How the fitness industry is changing and what to do about it

becoming more competitive how the fitness industry is changing and

what to do about it1

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Strategist, technologist, entrepreneur and club owner with thirty years of proven results in a wide range of roles and industries.

His background includes serving as CFO of Al Copeland Investments former owner of Popeye’s Fried Chicken and Church’s Fried Chicken brands; CFO and shareholder of Smoothie King Franchises; and CEO of Applied Realtime Systems, a technology innovation company, among other roles where he has help build national and global brands.

Bryan advises governmental agencies, non-profits and for-profits both domestically and internationally and is active in the Mary Bird Perkins Cancer Foundation. He serves as the Medical Fitness Association’s education committee chairperson and is an author & speaker.

His education includes a BS in Finance from the University of New Orleans, an MBA from SELU and received the Crescent City Scholarship for the pursuit of a Ph.D. in Financial Economics.

He has focused on fitness and wellness during past 12 years and is a shareholder and executive in The Health Club for Women, Fitmarc, Integerus, and the Flywheel group..

Bryan K. O’Rourke, [email protected] - Fitness Professional & Club Owner

connect with me @

change across all industries the fitness industry is no exception

change is not just cyclical its also fundamental3

How is the Fitness Industry is Changing ?

many industries experiencing change

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demography

globalism

technology

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Check Out This DVD For More Information on Technology’s Impact

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technology

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demography globalism

1.U.S. Fitness Facility Marketplace Overview

2.Prevalent Business Models & Trends

Today : How the Fitness Industry is Changing

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in response to rapid changeindustries are reinventing and innovating

creating new opportunities8

What Should You Do About It ?

3.Evaluating Your Competitive Position

4.Planning A Course of Action

...andWhat to Do About It

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#1 U.S. Fitness Facility Overview10

U.S. Fitness Facility Market Overview

•Emerging Consumer Factors

•Emerging Economic Factors

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Emerging Consumer FactorsHealth club consumer & PRIZM profiles

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In 2009 IHRSA’s completed a nationwide survey of U.S. households. A total of 15,013 individual and 26,487 household surveys were completed to create reliable profiles of members including PRIZM segmentation.

2009 Health Club Consumer Report

PRIZM means “Potential Rating Index for Zip

Marketers”



Report Includes:

•Trends in Club Membership•Attendance•Activity Participation•Member Profiles•Typical Consumers•Profiles By Club•Profiles By Activity•Club Fees•Cluster Analysis•PRIZM Profiles


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•PRIZM is a geodemographic profiling system developed by Claritas. Each PRIZM divides the U.S. consumer into 14 different groups and 66 different segments. As the classification is household based, we can compare different areas according to the likelihood of joining a health club. For example, the highest indexed PRIZM segment is “Blue Blood Estates,” so we can target “Blue Blood Estates” households within the health club’s immediate vicinity to recruit likely members.

•PRIZM analysis is more valuable than generic demographic data and provides more meaningful insights into membership profiles.


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Emerging Consumer FactorsHealth club consumer PRIZM profiles


Emerging Consumer FactorsShare of Current US Health Club Market

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11%

13%

10%

14%11%

7%

33%

Urban UptownElite SuburbsAffluentialsLanded GentryCountry ComfortMiddleburbsAll Eight Others

6 of 14 SegmentsRepresent 67% of the Market


Emerging Consumer FactorsShare of current US health club market


0%

12.50%

25.00%

37.50%

50.00%

Urban Uptown Elite Suburbs Affluentials Landed Gentry Country Comfort Middleburbs All Eight Others

10.77%

20.70%

16.40%

25.50%23.20%

41.70%

25.10%

Penetration Rates = 17% Overall

Combined 6 of 14 SegmentsRepresent 67% of the Market

moving this would have big impact

Emerging Consumer FactorsHH “Upper Income” & education key drivers


Too expensive

Exercise elsewhere

Feel out of place

No available club

Don't exercise

Too crowded

Don’t know anybody

0 17.5 35.0 52.5 70.0

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12

16

13

18

52

61

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Emerging Consumer Factors“Price” is main objection or “perception of value”


Emerging Consumer Factors - Existing CustomersReport ID’s 5 key clusters

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Predominantly Male:Focus on strength & resistance - 84% Male

Mixed Low Use:59% use club less than 1 time a week - Less affluent25% non-members - Even male female mix

Predominantly 50+:Slightly more female - most affluent - 60% over 50 years of age

Super Avid Hi Spend User:67% female - Highest participation especially group exercise

Female Low Spend:80% female - 67% participate in group exercise


Emerging Economic FactorsMixed low usage largest market share of members

18%

42%

22%

7%11%

Male StrengthMixed Low Usage50+ GroupSuper Avid High SpendFemale Low Spend

222009 Profiles of Success

largest group of existing consumersleast affluent and least participative

Emerging Consumer Factors - Michael SilversteinTreasure Hunt - Inside the Mind of the New Consumer

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Companies will thrive, S i lverste in argues, by catering to the penny-p i n c h i n g i m p u l s e s o f consumers, or by "spanning the poles" and appealing to both the high and low ends while avoiding anything else-there's only "death in the middle."

Emerging Consumer Factors - Michael SilversteinTreasure Hunt - Inside the Mind of the New Consumer

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The “New Consumer” Seen in All Industries. Important to Understand “Value”

Emerging Consumer FactorsAlternative fitness options - digital technologies

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Consumers are getting accustomed to the“long tail” affect - anytime, anyplace, anywhere.

Estimate 2 million in US utilize some type.

Emerging Consumer FactorsPrevention - monetizing the wellness

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The emerging health care mess is creating new customer needsto reduce costs of traditional care via prevention

Emerging Consumer FactorsConsumer’s don’t trust advertising

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The Days of Traditional “Sales” and “Marketing” in Health Clubs is Coming to An End

Trends - Emerging Economic Factors

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Profiles of Success 2009


Emerging Economic FactorsNational growth has stalled for several years now


2009 Stagnant As Well

2009 $19.9 Billion2009 45.3 Million Members

2008 $19.1 Billion2008 45.5 Million Members

Related to economic factorsLimited supply increaseRestricted financial environment

Emerging Economic FactorsCustomer retention key to revenue sustainability

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Lifetime

TSI

Profiles of Success

15.00% 21.25% 27.50% 33.75% 40.00%

30.60%

39.60%

38.20%

Attrition Rates


-25,000

-12,500

0

12,500

25,000

37,500

50,000

Total 2007 New 2008 Left 2008 Total 2008

45,570

-11,386

10,268

46,668

24% Left the Industry

Emerging Economic FactorsWhat are customers telling us ?

Michael SilversteinTreasure Hunt - Market “Bifurcation”

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“ I h a v e s e e n t h a t consumers will always trade down and buy the cheapest product in a category if suppliers fail to deliver a stream of innovation and build loyalty based on product superiority.”

#2 Prevalent Business Models & Trends33

Prevalent Business Models & Trends

•Growth Scenario

•Core Economics

•Competitive Landscape

•Emerging Segments

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Business Models & Trends - Growth ScenarioUS facilities - rapid growth since early 90’s

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Business Models & Trends - Growth ScenarioFacility growth has slowed


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Business Models & Trends - Growth ScenarioGrowth mostly in top MSA’s & Sun Belt - Regional

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Business Models & Trends - Core EconomicsAverage membership dues flat since 1980

Today = $49.95 1980 = About $40.00


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Business Models & Trends - Core EconomicsAverage membership dues fairly flat since 1980

Car Today = $28,400 | Car 1980 = $7,210

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Business Models & Trends - Core EconomicsDevelopment & operating costs nearly quadrupled since 1980

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Business Models & Trends - Core EconomicsROI in the “average” model under pressure

The “average” is feeling most pressurethis is driving “bifurcation trend”

What drives growth in any industry are ROI’sthat sustain growth and attract capital

Business Models & Trends - Core EconomicsEconomics has driven discounting for certain brands

42capacity strategy

Business Models and Trends - Competitive LandscapeFace Off of Top 100 Clubs - Club Industry - July 2010

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http://clubindustry.com/forprofits/top-100-health-clubs/

index.html

Club Industry July 2010 By Editor Pamela Kufahl

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1

2

3

4

5

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$1.4 Billion

$1.0 Billion

$837 Million

$812 Million

$485 Million

$344 Million

Business Models and Trends - Competitive LandscapePrevalent Business Models & Trends


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7

8

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$134 Million

$130 Million

$110 Million

Business Models and Trends - Competitive LandscapePrevalent Business Models & Trends


Business Models and Trends - Competitive LandscapeBifurcation of the market - Ray Algar Model

46http://www.oxygen-consulting.co.uk/

Prevalent Business Models & Trends - EmergingRay Algar - UK Budget Market


Business Models and Trends - Competitive LandscapeBifurcation of the market - Ray Algar Model


Prevalent Business Models & Trends - EmergingBudget competitors emerging

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Prevalent Business Models & Trends - EmergingNew niche trends - engaging personal experience

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unlimited $89 - $140 month

“drop-in” fees$17 - $40

Prevalent Business Models & Trends - EmergingHospitality brands reflect market bifurcation

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Prevalent Business Models & Trends - Emerginghttp://futureoffitnesswhitepaper.ning.com/

Prevalent Business Models & Trends - EmergingOn line retail continues surge - fitness models follow

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"People are just shifting their dollars to the Web," said Sucharita Mulpuru, vice president and principal analyst for Forrester Research Inc. Online retail sales will grow 10% a year for the next five years, accounting for 53% of all U.S. retail sales by 2014, according to Forrester Research.

Prevalent Business Models & TrendsWellness Model - potential to dwarf extant fitness

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•Huge $2.7 Trillion Opportunity

•Health care spending is unsustainable.

•Prevention as a strategic position for employers and ultimately governments is inevitable.

•Key is outcomes and integration.

Prevalent Business Models & TrendsGrowth - new emerging niches and models

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requiring new ways of doing things....

Recap Of Trends56

Recap Of Trends

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Consumers:•Value perception is key barrier to increased membership•Most affluent & educated have greatest penetration levels•Low user cluster is largest segment - they are least affluent & least engaged•Consumers increasingly trading up and down •Consumers are becoming accustomed to digital delivery•Advertising is distrusted by most consumers•Wellness is growing need

Business models:•Several large well financed competitors continue expansion•Over 20% of market controlled by 9 key players nationally•Top 30 MSA’s are key expansion markets - regions vary•Discounting widely being applied in market•Average ROI pressure - prices stagnant while costs increase •Market is “bifurcating” moving upward and downward along value scale•Emergence of budget model, hi-end and medical niches•Technologies providing increasing options•Requiring existing players to do new and different things to compete

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#3 Evaluating Your Competitive Position - Think Strategically

What are your going to do about it ?

Evaluating Your Competitive Position

•SWOT

•Internal - capabilities and resources

•External - market opportunities and threats

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Evaluating Your Competitive PositionConduct a SWOT analysis of your club business

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Internal Review:

•Current position

•KPI’S - member execution

•What is your niche?

•What is your technology platform ?

•How are you marketing ?

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Evaluating Your Competitive Position - Internal SWOTWhat is your niche ? Where are you positioned now ?

•Price

•Features

•Competitive abilities

•Wellness Option


Evaluating Your Competitive Position - Internal SWOTCompare numbers to industry figures - benchmark


Evaluating Your Competitive Position - Internal SWOTWhat is your technology platform ? customer focus !

Technology Platform:

•CRM or just billing ?

•Cloud based ?

•Web site integrated ?

•Mobility ?


Evaluating Your Competitive Position - Internal SWOTHow do you market ? Social media !

The “NEW” Marketing:

•Social media strategy ?

•What is your spend ?

•Campaign effectiveness ?

Evaluating Your Competitive PositionConduct a SWOT analysis of your club business

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External Review:

•Calculate Demand•Calculate Supply•Evaluate Pricing•Review Existing Members

Evaluating Your Competitive Position - External SWOTDetermine Demand - www.sitereports.com

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Eliminate your “gut” - quantify !

Evaluating Your Competitive Position - External SWOT Drive time psychographics - www.sitereports.com

67Forget “radius” use drive time !

Evaluating Your Competitive Position - External SWOTMarket assessment drive time - www.sitereports.com

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Drive Times

Run 10 minutesMight want to adjust

Evaluating Your Competitive Position - External SWOTBy utilizing PRIZM you can better estimate demand

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Evaluating Your Competitive Position - External SWOTEstimate Market Demand - Use IHRSA research !

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Fictional Trade AreaHouseholds

UrbanU1 - Urban UptownU2 - Midtown MixU3 - Urban CoresTotal Urbans

2nd CityC1 - 2nd City SocietyC2 - 2nd City CentersC3 - Micro City BluesTotal Second City

SuburbsS1 - ElitesS2 - AffluentialsS3 - MiddleburbsS4 - Inner SuburbsTotal Suburbs

Total Estimated Market

Estimated% of HH National % IHRSA % 2009 Households HH Demand6.81% 8.30% 25.10% 7,000 1,75721.37% 4.33% 16.90% 5,000 84525.46% 4.96% 7.10% 3,000 21353.64% 4.96% 17.40% 15,000 2,610

6.24% 4.63% 30.10% 15,000 4,5157.04% 7.85% 11.70% 7,000 8194.16% 6.64% 9.00% 3,000 27017.44% 19.12% 15.59% 25,000 3,898

2.60% 5.21% 41.70% 8,000 3,3366.86% 7.71% 23.20% 7,000 1,6247.23% 6.15% 20.70% 4,000 82812.21% 4.53% 8.50% 2,000 17028.90% 23.60% 32.76% 21,000 6,880

13,387

Use the IHRSA 2009 Consumer Report to calculate estimated demand

This provides you a good estimate for your market potential

Evaluating Your Competitive Position - External SWOTEstimate Market Supply - Under-serviced ? Change ?

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Brand

24 HourAnytimeAnytimeSnap FitnessBally’sJane’s PT StudioYour ClubTotal

Location Estimated HH Percentage of Trade

Adjusted Trade Estimated Share

ABC Drive 2,645 50.00% 1,323 26.06%Sierra Lane 820 75.00% 615 12.12%Veterans Blvd 735 50.00% 368 7.24%Jone Road 640 50.00% 320 6.31%Laredo Ave 1,300 50.00% 650 12.81%MPT 300 100.00% 300 5.91%Your Club 1,500 100.00% 1,500 29.56%Total 5,075

Shop the CompetitionWeb Research

Estimate MembershipsEvaluate Offering

Demand = 13,387Supply = 5,075

GROWTH POTENTIAL !


Evaluating Your Competitive Position - Internal SWOTWho are your existing members ? PRIZM

U! Urban Uptown

U2 Midtown Mix

U3 Urban Cores

S! Elite Suburbs

S2 Affluentials

S3 Middleburbs

S4 Inner Suburbs

C1 Second City

C2 City Centers

C3 Micro-City Blues

T1 Landed Gentry

T2 Country Comfort

T3 Middle America

T4 Rustic Living

0 125 250 375 500

6

8

12

80

25

127

397

104

107

249

497

75

80

170

Membership Mix by Psychographic Segmentsby uploading household addresses


Evaluating Your Competitive Position - Internal SWOTWho are your existing members ? PRIZM

U! Urban Uptown

U2 Midtown Mix

U3 Urban Cores

S! Elite Suburbs

S2 Affluentials

S3 Middleburbs

S4 Inner Suburbs

C1 Second City

C2 City Centers

C3 Micro-City Blues

T1 Landed Gentry

T2 Country Comfort

T3 Middle America

T4 Rustic Living-15.00% -11.25% -7.50% -3.75% 0% 3.75% 7.50%

Membership Gains & Losses by Psychographic Segmentsby uploading household addresses

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#4 Plan & Take Action

Plan Your Course of Action

•Develop Your Plan

•Resource & Execute

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Plan Your Course of ActionSWOT gives many answers

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SWOT Delivers This

If you decide to reposition doing it and executing it is hardest

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Plan Your Course of Action - Where do you want to be ?What must you add or take away ? Analyze ROI

•Proforma

•Capital

•Realignment

•Expertise

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Plan Your Course of ActionR=G - Prahalad - Use global resources

“Executives are constrained not by resources, but by their imagination.”

-CK Prahalad, Ph.D.

There are a large number of experts, products, services and solutions from vendors able to

support and advise you on your fitness business.

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Plan Your Course of ActionSeek guidance from experienced professionals

Recap - What to Do About The Changing Market

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Evaluate Your Competitive Position:•Use SWOT approach•Use IHRSA, RMA, FDD, SEC and other resources to benchmark•Evaluate your current market offering including pricing, features, service•Assess your technology platform - customer facing & integrated•Assess marketing practices - spend, return and the “new” methods•Calculate market demand in trade area using IHRSA and PRIZM•Calculate market supply in trade area•Evaluate current base of membership and changes•Think strategically

Plan & Act:•SWOT generates road map•Conduct in-depth proforma analysis•Prioritize actions - do nothing or reposition•SEEK HELP - IHRSA, global vendor pool, expertise•Implement and execute

In Closing - Our Industry Holds Great Promise

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“Without change there is no innovation, creativity, or incentive for improvement. Those

who initiate change will have a better opportunity to manage the change that is

inevitable.” C. William Pollard

““Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.””

C. William Pollard

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Thank You

Bryan K. O’Rourke, [email protected] www.bryankorourke.com

How the fitness industry is changing and what to do about it

Business

Transcript of How the fitness industry is changing and what to do about it