Should you invest in the gym business? Sarah Stowe finds out there is more to the shape of the sector than just statistics.
The last few years have seen strong growth in the fitness arena, focused on the spread of gym franchises. Customers can now choose from full-service gyms, budget-conscious centres, gyms offering all-hours access, contract-free membership, women-only venues, and gyms based in schools.
The options available now when it comes to picking up the heart rate or toning flab are extensive. It’s all good news for the customer, but what about you as an investor?
Health consciousness is fundamental to the continuing growth of the gym sector. More than 60 percent of the Australian population is considered overweight. That’s the view of the authors of IbisWorld’s Gyms and Fitness Centres in Australia, July 2014 report.
The Biggest Loser and comparable tv reality shows have helped drive home the health message, while government has instigated school and work-place initiatives.
So is the big boom over?
What has happened in the last five years with the introduction of the 24 hour, budget-focused model has been an explosion of gym members from previously untapped consumer markets: the time poor, and the cash-constrained. Now this market is almost completely catered for, and while there will continue to be growth, it will be at a more subduel level, suggests the IbisWorld report.
The gym sector is a mature industry and the trend towards budget gym memberships, allowing customers greater flexibility over payments, is holding back revenue growth.
However, an increasingly obese, and ageing, population will help stem the tide of declining revenues. The mature market has both disposable income and a preference for impact-free, leisure-based fitness programs, and this may energise the full-service gyms.
There are “no innovative gym structures on the horizon,” the authors indicate, and the result will be reduced membership across the industry over the next five years with gyms competing with each other for member growth.
The most recent innovations have been training programs such as high intensity martial arts training and the US success, CrossFit.
How will you make money as a gym owner?
The main source of income is membership fees – for the 24 hour model without extra services, it can be the only revenue source. There has been little change in the income derived from any merchandise such as food and beverages or clothing.
With younger people likely to be engaged in organised sport, the older customer is increasingly important in the gym sector.
Who are the gym junkies?
- Aged 15-34 = 48.1% of industry revenue (lower income but increased leisure time)
- Aged 35-54 = 32.8% of industry revenue (higher incomes)
- Aged 55 + = 19.1% of industry revenue (preference for more leisurely activities)
Who are the big brands?
The top four brands are expected to account for more than half of industry revenue in Australia 2014-15: 56.4%
- Fitness First
- Goodlife Health Clubs
- Anytime Fitness
- Jetts Fitness
Other major players are Genesis Fitness, Fernwood Fitness and YMCA Australia.
What will make it work?
- Maintaining facilities
- Easy customer access
- Pricing and cost control
- Value-add services
- High profile branding
What about the costs?
“The rise of highly profitable budget 24-hour gyms, which have a reduced cost base as they minimise wage costs, has caused profit margins to widen,” the report reads. At the same time, margins for full service gyms have shrunk.
Typically labour intensive, gyms have been reliant on personal training and class instruction, with a high ratio of part-time and casual workers. But this is different in the no-frills models.
For all gym models, rental costs have increased for both sites and equipment. Depreciation has grown as a cost structure, the report indicates. Insurance, marketing, brand royalties for overseas chains, and machinery maintenance costs have increased, particularly for unmanned 24-hour models requiring higher insurance and security investment.
So is it worth it?
“The industry is highly competitive, with competition based on price, location and quality of facilities and services. Gyms also target particular niche markets in order to gain a competitive advantage. The industry also faces external competition from organised sport and independent fitness instructors,” the IbisWorld report suggests.
While figures from the Fitness Industry of Australia indicate that more than four million Australians are gym users, there is still plenty of potential to capture more of the Australian population.
What are the challenges?
Signficant capital investment, franchise fees, cashflow, and a highly competitive marketplace are the biggest barriers to new business. Finding a location, leasing equipment, insurance costs are other serious considerations.
This is where it pays to be a franchisee though; joining a strong franchise chain represents a better opportunity than opening up as an independent business.
- Look out for part two of this fitness sector overview: how franchisors view the market and their business models