDREW CEO, FITSPACE

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JOHN TREHARNE CEO, THE GYM GROUP

BEN SILCOX MANAGING DIRECTOR, NUYUU FITNESS

PETER ROBERTS CEO, PURE GYM

DAVID BEATTIE GROUP BRAND AND MARKETING DIRECTOR, ENERGIE FITNESS

42

INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH KENNY McANDREW, CEO, FITSPACE

2010 UK LOW-COST GYM SECTOR REPORT

You brought the low-cost gym concept to the UK in 2006. What inspired you?

KENNY McANDREW CEO, FITSPACE

KM “I was sitting in a hotel in Finland in 2003 with a consultant from Germany who was describing the McFit business to me. At the time, I was selling memberships for £50 per month and he was telling me that McFit were selling memberships for around £10 per month. I just did not believe it could be done at that price. I was captivated and excited to understand how a business could thrive at that price-point. I then spent the next 12 months researching the concept.”

In what ways is low-cost more difficult to execute, when on the surface it looks simple?

“My original idea was to test the concept in an out-of-town warehouse using IT systems and limited staff.

However, almost every single aspect of

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the business is more complex when you get into the detail. The joining process is different, the direct debit process is different, so is induction, and the way you recruit and train staff. I could not simply use systems from previous clubs; I had to virtually start from scratch. If you don’t do these things, then all you are doing is selling an existing gym at a cheaper price. It is expensive to get involved and requires a serious commitment.”

What were the advantages and disadvantages of being a first-mover in the UK low-cost gym sector?

KM “The disadvantage was that noone believed me when I described the concept; investors were unsure it would work, or that there was a market. Also, there was a considerable amount of consumer education required, which surprised me. Being first means that you make mistakes; not critical ones though.

The advantages were that we had an open market, which allowed us to experiment with the product.

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05 Secondly, we could go virtually anywhere as we were guaranteed not to come across other low-cost clubs. We were also presented with new property opportunities, simply because we were the first and the largest.”

Could you have launched FitSpace without the web, or has this and broadband adoption been critical to your success?

KM “Technically we could have done it, but it would not have been as successful. The costs would have been higher, we would have required more staffing and there would have been a lot more paperwork. This means we would not have been at the launch price of £14 per month. With the web we can sign up 100 people a day with only one member of staff on duty. The web has probably improved everything we do by around 20%.”

43 2010 UK LOW-COST GYM SECTOR REPORT

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INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH KENNY McANDREW, CEO, FITSPACE – Continued

You operate a self-service operating model; how do you respond to criticism that members are not supported?

Recently, you began offering members a 18-month contract option for £10 per month.

Why the change?

KM “This question used to irritate me, but I am more philosophical now. Most people that make these comments have not visited a low-cost gym. By not having receptionists and cash on-site, you do not have staff tied to one department.

Our managers are health and safety qualified, free to roam the club and give advice. Normally, we have two members of staff on duty. On top of that, we have Personal Trainers certified to REPS level three who run every single member induction. I’ve never worked in a club where a Level 3 Personal Trainer takes every single new member induction.

Then we have the back-end IT systems that tracks usage and the points at which members may drop out. New members receive a weekly personalised email taking them step-by-step through the club.”

KM “Since we developed the business plan, we had always envisaged a contract option at £10 per month. We thought that £10 was a fantastic price for UK consumers, so as we got to know our members better, we wanted to offer better incentives to those that train regularly.

Our contract sales have now grown month-on month and now account for at least 25% of all new joiners.”

Have you been surprised by the number of new UK low-cost gym entrants that are now emerging?

KM “Yes, I am surprised. In 2006 and 2007, I was the only one. Then the Gym Group arrived in 2008. JJB with its MiFit brand was experimenting with one club.

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05

I now know of around 30-40 other people that have a single club, or have plans to open a budget gym.”

What will FitSpace look like at the end of 2010?

KM “Another two clubs open (taking us to 10 clubs) and several in the pipeline.”

How will the business look in three years?

KM “We will still be focusing on the UK. I don’t think we would be looking at expanding beyond the UK until we have at least 100 clubs. The UK market is wide open at present, and we know it well.”

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INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH JOHN TREHARNE, CEO, THE GYM GROUP

2010 UK LOW-COST GYM SECTOR REPORT

How important is the web to your business?

JOHN TREHARNE CEO, THE GYM GROUP

JT“Absolutely pivotal; 84% of our members join online. You can still join in our gyms as we have three joining terminals in each club and we operate a totally paperless system. Our website is core; we get between 2,500 – 5,000 hits to our website daily. As we open more sites, this number is growing.”

Your property strategy is to develop new clubs from building shells. What are the advantages of this approach?

JT “The big advantage is to get the building we want, exactly as we need it. We have looked at buying existing gyms, but the problem is that you have to convert them, which is often not easy; you also have an existing membership base to deal with during our threemonth fit-out. We have also looked at

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gyms which were not the right size or in the right location. Then they have the facilities that we do not want, so they can be very expensive to convert.”

You have a private equity partner. Apart from their financial input, what value have they added to your business?

JT “Bridges Ventures bring a number of benefits. Bridges management structure is unusual from my experience of dealing with venture capitalists. They have very senior people that have run large and very successful businesses. Our Chairman for example used to run Regus, which is the world’s largest provider of workplace solutions, so they have a lot of diverse business experience which is very useful for us.”

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05

Bridges Ventures has a social mission to its investment portfolio. Can you explain how this affects your location strategy?

JT “We have a commitment to opening at least 50% of our gyms in regeneration areas. To date only one of the six sites we have opened does not meet this criteria. Health is another big aspect of Bridges investment criteria and we are bringing exercise to people who have not previously been able to join a gym.

The other area is our impact on the environment, so we have systems that are designed to reduce energy, watersaving systems, and we are a paperless environment. Our floor cleaners use 90% less chemicals. These are just some of the examples of the things we do.”

45 2010 UK LOW-COST GYM SECTOR REPORT

INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH JOHN TREHARNE, CEO, THE GYM GROUP – Continued

CHAPTER 05 Watch the interview: Go to oxygen-blog.blogspot.com to see a video with John Treharne, CEO of The Gym Group

To what extent has your £14.99 per month price-point attracted consumers to try a gym for the very first time?

JT “Very much so. Across our clubs about 40% of our members have never used a health club or sports centre, which we put down to price. We also put it down to the fact that we do not have a membership contract.”

You mention that you operate without membership contracts; how much internal discussion took place about the role of contracts when you were developing the business?

JT “There was discussion about it.

I have never believed in membership contracts; my previous business did not have them either. I fundamentally disagree with the concept of membership by compulsion; you would not use

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a restaurant on that basis. I also think it creates a lot of public disenchantment with health clubs with the small print etc.

There is no question, that price and nocontract, is a big driver in our business.

It also suits a lot of the people who join us because they are going on a skiing holiday in a month’s time, or students who join us in term-time. We even have a daily membership. So, the whole idea is to widen the appeal of gyms.”

Can you explain the impact of member attrition in a low-cost, low-staffing model business?

JT “Our attrition figures are very similar to other health clubs. We certainly do not see higher attrition simply because you can leave at short notice. I also think because of our price point, people are happy because they are only paying £14.99 per month to use the gym spasmodically through the year, and are not

Ray Algar, Oxygen Consulting, 2010

necessarily bothered about cancelling and re-joining; they can do, if they wish to.”

What will The Gym Group look like at the end of 2010?

JT “Very different, as we are due to open another five sites by the end of June 2010. We have another raft of openings in the autumn. We should be around 12-15 sites open by the end of 2010, and our plan is to open another 10 sites in 2011.”

Does your growth strategy involve taking the brand overseas?

JT “We see the bulk of our growth in the UK. We have had approaches to franchise our model in Europe and Australia, but we feel our main focus is rolling out what we are already successfully doing”

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INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH BEN SILCOX, MANAGING DIRECTOR, NUYUU FITNESS

2010 UK LOW-COST GYM SECTOR REPORT

Can you explain the ‘light bulb moment’ when you saw the opportunity to create a low-cost gym brand?

BEN SILCOX MANAGING DIRECTOR, NUYUU FITNESS

BS “The moment came from a desire to move on from my previous role. Once that decision was made, it was a case of deciding what kind of business model to run. This was in response to our view that the industry has not fundamentally changed in the last eight years. Most operators change some element of a process or product, but the key business model, and customer proposition has not changed. However, the customer has, and our response was to have a member-driven, focused, and simple proposition.”

Can you explain your strategic partnership with LA Fitness?

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BS “ We do not have a strategic partnership with LA Fitness. LA Fitness was the source of clubs that allowed us to start the business, and quickly build scale. Securing capital to build new sites in this economic environment is a risky, much longer return for us. Existing clubs with a model that does not work for the existing operator makes sense for us.”

Other than funding, what value is James Caan (Dragons Den) bringing to your business?

BS “James brings business experience and reputation. People take us more seriously now that we have secured James’s backing. This has allowed us to move beyond simply being another ‘start up’. James has a large network, and a positive image with consumers. This gives us extra spice, and drives a strong PR-led marketing message. Unlike other celebrity relationships, this is a relevant

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05

business relationship. Nuyuu is not however ‘James Caan’s fitness clubs’; it is a business backed by James, and we benefit from his involvement.”

You offer consumers a contract and a nocontract option. Did you always see contracts as a core part of your business model?

“Contracts are a core part of the business model and they fit alongside other flexible payment methods.

Consumers are not stupid; they understand that flexibility comes with a premium. This is how business works; you pay more for a hotel, train or plane if you book the night before; be less flexible and tie in over a longer period of booking, and you pay less. We must give customers choice, but we must also be commercial. Contracts will also help to retain the ability to invest and innovate in the business over time, as we can predict our revenue streams.”

47 2010 UK LOW-COST GYM SECTOR REPORT

INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH BEN SILCOX, MANAGING DIRECTOR, NUYUU FITNESS – Continued

Can you explain how you are using the web and social media to grow your brand?

BS “We are aggressively pursuing innovation in our marketing and customer relationship management (CRM) strategies. We take few clues from inside the industry and instead focus on what other sectors do well.

Social media is not the be all and end all. Like anything, it has its place in a panoply of communication methods.

When you have members ranging from 16 - 60 like we do, you cannot just focus on one thing. We are using social media to engage in conversations, add value, and drive acquisition. We find it challenging to be innovative with this strategy as customers do not expect it from our industry. However, we are humble enough to admit that we are learning all the time.

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CHAPTER 05

One of our core values is to use technology to enhance and improve the relationship that customers have with our brand. We have launched ‘Ask Caz’; a real expert, with a real face that answers members questions, writes educational blogs, and busts myths. This has proved very popular with both members and non-members.”

and Nuyuu, when we were trying to get the business going, and that stands for a lot in the fickle world we live in.”

Precor is your preferred equipment supplier.

Why were they chosen, and in what ways do they support your membership proposition?

How will the business look in three years?

BS “ Precor was chosen for several reasons. They were the first company I came across when I entered the industry in the United States. The innovation of the cross trainer at that time made a real impact. They truly manage an account well; some of the best relationship management, honesty and integrity I have experienced. They took a ’punt’ on me,

Ray Algar, Oxygen Consulting, 2010

What will Nuyuu look like at the end of 2010?

BS “We expect to have at least 12 clubs by the end of 2010 with the possibility of getting to 20.”

BS “It will have cemented itself as a true value for money (not budget) operator delivering consistently on our core values of fun, friendliness, cleanliness, and value for money. We will have moved into the international environment with a scalable and crosscultural brand”.

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INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH PETER ROBERTS, CEO, PURE GYM

2010 UK LOW-COST GYM SECTOR REPORT

Please describe the moment you recognised the opportunity to create a low-cost gym business?

PETER ROBERTS

PR “It was due to the recessionary climate and people cancelling memberships.”

CEO, PURE GYM

What businesses inspired you when you were developing the Pure Gym concept?

The biggest threat is leasehold properties and rents rising in value, which could make the model uneconomic.”

When selecting a property, do you focus on a shell and fit-out, or do you acquire an existing gym and re-brand?

German consumers have been enjoying budget clubs for more than 10 years. However, the UK’s first budget gym opened in late 2006. Why do you believe the UK was slow to recognise the opportunity?

PR “Landlords provide us with shell and core buildings and we fit these out, at a cost of £800,000 each. We would be wary of acquiring a gym that has failed, as we believe the consumer doesn’t easily forget.”

PR “The importance of health and fitness and good nutrition has always been more important in Germany, whilst much of Britain enjoyed a fast food ‘couch potato’ culture.”

PR “easyJet, Primark, Premier Inn and Aldi.”

What part of the Pure Gym strategy are you most proud of?

How resilient do you feel your business model is as the UK comes out of recession and consumers start to feel more prosperous?

PR “We are very pleased to have raised substantial equity in what has been a very difficult financial market place, and persuaded landlords to back our vision.”

PR “This is always something of a risk but people of all social demographic groups use easyJet, even in the good times.

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CHAPTER 05

Ray Algar, Oxygen Consulting, 2010

How many clubs do you expect to have open and trading by December 2010?

PR “We expect to have 12-15 clubs trading by the end of 2010.”

What will your business look like in three years time?

PR “We will continue to focus on the UK market so we can build a substantial brand presence.”

49 2010 UK LOW-COST GYM SECTOR REPORT

INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH DAVID BEATTIE, GROUP BRAND AND MARKETING DIRECTOR, ENERGIE FITNESS

Explain the moment when you saw the opportunity for énergie to enter the low-cost gym segment with your Fit4less brand?

DAVID BEATTIE

GROUP BRAND AND MARKETING DIRECTOR, ENERGIE FITNESS

DB “énergie specialises in niche fitness and wellness, so we naturally recognised the gaping chasm that existed for low-cost gyms in the UK. Fit4less by énergie was officially launched in late 2008 after 12 months of planning, which included worldwide research into the sector. However, the team first identified the opportunity for a low-cost approach as long ago as 2001.”

Some people think that creating a low-cost gym brand is easy, what has been your experience?

DB “It is not as simple as some might think. The few other operators that have entered this market are still tuning their products, as we are. However there is

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clearly strong consumer demand and we intend for Fit4Less to be the all-important leader in this sector over the next five years.”

What do you see as the core facility offer in your Fit4Less brand as you did offer more than just a gym experience at some of your clubs?

DB “The core proposition is the quality gym at the right price, without a contract.

There are no examples of facilities beyond these. The former Fitness First clubs that we acquired had spas and studios decommissioned. We then enhanced other facilities, such as free weights and Precor cardio-vascular equipment.”

How important do you believe location and demographic factors are in creating a successful low-cost gym?

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05

DB “Location is key. We actively target territories which are well catered for by mid-market and premium operators.

These areas already have the savvy past and present fitness club members who value the Fit4Less proposition. These consumers understand the facilities they typically use each week, and make an informed choice.”

Given a choice of joining Fit4Less, or another low-cost gym at the same £16.99 price-point, why should I join your club?

DB ”Fit4Less by énergie offers a very clear customer proposition - low-cost, quality clubs without the additional expense associated with pools, spas and studio timetables. Added to this, our clubs are simple to join and friendly due to the ‘ownership’ mentality our members receive from our club owners.”

50 2010 UK LOW-COST GYM SECTOR REPORT

INTERVIEWS WITH UK LOW-COST LEADERS INTERVIEW WITH DAVID BEATTIE, GROUP BRAND AND MARKETING DIRECTOR, ENERGIE FITNESS – Continued

How do you see the UK club industry changing over the next five years, as the low-cost sector develops?

“The UK fitness sector remains in its infancy, with even the largest operator only operating approximately 160 clubs. Also, more than 50% of the UK club units remain independently operated. The sector’s immaturity is best illustrated by comparison with other sectors such as retail, where Boots operate 2,600 stores, and hospitality, where Premier Inn operates over 580 hotels.”

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How many Fit4Less clubs do you expect to have open and trading by December 2010?

DB “Seven in the UK with further clubs overseas.”

What will the Fit4Less business look like in three years time?

DB “We are planning for Fit4Less to become the UK’s leading low-cost fitness brand over the next five years. We are in an excellent position to drive forward with the economies of scale already available to us from our growing network of énergie franchised clubs.”

Ray Algar, Oxygen Consulting, 2010

CHAPTER 05

51 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 6

INTERVIEWS WITH OTHER UK STAKEHOLDERS

The following interviews are with organisations who have a significant stake in the UK health and fitness industry.

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52

INTERVIEWS WITH OTHER UK STAKEHOLDERS INTERVIEW WITH STEVE PHILPOTT, CEO, DC LEISURE

2010 UK LOW-COST GYM SECTOR REPORT

STEVE PHILPOTT CEO, DC LEISURE

Why do you believe the UK was slower than Germany and the Netherlands to develop low-cost gyms?

Do you see any long-term challenges for the UK health club industry if average subscription rates are on a downward trend?

How do you see low-cost gym providers changing the UK industry structure over the next five years?

ST “Sites are more difficult to obtain and more expensive. The service ethic is more established in the UK, although far from perfect. The existence of a substantial lower-cost sector already provided by Local Authorities and the lack of success of early attempts at lowcost gyms.”

ST “Yes. Low-cost gyms will appeal to those who are already comfortable in a gym environment and will steal market share from established providers.”

ST “Clearer differentiation and segmentation will be required by providers of higher service or family targeted centres. Gym-only providers will particularly need to be better focused to withstand the threat.”

A greater degree of ‘self service’ is inherent in a low-cost gym business. Do you believe that some consumers new to exercise will struggle with this trade-off?

ST “Yes, the evidence is compelling that exercisers new to gyms will become disillusioned quickly with lack of results.”

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CHAPTER 06

How do you see low-cost clubs co-existing with local authority leisure centres?

ST “It’s a serious threat to all existing providers, although Local Authority gyms are generally closer in price, so less threatened. Local Authority centres are generally more targeted to value conscious families allowing some co-existence.”

Ray Algar, Oxygen Consulting, 2010

About DC Leisure DC Leisure develops and manages 118 leisure facilities in partnership with UK Local Authorities.

53 2010 UK LOW-COST GYM SECTOR REPORT

INTERVIEWS WITH OTHER UK STAKEHOLDERS INTERVIEW WITH DAVID STALKER, EXECUTIVE DIRECTOR, FITNESS INDUSTRY ASSOCIATION (FIA)

How does the FIA see low-cost clubs supporting its work as a key government health and fitness delivery partner?

DAVID STALKER EXECUTIVE DIRECTOR, FIA

DS “Increasing the availability and opportunity to exercise is a key element of any national wellbeing strategy, but the caveat is that these venues must be safe for both novice exercisers, as well as (exercise) veterans.”

What is the FIA’s position on low-cost gyms, given that they operate a self-service, low staff business model?

DS “As the health and fitness industry matures and expands, there is obviously a market for low-cost gyms. However, consumers must be very clear what they need from a fitness provider.

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Low-cost gyms are ideal for experienced gym users who require little or no advice.

However, perhaps they are not the best place for those who are new to the gym environment, or require tailored one-onone tuition.”

Consumers can now join a UK low-cost gym from £10 per month, which is 75% less than the average price for a private sector club. What is the FIA’s view on this?

DS “Like anything in life, you get what you pay for. Minis and Aston Martins are both cars, but the price one pays for them varies enormously. Consumers must make informed decisions before deciding which option best meets their needs.”

Ray Algar, Oxygen Consulting, 2010

CHAPTER 06

Some national media have criticised health clubs, especially around membership contracts. Do you believe that no-contract, low-cost gyms will change media sentiment towards the health club industry?

DS “Media criticism in this context is unfounded. Every industry offers deals based on preferential rates for longer contracts and we are no different.

Therefore, the presence of low-cost gyms in the market is no defence from unwarranted media criticism.”

54 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 7

HOW AN INDEPENDENT CLUB CONVERTED TO LOW-COST

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55

HOW AN INDEPENDENT CLUB CONVERTED TO LOW-COST CASE STUDY: ACTIVE4LESS STEVENAGE, HERTFORDSHIRE

CHAPTER 07

2010 UK LOW-COST GYM SECTOR REPORT

DECLAN RYAN MANAGING DIRECTOR, ACTIVE4LESS

Declan Ryan founded R3 Leisure in 1999. The company purchased a 1,400 sq m30 squash club in Stevenage that had been closed for several years. The club was refurbished and re-opened with the normal mix of facilities found in a ‘dry’ club. Three squash courts were retained to re-connect the club to its heritage.

Declan and his partners set the membership price at £33 per month and focused on re-building the membership. For the next six years, they worked to establish the R3 Leisure club among the 57,657 31 adult residents of Stevenage.

Declan is very honest in admitting that these were tough times. The management structure was top heavy, new competitors were arriving, and membership was growing slowly. The club responded by offering various offers and deep discounts for members prepared to sign three-year contracts. The result was that average membership yield was no more than £20 per member per month, nearly 40% below the club’s published price. Total membership plateaued at 800.

During 2006, Declan decided that the club had to fundamentally change if it was to survive.

Kenny McAndrew, a former industry colleague was working at the time on developing FitSpace and Declan began to explore the idea of converting to a low-cost club. He spoke to Kenny and researched other low-cost operators, such as Planet Fitness in the United States, and began the changeover to low-cost.

He wanted to set the new membership price at £9.95 per month with no contract, but settled on £12.95, after seeking advice from his bank.

In 2007, the club was re-branded to Active4less, and new members were encouraged to join online in order to streamline costs.

de-commission facilities. Declan believes that retaining facilities for an independent low-cost operator adds value, not only for members, but also for staff (retaining the ability for staff to work and experience a multi-facility club).

Unlike McFit and other pure low-cost gym-only propositions, this facility/price mix created a type of low-cost hybrid – low-cost pricing, but with many of the facilities commonly found in ‘mid-market’ clubs.

They key challenge Declan faced at this time was the fact that consumers were unfamiliar with low-cost gyms.

Online joining also meant that the club had email addresses which enabled rapid and cost-effective member communications.

Staffing levels among sales and administration roles, were reduced. Contracts were abandoned in order to lower joining barriers and remove the need for the business to pursue debts from members breaking contracts.

“At the time we changed, there were only a handful of low-cost clubs in the country, and no media awareness of the model. There was fear that the model would not work and generate the required sales. There was also considerable concern regarding transferring existing members onto the new lower rates and the effect this would have on our short-term cashflow.”

Declan decided to retain many of the existing facilities which meant that members could enjoy more than a gym experience. This saves money in the short-term from not having to

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Ray Algar, Oxygen Consulting, 2010

15,069 sq ft Adults aged 19 or over at 2001 census

56 2010 UK LOW-COST GYM SECTOR REPORT

HOW AN INDEPENDENT CLUB CONVERTED TO LOW-COST CASE STUDY: ACTIVE4LESS STEVENAGE, HERTFORDSHIRE – Continued

Following, the change-over, membership sales began to rise, sometimes remarkably. In some months, the club saw a four-fold increase in sales compared to the same period in the previous year.

So, is the club prospering under this new low-cost pricing regime? Well, membership has grown substantially, 32 and member yield is now at around £14 per member per month (once a £17 enrolment fee is factored in).

Once per year, the club charges a £17 ‘club enhancement fee’ to all members and uses the funds to re-invest in the club. It may seem unusual, but this is now an embedded part of the business operation. Secondary revenue has climbed given the significant increase in membership.

Is Declan still ‘on purpose’?

The business that Declan and his partners pictured when they formed the business is not the one they operate today. The smallclub ambience has eroded, and Declan is the first to admit that he has little chance of really getting to know all his members.

Nevertheless, he is now helping substantially

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Membership number withheld for confidentiality

CHAPTER 07

more people to embed exercises into their lives, and at a price that many Stevenage residents find affordable. Member attrition is now 5.3% per month, which has actually marginally improved even though the club has eliminated contracts.

The company is now looking at taking its low-cost concept to other UK towns via a licensing arrangement that allows existing gyms to adopt its systems. Could low-cost be the future for your business?

If so, this is what Declan recommends: “Seek the advice of someone who has overcome all of the challenges of a transition to low-cost. Make sure you have a detailed business plan, and ensure you have the support of your staff team.

Discuss the proposed strategy with your bank and other funders. Rebrand the club to emphasise the change; do not get sentimental about the old name or logo as your catchment will simply identify this with your old pricing model and operation. Simplify your membership types and review your processes (how will members join? What will your position be on contracts?). Finally, strive hard to deliver both great value and service.”

Ray Algar, Oxygen Consulting, 2010

Images show Active4less gym

57 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 8

HOW THE UK SOCIAL ENTERPRISE SECTOR IS RESPONDING TO LOW-COST GYMS

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INTERVIEW WITH ROB WHITHOUSE, MANAGING DIRECTOR, SLOUGH COMMUNITY LEISURE

2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 08

Trusts and other social enterprises are now a significant operator of health and fitness facilities across the UK.33 Many have been tracking the emergence of low-cost gyms and analysing its impact on their existing and future business. Some have directly entered the low-cost space and are operating new gyms based on the characteristics outlined in figure 1.

For example, GLL’s34 Gym London launch, which offers a gym-only proposition for £19.95 per month.

ROB WHITEHOUSE MANAGING DIRECTOR, SLOUGH COMMUNITY LEISURE

What follows is an interview with Rob Whitehouse, Managing Director of Slough Community Leisure (SCL).

When did you begin to become aware of the emerging low-cost gym trend, and what was the tipping point?

“On trips to the USA in recent years it became apparent that the low-cost gym model was beginning to thrive and as we know, what happens in the States tends to transfer to Europe. In 2007 we began to track a number of UK low-cost gym operators and made contact with one in particular to understand more fully the business model. The tipping point came for us when low-cost gyms began to open in neighbouring local authority areas.

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We recognised them as a threat to our business and decided that it was better for us to fill this part of the market rather than wait for someone else to.”

Slough Community Leisure now offers a low-cost gym proposition to customers, please tell me more?

“SCL’s opportunity came in 2008/9 when a facility became available on a large trading estate in Slough, Berkshire. We recognised that the estate had a large workforce who struggled to get to other facilities, because of poor transport networks. There were some existing fitness facilities on the estate, but none provided a low-cost option.

Sporta members now operate more than 870 centres (see - sporta.org) A staff-led Charitable Social Enterprise

Ray Algar, Oxygen Consulting, 2010

As SCL is a leisure trust, we re-invest all the surpluses made from this operation back into the leisure provision within the Borough of Slough.

Our charitable status allows us to benefit from business rates relief, and it also gave us a good negotiating position when agreeing rents with the landlord. These financial benefits allow us to staff the facility to a higher level than is traditionally associated with low-cost gyms.”

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INTERVIEW WITH ROB WHITHOUSE, MANAGING DIRECTOR, SLOUGH COMMUNITY LEISURE – Continued

2010 UK LOW-COST GYM SECTOR REPORT

How would you sum-up the customer reaction to your ‘Synergy’ low-cost gym so far?

How would you describe the success of your low-cost gym in Slough to date?

“The reaction has been great. We have beaten sales targets each month since it opened a year ago, and the member cancellation rate has been lower than our other facilities. The good thing is we can now offer a mix-and-match opportunity when selling fitness to the community of Slough.”

“It’s still early days in the life of the gym.

There are challenges; despite our move we have seen other low-cost gyms open in Slough in the last year, so competition is intensifying.”

Do you have any evidence that your low-cost gym is attracting new customers?

“It is very difficult to say as we have not completed any research as yet.

We know that a proportion of our customers have transferred from some of our other gyms, and I would guess others have transferred from competition in the town.”

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About Slough Community Leisure Slough Community Leisure was established in 2000.

Its ambition is to be the best provider of affordable leisure and event venues in the Borough of Slough.

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CHAPTER 08

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INTERVIEW WITH PETER CROWLEY, MANAGING DIRECTOR, WAVE LEISURE

2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 08

About Wave Leisure Wave Leisure is a charitable leisure trust formed in 2006 managing six leisure centres in South East England In July 2010, a new low-cost club opens in your Brighton catchment area. How will you respond?

PETER CROWLEY

MANAGING DIRECTOR, WAVE LEISURE

“We will review our product, price, loyalty, retention and our added value initiatives. This will be qualified with a survey of our customers.

Based on customer responses and our competitor’s products, we will rebrand ourselves as a different type of fitness facility.”

Low-cost gyms are big fans of technology and the web. How is Wave Leisure using these tools to enhance the customer experience?

“Wave Leisure has used technology to build a relationship with our customers via our website, online booking, e-mail platforms and further investment in CRM systems.

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This ensures that customers have easy access for communications and bookings, and understands our products via frequent touch points.”

How do you see new low-cost clubs co-existing with local authority leisure centres?

“I believe that low-cost gyms will have an impact on local authority leisure centres.

Clearly, it will depend on the location, access, price and the facilities. I could not estimate the migration levels, but I think they will co-exist as long as local authorities are clear about what they are offering the customer.”

Do you think that low-cost gyms will grow the overall market?

“I believe that most of the membership base will come from existing gyms as customers migrate. I believe new

Ray Algar, Oxygen Consulting, 2010

potential members to fitness will prefer gyms which provide support and advice. Once these new members are established and confident they may also migrate depending on their needs.”

Do you envisage Wave Leisure creating a low-cost gym proposition, or do you picture the organisation on a different strategic path?

“There is an opportunity to look at lowcost gyms and we will explore this at one of our four current gym-based facilities.

In the meantime, we are improving our loyalty, our retention (presently we have a 96% monthly retention rate), and looking at the added value we can provide to customers through the additional use of technology.”

61 2010 UK LOW-COST GYM SECTOR REPORT

CHAPTER 9

THE POTENTIAL DEMAND FOR LOW-COST CLUBS IN THE UK So, how prevalent will low-cost gyms become in the UK? Before commenting, it is relevant to see how low-cost brands are disrupting other established UK industries.

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THE POTENTIAL DEMAND FOR LOW-COST CLUBS IN THE UK CHAPTER 09

2010 UK LOW-COST GYM SECTOR REPORT

UK grocery sector The UK grocery sector was worth £146.3bn35 for the calendar year 2009 and low-cost brands such as Aldi, Lidl and Netto are making inroads into the ‘big four’ supermarket groups (see figure 8). There are now over 1,100 ‘lowcost’ stores in the UK, and Aldi continues to increase its market share, as it acquires further stores. However, the ‘big four’ are responding through the introduction of price matching schemes and more ‘value’ ranges.

Figure 8: UK grocery market share for leading companies (consumer spend) – at April 201035 35

Source: Kantar

Sainsburys

Low-cost (Aldi, Lidl, Netto) Visual insight Ray Algar 2010

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Ray Algar, Oxygen Consulting, 2010

30.5%

16.9%

Tesco

Asda

16.9%

11.8% 6.0%

Morrison

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UK airline industry The UK airline industry was fundamentally changed when Stelios Haji-Ioannou, a 28 year old Greek entrepreneur launched easyJet in 2005 using the slogan:

Figure 9: Ryanair v British Airways - Passenger growth 2007 - 2009

2009 65.3m

“Making flying as affordable as a pair of jeans – £29 one way”.

This has now acted as a catalyst for many other low-cost airlines including Ryanair, which is now the UK’s largest airline, based on passenger numbers. easyJet and Ryanair carried 111m passengers between them in 2009.

Visual insight Ray Algar 2010

32.2m

33.6m

2008 57.7m

33.4m

2007 49m

0

10

20

30

40

50

60

70

Passengers carried (millions) BA compound annual growth rate of -1.8% Ryanair compound annual growth rate of 15.4%

Ryanair’s passenger numbers are growing at an annual compounded rate of over 15%, while British Airways has stalled. Whatever, passengers may think of Michael O’Leary, the abrasive Ryanair CEO, and the actual ‘flight experience’, growing numbers of people are choosing low-cost airlines, over ‘full service’ legacy airlines.

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The German low-cost gym operators

Figure 10: Structure of German gym market leading 17 brands (by membership)

I wonder if Rainer Schaller, the McFit CEO imagined how a small gym above his parents grocery store would one day grow to become Germanyâ&#x20AC;&#x2122;s largest gym brand.36 The following figure shows the profound affect that McFit and other low-cost brands are having on the structure of the German club market, based on the leading 17 brands.37 Seven of the seventeen leading brands operate in the low-cost segment38 comprising 53% of all members.

GYM MEMBER 10148214

Low-cost

42%

Mid-market

Visual insight Ray Algar 2010

Defined by membership numbers Source: Deloitte Germany data for the period ending December 2009 38 Price-point of â&#x201A;Ź20 per month or less 36 37

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Ray Algar, Oxygen Consulting, 2010

5%

Premium

53%

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THE POTENTIAL DEMAND FOR LOW-COST CLUBS IN THE UK CHAPTER 09

2010 UK LOW-COST GYM SECTOR REPORT

So, how will the UK club market change?

The UK has been slow to respond to the low-cost gym trend. FitSpace opened the country’s first ‘authentic’39 low-cost gym in Bournemouth at the end of 2006, nine years after the McFit launch. Why so slow? Kenny McAndrew, Managing Director of FitSpace believes there has been ‘arrogance’ around the prevailing traditional or ‘legacy’ club business model. Perhaps, a sense that the existing ‘full service’ club model was working, and all that consumers required. A sense that if people were serious about their health, then they would find the £43 per month40 required to join a private club. Additionally, it is only over the past few years that using the web has become a more enjoyable experience, driven by faster broadband connections. This matters because prospective members now research and join a low-cost club via the web (to reduce operating costs). It now takes just a few minutes to browse to a low-cost club website, select the most convenient club, and join. An entry and exit pin code quickly follows, completing the joining process.

Images show FitSpace gym

The FitSpace launch in 2006 was closely watched by the industry, with the company quickly opening a further seven clubs. Expansion was achieved through a strategic alliance with Fitness First. This involved acquiring a series of existing Fitness First clubs and re-configuring them as low-cost clubs. A club in Islington, North London, was an exception, being a fit-out of a ground floor, mixed-use scheme.

In 2008, The Gym Group entered the UK lowcost market with their Hounslow, Middlesex, club. The Gym Group’s strategy differs from FitSpace. The Gym Group is developing new clubs which tend to be in mixed-use schemes.

This allows the company to take a building shell and develop it to a very specific ‘look and feel’.

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For example, I recently visited the company’s new London Vauxhall club. The club is situated on the ground floor of the St George Wharf development, a stunning 22-storey mixed-use riverside scheme comprising apartments and commercial tenants, including Tesco. The club is spacious, and benefits from very high ceilings and natural light. This creates a surprising ‘first impression’, and an enjoyable exercise experience.

Possessing several of the characteristics defined in figure 1 UK average monthly membership tariff with premium brands charging much more

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John Treharne, the CEO of The Gym Group, recently announced an ambition to open a further 10-15 clubs during 2010. This would take the group to approximately 15-20 by the year-end. The challenge for the group is to maintain the quality of the property portfolio, whilst simultaneously ramping up the speed of new openings.

Peter Roberts, the CEO of Pure Gym, expects to be at 12-15 clubs by December 2010.

Ben Silcox, Managing Director of Nuyuu, expects to be at 12-20 clubs.

Factor in the growth of other brands such as Fit4Less, Fitness4Less, overseas entrants and start-ups, and the UK could see around 75 low-cost clubs by the end of 2010, up from approximately 19 at the end of 2009.

There now exists a sense of ‘buzz’ and momentum around the UK low-cost sector and I am now aware of several new teams working on club projects that fit the definition as outlined in figure 1.

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Based on all private club members Based on a 4.4 million private UK members

Figure 11: UK low-cost gyms - December 2011 forecast Visual insight Ray Algar 2010

Year ending 2009

19

Year ending 2010

75

Year ending 2011

119

0

20

40

60

80

100

120

Number of clubs

The next five years The following figure illustrates how I see the industry developing. I see the low-cost sector gaining momentum and building substantially on its 2009 position, when it represented less than 1% of all UK private clubs. If UK consumers take to low-cost clubs as they have to airlines, groceries and hotels, then it may be realistic to think of at least a 25% market share.41 This could mean up to 275 low-cost clubs, based on average membership of 4,000 per club.42 That represents approximately 8% of all UK private clubs.

Meanwhile, the ‘mid-market’ clubs will be challenged to re-invent themselves, but not disappear, as was the opinion of some industry insiders, when low-cost gyms first arrived in the UK. Mid-market gym concepts continue to arrive in the UK and will serve those consumers seeking a little more than a self-service workout.

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Figure 12: UK private health clubs: present and future market structure Visual insight Ray Algar 2010

2010

YEAR

2015

Illustrative market structure at 2015

Average monthly membership fee

£50+ per month

Some clubs attempt to re-position to premium service

Premium

£16 - 49 per month Mid-market

Mid-market squeezed through top and bottom

£15 per month Low-cost

Some close Some sell

Some convert to low-cost

Market position

‘Perhaps the biggest threat we face is that someone from outside our sector, with a huge war chest of cash and a proven customercentric business model, will build 1,000 shiny new facilities, and offers budget-busting membership deals’ Fred Turok, Chairman, FIA (statement from 2007)

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CHAPTER 10

CONCLUDING REMARKS

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CONCLUDING REMARKS CHAPTER 10

2010 UK LOW-COST GYM SECTOR REPORT

The recent UK recession has created a fertile trading environment for the low-cost gym sector. Companies can carefully select their preferred geographic locations, and negotiate sensible property rents, in a relatively benign competitive environment.

This matters because property location and rent are key determinants of long-term commercial viability.

Simultaneously, the media has been lobbying consumers to either quit 43 what they view as ‘poor value’44 gyms, or encourage them to find a lower-cost exercise substitute, at a time when the banking crisis and recession have been chipping away at consumer confidence.

This economic backdrop is unlikely to improve soon, as a new coalition Government embarks on significant fiscal measures to reduce one of Europe’s largest budget deficits.

However, I anticipate that media sentiment towards health clubs will change as journalists begin to report on the early UK innovators such as Fitspace, The Gym Group and Pure Gym with their low price-point, and their easy-in, easy-out, no contract proposition. Consumers are enthusiastic about these emerging low-cost gyms, as evidenced by the consumer research undertaken at the Hounslow, Middlesex club.

Over time, this positive sentiment will seep into the web, and spread among blogs, forums and social networks. Search engines will then eagerly capture this content, ready to serve it up to consumers searching for an affordable place to work out.

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Low-cost gym definition This report has put forward a definition for UK low-cost gyms that can be used to help track and measure how the sector evolves (see figure 1). In researching this report, I omitted some brands that met the price definition for a low-cost club, but did not meet any other of the key characteristics. I just did not believe they possessed sufficient ‘low-cost DNA’.

A sustainable low-cost gym business is not just about having a great price, which is why existing clubs should think very carefully if they are considering a strategic shift to low-cost.

Strategic drivers This report has attempted to explain the strategic drivers underpinning low-cost. Once a reader really understands the significance of these drivers, they will see that low-cost gyms are probably going to form a long, and enduring part of the UK club industry. This is why the report took a brief look at the German club market to illustrate the dramatic affect that McFit is having. McFit is on target to have one million members by the end of 2010. This means the German low-cost gym model is well proven, with 13 years of trading data.

Search ‘quit the gym’ Where low-attending consumers are paying relatively high monthly membership fees

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CONCLUDING REMARKS CHAPTER 10

2010 UK LOW-COST GYM SECTOR REPORT

Changing the recipe As the low-cost sector matures, it will be very interesting to see how ‘true’ some of these early brands stay to their proposition. Success is often followed by the tendency to ‘change the recipe’. This may lead to clubs becoming bigger, adding back facilities, converting gyms rather than focusing on building shells, raising prices,45 and myriad other temptations. What I like about some of the early low-cost startups in the UK is the consistency throughout their club portfolio. With these brands, it is clear that there has been a significant amount of research and due diligence, which has created clubs that consumers are genuinely excited about belonging to. I hope this care continues, as brands now race to create dominant market positions.

Some failures along the way There will be some UK low-cost clubs that fail and this will be partly due to impetuous companies rushing in and under-estimating how complex46 a low-cost business really is. Also, what happens when competition

intensifies and consumers have the choice of three low-cost gyms all at the same price?

This is the scenario now facing some low-cost brands in the Netherlands. Those that have undertaken the financial modelling on low-cost gyms know how sensitive the business is to memberships levels. Broadly, the first 2,500 members gets the club to break-even, so the only winners if a cluster of low-cost gyms begin to compete in the same catchment area, may be consumers.

cardiac rehabilitation services in a self-service gym environment; the outcome may not be positive!47

Put your ‘purpose’ first

So, take time to understand the low-cost phenomenon, but do not feel obliged to convert to this model, even if it seems the whole world is talking of nothing else. Why? Because bringing low-cost gyms to the world might not be the long-term cause that you want to get behind, which is a very good reason to stop and think: what do I really want my business to stand for?

Finally, it is very important to mention that this report should not be interpreted as a ‘green light’ to all readers to indiscriminately build a low-cost gym business. For some people, the idea of developing a high volume, technology-driven, self-service gym business will not synchronise with their core values and long-term ambition. It may not adequately satisfy the fundamental reason why they intend to, or have entered, the health and fitness industry. By definition, low-cost means ‘low-touch’. For example, you cannot combine

This means that while the low-cost sector races to the lowest price, there will continue to be opportunities for clubs to head off in a fundamentally different direction,48 just as Rainer Schaller, the McFit CEO decided in 1997, when the trend at that time was full-service ‘wellness’ clubs.

Recall the member interviews where some members believed the price was too low See interview with Kenny McAndrew, CEO, FitSpace 47 Even qualified (Phase IV) freelance personal trainers needed to support these kinds of services may not be attracted to a low-cost environment 48 Entrepreneurial individuals can always decide to exploit the counter-trend 45 46

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CHAPTER 11

FURTHER READING AND DISCUSSION APPENDIX ABOUT THE AUTHOR

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FURTHER READING AND DISCUSSION CHAPTER 11

2010 UK LOW-COST GYM SECTOR REPORT

A website has been set up to allow individuals to discuss the implications of this report, download further copies, and to provide suggestions for future editions. Registration is free and takes just a few minutes.

The address is: budgetgymresearch.ning.com < 2010 UK LOW-COST GYM SECTOR REPORT > A STRATEGIC INVESTIGATION INTO AN EMERGING MARKET

Researched and written by Ray Algar MBA, MA (Marketing), Oxygen Consulting, in association with

FUTURE EDITIONS OF THIS REPORT This is the first edition of a report that I intend to update. There has been much that I have left out to keep the document to a readable size. Also, there is some data that is not yet available to report on.

However, I hope that this report will help to dispel some of the ‘myths’ around low-cost gyms and as a result make the sector operators more receptive to sharing their numbers.

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Ray Algar, Oxygen Consulting, 2010

73 2010 UK LOW-COST GYM SECTOR REPORT

APPENDIX CONTINUATION OF INTERVIEWS WITH MEMBERS OF THE GYM GROUP, HOUNSLOW, MIDDLESEX What prompted you to join?

How did you join?

“A friend of mine comes here and suggested I try out the gym. The price is good, so I came to see, and for me it’s good enough. It has everything I need.”

Male member

“I came in with a friend, walked in and had a look, and then I signed up straight away, using the club terminal.”

Male member

Do you miss anything about your previous club?

“Not really, the kids used to play a bit of tennis and swimming, which we used to do as a family, but this is fine for what I used to do there.” Male member

Several members were missing their post-workout sauna: “I did use a sauna, which I do miss, and access to towels and better showers, but then you can’t complain. You either have better machines, or better showers and towels.” Female member

First impression on seeing the gym “I was really quite impressed. It’s spacious, that’s the first thing. The fact that you’ve got space, means there is fresh air.” Female member

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Views on membership contracts The Gym Group does not ask members to sign a contract. Members were asked about the importance of this no-contract feature:

CHAPTER 11 “It’s good, it’s friendly, everyone gets on. You can say ‘give me a shout when you’ve finished on the equipment’ and the majority of people will come and find you.” Male member “I don’t know anyone here, but I feel good.” Female member “It’s quite relaxed, everyone keeps themselves to themselves for the most part.” Female member

“It is important. I’m only in the area for a couple of months.” Male member

“People here are so helpful, especially the Manager. It settles you in, you feel at home.” Female member

How important is 24-hour opening?

Support and staffing

“It is important. I am doing shifts now at work. I finish around 11-pm and if I’m not tired I can come for a workout. It is a very good idea.” Male member

“Leon (a personal trainer) is always coming round. If he sees that you are not doing anything right, he will say ‘sit back a little, push yourself forward a little on this machine”. Male member

What is the gym atmosphere like?

“There’s always staff here if you want it, but I tend to work to my own thing.”

Male member

“Quite friendly people, but I don’t come here to make friends, I come here to do my workout. It’s a nice atmosphere.”

Female member

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74 2010 UK LOW-COST GYM SECTOR REPORT

APPENDIX CONTINUATION OF INTERVIEWS WITH MEMBERS OF THE GYM GROUP, HOUNSLOW, MIDDLESEX How does the gym stay in touch?

“They send me workout and nutrition tips.” Female member “I get an email about once per month, I think. I open them; they give little tips on training; they’re quite informative.”

Female member “…it has helpful tips. It’s not a load of advertising, which I hate. It always starts, Dear Anita.” Female member

Pricing and value for money “It’s great, it’s no frills, I mean there’s no swimming pool, or any of that sort of stuff, but it’s dirt cheap, very cheap in fact. I would say it’s too cheap to be honest with you.” Male member

Would they recommend the gym to friends and family?

I’ve been to top brand gyms and didn’t see any difference in terms of my weight loss.” Female member

Exercise results “I would mark them an 8. I’ve seen a lot of difference in terms of losing weight and being active.” Female member

What would they change about the gym?

I asked members what they would change about the gym, if they were the Manager: “I might introduce some aerobics for ladies - women like working out together.

Not necessarily, a whole programme, perhaps just one hour a week. Not everyone can afford a personal trainer, so it’s nice if there were group sessions.”

Female member

“I’ve recommended it to all my friends and family, and a couple of them have signed up. I’m a great fan. Only because

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Ray Algar, Oxygen Consulting, 2010

CHAPTER 11 Some would install a sauna and steam bath: “If I had the space and finance, I would put a sauna in, and maybe a spa bath.

If people are willing to pay £3-4 more, and the feedback is good, I think it’s an option.” Female member “I used to find the steam room in the last gym was quite beneficial after workouts; heat is very good for the muscles. I do miss that aspect of the other gym.”

Male member Others would focus on the free weights area: “I would change the free weight area; I would make it larger. If you look at the free weight area, you’ll find that’s the busiest area all the time, because people think that free weights is going to give them better results” Male member “A couple of more benches and a little more heavier free weights. That’s it.

Just small things I would change; everything is fine.” Male member

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APPENDIX CONTINUATION OF INTERVIEWS WITH MEMBERS OF THE GYM GROUP, HOUNSLOW, MIDDLESEX

Others would install long-term lockers: “I would probably have lockers that you could keep overnight (long-term lockers).” Female member One member asked for some upper-body ergometer: “I would like to see some upper body rowing machines for disabled members.” Male member Another member would create some external social events to bring members together:

Another member would install some boxing equipment.

“I would like to have some boxing equipment, like speed balls, punch bag, but apart from that, everything’s ok.”

Male member What I find interesting about these comments, is that the suggestions are relatively minor. Yes, one or two members spoke of swimming pools, but they soon reasoned that such a facility would fundamentally change the purpose, and the pricing of the gym.

“Bring social things to the gym, not in the gym, but outside. There might be many people here interested in one particular subject, maybe a party.”

Male member Some would improve the music: “Maybe the music a bit louder. If I’ve left my iPod at home Id like the music to be a little bit louder. A few more clocks maybe; I’ve got to search around to find the time - no real big things.”

Male member

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CHAPTER 11

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ABOUT THE AUTHOR Ray Algar is the Managing Director of UK-based Oxygen Consulting, a company that provides compelling strategic insight to organisations connected to the global health and fitness industry. Ray has been consulting to the health and fitness industry for more than 20 years, and is presently the Non-Executive Chairman of Wave Leisure Trust.49 49

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waveleisure.co.uk

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ABOUT THE AUTHOR – Continued CHAPTER 11

2010 UK LOW-COST GYM SECTOR REPORT

RAY ALGAR MBA, MA (MARKETING), OXYGEN CONSULTING

Ray writes for several influential publications, including Intelligent Life (part of the Economist Group), Admap Marketing Journal and numerous leisure publications. He is an enthusiastic fan of the web and social media, launching the UK’s first leisure-related blog in 2005.50 In 2006, he published Mastering Health Club Management. The book has been updated several times, and is essential reading for the Open University’s Foundation Degree in Sport, Fitness and Health.

The next report from Ray Algar

Ray is regularly invited to speak at conferences in the United States and Europe on a range of a marketing, technology, research and web-based themes. In July 2010, he launches LoveTheGym.com, a website that enables consumers to review, rate and recommend health clubs.

For further information, please contact: insight@oxygen-consulting.co.uk

He has an MBA from Kingston Business School, a Masters degree in Marketing from the University of Greenwich, and an honours degree in Sports Studies and Psychology, awarded by the University of Kent.

50

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oxygen-blog.blogspot.com

How European health and fitness clubs are using the web and social media to connect with members – a best practice review.

Indicative publication date: October 2010

Sponsor opportunity: There is an opportunity for one commercial sponsor to be associated with the web and social media report.

Contact details: Ray Algar (MBA, MA Marketing) Managing Director, Oxygen Consulting Cleveland House, 42 Cleveland Road, Brighton, England, BN1 6FG Tel: Email: Website: Blog: LinkedIn:

+44 (0) 1273 885 998 insight@oxygen-consulting.co.uk www.oxygen-consulting.co.uk www.oxygen-blog.blogspot.com http://uk.linkedin.com/in/rayalgar

78

OXYGEN CONSULTING COMPELLING STRATEGIC INSIGHT FOR ORGANISATIONS CONNECTED TO THE GLOBAL HEALTH AND FITNESS INDUSTRY

ISBN: 978-0-9553826-1-1 Price: £275 €325

First edition; May 2010 2010 UK Low-cost Gym Sector Report – A strategic investigation into an emerging market

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An Oxygen Consulting publication in association with Precor. Researched and written by Ray Algar MBA, MA (Marketing), Oxygen Consulting

Reference: Read, discuss, learn from, and share this report. Please reference Ray Algar, Oxygen Consulting, 2010