Simon Pardoe - Marketing & Business Development

The market for the new wave of “budget” gyms in Britain looks like it’s poised for muscular growth, as the health and fitness club sector is expected to expand by almost 10 per cent in the next five years.

The market is forecast to be worth £2.7 billion this year, 17 per cent higher than five years ago, according to Mintel, while membership numbers have risen by 15 per cent over the same period. About 7.3 million people, or 11.9 per cent of the population, are members of a private or local authority gym (according to the Fitness Industry Association).

The pressure on consumers’ disposable income has paved the way for budget gym chains, which typically charge about £15 a month, far less than even mid-market chains, such as Fitness First and Virgin Active.

There are around 55 budget gyms in Britain out of a total of about 2,650 clubs. One of the higher-profile ventures is easyGym, set up by Sir Stelios Haji-Ioannou, the easyJet founder, which has opened two clubs in Slough and Wood Green, North London, and plans to open ten annually from next year.

Meanwhile, Pure Gym recently raised £9 million from Barclays and private investors to nearly double its estate to 28 by early 2012. It charges £24.99 a month with no contract for gyms that are open 24 hours a day.

David Stalker, of the Fitness Industry Association, said that the rise of budget chains could attract existing members from other chains and put pressure on established players to be “very precise” about their market position and offering.

The British gym market continues to be highly fragmented, with the top seven operators accounting for only 23 per cent of clubs and 39 per cent of members, according to Mintel, which says that there is significant scope for consolidation.  Here’s how the top seven shape up:

After writing my blog on 9 July (please see below) about Fitness First’s plans for a new budget gym brand called Klick Fitness, I thought I would investigate further why Fitness First decided to go it alone with a new brand rather than hiving off the 10 gyms it had earmarked for overhaul to Fitspace or another of the budget gym operators, who typically charge between £12 and £19 per month for membership.  Remember: 5 years ago Fitness First handed over 5 poorly performing facilities to Fitspace in return for a 30% stake in Fitspace.

Earlier this week, I visited the Fitspace facilities off  Holloway Road in north London and their club in Mitcham, Surrey.  If they are similar to the other Fitspace clubs, then I would suggest that the end is nigh for Fitspace or they are going to have to invest substantial sums in overhauling and upgrading their facilities in order to be able to compete with all the new – and far superior – budget gyms that are springing up everywhere.  Fitspace clubs are rather dank and smelly, rather dark and drab, and with grubby changing and shower facilities.  Yet, unless you sign up to an 18 month contract (at £12 per month), the subscriptions are £19 per month.  Compared to The Gym Group clubs, who charge very similar prices, and I would score (on a scale of 1 to 10)  between 6 and 8, Fitspace would score around 3.  Hardly a good score in an increasingly competitive market!

So, my bet is that Fitness First have decided that Fitspace don’t have the capital or, perhaps, the inclination to invest in upgrading their clubs to match the competition.  And, rather than assist in funding Fitspace via their 30% equity, Fitness First have decided to go it alone and invest, as they say, around £700,000 per club to convert 10 of their existing Fitness First clubs to the new Klick Fitness format.  It will be interesting to visit some Klick Fitness clubs in the near future to see how they score on my 1 to 10 scale, and to see whether they are a competitive match for the likes of The Gym Group or even Pure Gyms (who I would score at around 5 out of 10, i.e. mid way between The Gym Group and Fitspace).

The bottom line is that Fitness First have elected to go it alone and enter the budget gym market with Klick.  They will have had access to all the details of Fitspace’s financial and operational performance, and (understandably) think they can do a better job.  As my visit to Fitspace’s premises in north London and Mitcham was deeply underwhelming, I would say that Fitness First have made the right decision and I would think that this leaves Fitspace in some difficulty.  If not now, probably soon.  Unless they invest significantly in up-grading their current gyms.

Fitness First is about to enter the low-cost gym market for the second time.  First time round was 5 years ago when it sold a small number of clubs to Fitspace – the first low cost gym group – and took a 30% stake in the company.  Presumably that shareholding has allowed them to keep close tabs on Fitspace’s performance and now, instead of off loading a few more badly performing Fitness First clubs to Fitspace again, it has decided to enter the budget market itself.  This would clearly suggest that Fitness First likes what it has seen at Fitspace and has decided it can do it better.

Colin Waggett, Fitness First’s CEO commented in The Times on 2 July:  “Our business is performing very satisfactorily in London, in particular, but it’s more challenging elsewhere.  This is really a bit of R & D addressing that.”  The plan is to close 10 Fitness First clubs, mostly located in the North and Midlands, spend approximately £700,000 refitting each facility and then rebranding them as Klick Fitness.  Founder members would pay just £9.99 per month; about a third of what their existing members are paying.  This subscription is expected to rise to around £15 per month after the launch of each new Klick club.

As part of this new low cost formula, the number of FTEs (full time equivalent staff) will be reduced from about 15 per club to just four.   All this, of course, is part of the company’s programme of beefing up its UK business prior to floatation, forecast for later this year and probably to happen in Singapore (to reflect the global revenue shift from west to east).  The group now has 435 clubs around the world and intends to focus on faster growing markets such as Asia and Europe’s larger cities.

It’s interesting to note that several low cost chains have risen in the wake of Fitspace’s original concept, under such names as the Gym Group, Fitness4Less, Pure and (earlier this year) Kiss Gyms and, most recently with Sir Stelios’s easyGym in Slough which opened a couple of weeks ago.  This brings the total to around 50 low cost clubs.  I expect many more in the coming months!

At 06.30 this morning, Sir Stelios Haji-Ioannou opened his first easyGym in Slough with a joininhg fee of £25 and a monthly subscription (but no long term contract) of £15.99.  The next, in Wood Green (north London) is scheduled to open in mid-July and is currently offering a pre-opening sign-up deal of no joining fee and monthly subscriptions of £13.99.  As you might expect, the interior is bright orange and grey, and pretty basic – but it does have a comprehensive selection of cardio and strength equipment, plus changing facilities, lockers and showers.

The only surprising aspect to this is that easyGym is by no means the first to enter the market, with Pure already well established (and gradually working its way south from Scotland) and fitspace and Kiss also starting to make in-roads into the low cost / high spec fitness market.  All the traditional operators must be quaking in their gym shoes as the market for £40 to £70 fitness club membership comes under serious competitive attack from these new low cost operators.

Paul Lorimer-Wing, joint chief executive of easyGym, said:  ‘We’re ripping up the rule-book in the fitness sector by ensuring members pay for the stuff they use, not the stuff they never use.’

EasyGym hopes to roll out further clubs this year, building up to 10 across the UK from 2012.

Sir Stelios, the founder of easyJet, joined forces last year with private equity-backed Fore Fitness, which has arranged a brand licensing to use the ‘easy’ name for the business.

Launched in January this year, payasugym is a new voucher based concept allowing people to visit any number of different gyms whenever they wish on a pay as you go basis.  payasugym has signed up dozens of gyms – only in the London area (at the moment) – who will accept the pre-paid vouchers that it sells.  How does it work?  New customers register on the payasugym website and fill up their eWallet with a sum of their choosing (up to a maximum of £100).  They are then issued with a unique ePass which they can redeem at any of the gyms that have signed up to allow access to payasugym’s ePass system.  However, ePasses must be used within 30 days of purchase.

Access varies according to the terms of each gym.  For example, Fitspace in Mitcham will grant access for £5, whilst the Landmark Spa & Health Club in Marylebone NW1 charges £35 per visit.  On the other hand, Educogym in Harley Street W1 charges £125 – but this includes an initial consultation and three personal training sessions.  All such prices and packages are clearly laid out on the payasugym website, so all registered users can make an informed decision before purchasing their ePasses.

The founders of this new service say that “our objective is to increase overall participation in health and fitness in the UK by making gyms more accessible and more affordable. Although we know gym membership is right for many people we felt that it might not be right for everyone and that some people might be missing out as a result. We decided to try and create a new way to use the gym.”

One smart idea that the team have introduced on their site is My Diary.  This enables registered users to calculate their BMI, log it on the diary page, and then use the diary to book gym visits, log their work-out history and then, whenever they feel they have made positive improvements to their fitness, re-calculate their BMI to see how their efforts are reflected accordingly.

On January 1st, Next Generation’s health and fitness club in Swindon abandoned its membership structure (charging between £50 to £80 per month for adults, and considerably more for families) in favour of a new Pay & Play format.  Competition for members / visitors is clearly pretty tough in this town with a choice of around a dozen clubs for the residents to choose from, including David Lloyd (which, like NG, is owned by London & Regional Properties after its £925m acquisition in 2007 from Whitbread), Fitness First, Nuffield and LivingWell.

NG Swindon are experimenting with prices per entry for the gym (£7.50 off peak, £10 peak) and swimming pool (£5 off peak and £6.50 peak).  Studio classes are offered at £5 and £7.50 whilst indoor tennis courts are charged on a per court per hour basis of £15 and £20 respectively.  Currently no bulk buy passes are on offer although NG say they are contemplating introducing this.  Frankly, I think they’re mad not offering this now and doing something about generating greater sales and repeat business / loyalty from day one.

Is the old high price membership model dead?  No, I don’t think so if you offer a wide range of quality facilities and services combined with great service.  But, in a saturated market, the lean and mean business model adopted by the likes of Kiss, Pure and FitSpace is more and more likely to represent the future of the fitness club industry.

See earlier blogs on:

Kiss

Pure

Fitness First is now the largest privately owned health club group in the world with over 540 Fitness First clubs worldwide reaching over 1.4 million members in 19 countries.  Whilst Australia is the brand’s largest market (25%), this is followed by the UK (23%), Germany (20%), rest of Europe (17%) and Asia (15%).

In the UK, there are 160 Fitness First clubs with over 425,000 members with a 60 | 40 male to female ratio.

Partnerships provide new year boost for Fitness First in the UK

Fitness First claims to be off to a flying start in 2011 after joining forces with a number of key brands in the UK for its January campaigns.

Proximity marketing* with O2, on-pack offers with Nestle, promotions with News International and Fitness First’s own  Jump Start scheme are expected to produce a bumper January for the world’s largest privately owned health club group.

Fitness First managing director John Gamble said the group has also launched a high profile advertising campaign in London taking in key publications and London Underground digital sites.

“2011 is set to be a hugely important year for Fitness First and the fitness industry in general and we want to ensure that as many people as possible are aware of what we have to offer,’’ he said.

“The very latest in group exercise classes such as Get Fit with Mel B and Strictly Fit are hugely popular and ongoing investment in the very latest in new fitness equipment and innovations provide our members with an extremely comprehensive fitness offering.’’

He said the company’s successful Jump Start programme offering six week membership and three personal training sessions has also been relaunched for prospective members to really gain an insight into how Fitness First can become an important and integral part of life.

“Experience shows that Jump Start is an extremely effective way for people to kickstart their fitness regimes and with the help of our personal trainers they can find what works for them,’’ said Mr Gamble.

Jump Start costs £49.50 for a 6 week membership and includes 3 personal training sessions.

*Proximity marketing, also known as Bluetooth marketing, is used to send location based messages to the mobile phones of targetted local consumers.  This often highly effective marketing technique can generate an uplift in visitor traffic of around 40% compared with other forms of local marketing.

Following hot on the heels of Pure and FitSpace, a new operator is entering the UK fitness market. Kiss Gyms will be opening their first premises in Milton Keynes in, they hope, January 2011.  With a joining fee of £20 and a monthly subscription of £14.99, Kiss calls itself the high spec / low price option and has plans for numerous more venues over the coming months.

The trick about such companies is to offer a fantastic gym environment with minimal staff.  Access is 24/7 via an entrance PIN code and, as they say on their website at kissgyms.com: “We’ve invested heavily in technology to do away with traditional reception areas and bubble gum chewing reception staff.”  Great!  The gym will utilise Matrix CV and resistence equipment, plus an array of free weights, and – in order to avoid the unpleasant odours that so many gym goers have to put up with, especially at a price as low as £15 per month – will incorporate an air exchange system with the ability to change the entire air within the gym nine times per hour (once every 7 minutes).

So, for current gym users in Milton Keynes, going to the gym – if they switch clubs – is about to get a whole lot cheaper.  And, at such a low price, no doubt many would-be gym goers will be attracted to give membership a try….

More and more companies are devoting time and resources to creating and managing fan pages on facebook.  It costs next to nothing to set up (a bit of time and some creative design) and provides a very powerful mechanism for developing an on-going relationship with those customers who are active on facebook and wish to register their interest (by becoming a fan) of any particular company’s product or service.

Once the facebook fan page has been created, someone needs to be tasked with updating content and distributing news, offers, provacative thoughts etc.  This on-going content management is very important otherwise there’s no two way engagement between the company and its fans.  Those companies that get it right know what a powerful tool a facebook fan page can be.

For example, Nike Golf’s page has 222,884 fans (as of July 2010).  Therefore, whenever Nike Golf wishes to broadcast a message about a new product or a success story relating to an existing product or service, it simply drafts an appropriate message and hits the ‘share’ button.  Instantly, 222,884 fans get to see the story.  But actually it’s considerably more than this as, of course, facebook is primarily a tool for keeping in touch with friends and family all over the world.  So, for arguments sake, let’s say that each of Nike Golf’s fans have 100 friends – each one of these 100 friends multiplied by 222,884 have the possibility of (a) noticing that their friend is a fan of Nike Golf (good brand exposure!) and (b) of reading the Nike Golf messages that hit their fan friends ‘wall’ (i.e. public in-box).  That’s a potential 22 million people.  Of course, the actual number of residual viewings beyond the fans themselves is vastly less than that, but – and nobody knows this for sure – let’s say that half of one percent of the friends of Nike Golf fans notice the brand or the message, that’s still 114,442 people.

The other way of analysing the brand reach beyond the actual fan base is more of a trickle effect.  If, for example, I sign up to become a fan of Nike Golf, facebook automatically tells all my friends (be it 50 or 500) that I’ve just become a fan of Nike Golf.  And, of course, if any of my friends think that’s a good idea they may choose to become a fan too.  At the very least all my friends have been exposed to the Nike Golf brand / logo.

Whichever way you look at this, the opportunities for reaching an enormous audience are significant and, for the right brands, an opportunity not to be missed.

Health & Fitness Clubs

An analysis of the health and fitness club market indicates that this opportunity is not being grasped at all by the majority of clubs and that those that do have a presence are not keeping it updated, fresh and interesting.  Virgin Active (the Italian clubs) has over 15,000 fans and is obviously doing a great job!  Cloer to home, Pure Gym (in Edinburgh) appears to be doing the best out of all the individual clubs reviewed with 517 fans on a club membership base of around 5,000 (about 10%).  With the right content and more compelling news, offers and information, all clubs could vastly expand their audience reach.  We know people are interested in fitness.  Fitness Magazine has 46,542 fans.  And we know that the age profile of fitness club members corresponds to a core component of the facebook user profile.

Who’s doing it best?

Here’s a couple (not fitness clubs) that are worth reviewing…

One of our favourites is Innocent Drinks with nearly 20,000 fans and an excellent hands on approach to their fans and their fan page.

Lastminute.com, with approx. 70,000 fans, is brilliant at putting out special offers (as you’d expect!) and earlier today, for example, posted this on their fan page:  Thursday morning’s are a bit boring aren’t they? So we’ve teamed up with Disney/Pixar to give you some exclusive tickets to see preview screenings of Toy Story 3! We have 4 tickets to give away for each cinema listed in the Toy Story 3 tab http://bit.ly/cjicfd , first person to enter for each location wins! Just email …

Note

We thought, you might also like some information this time with regards to Facebook Pages. As the number of users continue to grow, so does the interest brands have in Facebook and over the past 12 months the number of Facebook Pages and groups have grown dramatically. There are now more than 1.6 million active Facebook Fan Pages which have over 5.3 billion fans. The average user becomes a fan of two pages per month.

The Consultancy was asked to undertake an assessment of the current membership (of an up-market health club) relative to the size and demographic profile of the local residential population.  The objective being to provide re-assurance that there was (or was not) a strong enough local demographic to allow the club (with its premium priced membership) to increase membership by + / – 1,000 and thereby justify the investment in expanding and enhancing the club’s facilities.

Demographic Profiling – Members

We therefore commissioned an appropriate data profiling agency to analyse the current membership.  It did this courtesy of their postcodes.  We then analysed the mass of data and presented it to the client in an ‘easy to digest’ format.  The results showed that 61% of current members fell into the top flight (classified as ‘Symbols of Success’) and 30% into the next flight (‘Urban Intelligence’).

Demographic Profiling – Local Residents

Once this was undertaken, we moved to the next stage and profiled all residents within (a) a 1 mile radius of the club and (b) a 1.5 mile radius of the club.  Objective: to compare the Membership Profile against these two catchment areas in order to assess the size of the potential untapped market for members, i.e. how many residents were there in these radii who fell into the same demographic categories as existing members. (Naturally, there would have been a great deal more potential members living more than 1.5 miles from the club but we had agreed to make the research as concrete as possible, in the knowledge that penetration rates fall off dramatically – for adult only health & fitness clubs – the further away from the club you go.)

Results

36% of the residents within 1 mile of the club were classified as ‘Symbols of Success’, i.e. 45,000 people.  47% of the residents were classified as ‘Urban Intelligence’ adding a further 59,000 people to the potential market (i.e. individuals with the same demographic profile as current members).  The existing club membership had a percentage penetration into these two groups of just 0.87% and 0.33% respectively.

This clearly indicated that there was a very significant untapped membership market within 1 mile.  A percentage penetration rate of just 0.5% in each of the two primary Membership Profiles would achieve a further 1,000 members.  If we added the number of residents residing from 1 mile to 1.5 miles from the club, an additional 53,000 and 45,000 individuals were potentially available.  This further strengthened the opportunity for the club to expand its membership successfully by + / – 1,000.

The investment in new facilities went ahead.  Membership was successfully increased by 1,000.