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Jun 11, 2016

Why budget gyms could be set to take over the sector

By Tim Groves

Low cost alternatives have shaken up the airline and supermarket industries, among others, in the past couple of decades and now it’s the fitness industry’s turn to have its foundations rocked.

The first budget gym in the UK opened eight years ago and there are now over 300 operators up and down the country, accounting for almost 10 per cent of the total number of private gyms and as many as a quarter of the members of private gyms. And it looks like the revolution has only just begun.

Value of the market
The gym market in this country is estimated to be worth in excess of £4 billion and its value grew by over five per cent in 2015. As many as one in eight of us are now members of a gym and the success of the overall market is being driven by budget gyms, according to last year’s State of the UK Fitness Industry Report.

According to the study, the growth in the industry continues to be driven by strong performance from the rapidly growing low cost market in the private sector. This expanding market now accounts for nine per cent of the total number of private clubs, 10 per cent of the private market value and an impressive 24 per cent of the private sector membership.

David Minton, director of The Leisure Database Company, which conducted the study, says: “The results are great news for the industry and finally we have some innovation and fresh thinking coming through. The consumer obviously appreciates the new experiences, as shown by the sharp increase in member numbers and the all-time high penetration rate.”

What’s on offer at a budget gym does vary depending on the company, but the concept is a simple one and its appeal to consumers is clear, with average prices of between £15 and £20 per month.

Pure Gym
Pure Gym is the market leader, with over 150 clubs and almost 800,000 members. As well as saving people money, there’s no hard sell or complicated contract and it has a big advantage over others when it comes to flexibility, with most gyms open 24 hours a day, 365 days a year.

The company opened 48 new gyms, attracted investment from Chris Hoy and acquired LA Fitness and its 43 fitness clubs for around £70 million in 2015, leading to annual revenues of £125 million.

It’s now widely expected to be floated on the stock market in the near future, with an estimated value of around £500 million, and chief executive Humphrey Cobbold doesn’t think the rate of growth will be slowing anytime soon.

“Pure Gym has had an exceptional year in which we have seen a significant increase in membership of all ages, reinforcing the demand for access to affordable, flexible and high quality gyms across the country,” he says.

“The acquisition of LA Fitness, the strengthening of our management team, the investment in rebranding and launching new initiatives has put us on the front foot for another successful year ahead.”

The Gym Group/Xercise4Less
The Gym Group is also following a similar model, with around 60 clubs and 400,000 members at present, while Xercise4Less is expanding fast as well, with 36 gyms and counting and membership approaching the 300,000 mark.

All these companies lack the saunas, steam rooms, swimming pools and other frills of their competitors, but the new model is experiencing extraordinary success and Xercise4Less CEO Jon Wright thinks budget gyms will be the norm in the UK in a few years.

“Supermarkets are a great example of how the mid market has been completely squeezed,” he says. “There has been a significant rise in the budget sector and the likes of Waitrose and others at the top end have done pretty well, but you don’t want to be in the mid market in anything these days.

“In the United States, budget gyms are pretty much the norm and generally you wouldn’t expect to pay more than $15 per month for your gym membership. I would say the UK will be in a similar position in three to five years.”

Countries like Germany and the Netherlands also have a sizeable budget gym sector, which makes up 30-40 per cent of the market.

Of course, there will always be room in the UK market for high end fitness clubs with spa facilities, but an increasing number of people don’t have the time to take advantage of these extras on a regular basis and don’t want to pay for them.

Poor value for money
Wright, whose company has doubled in size every year since it started and boasted sales figures of £21.9 million in the year to July 2015, says some of the established and more expensive gym chains are not best pleased, to say the least, with the way the market is heading. But he insists the industry offered poor value for money for too long.

“I have worked in this industry for 25 years and for a long time I thought it represented poor value for money, offered poor customer service and, in my opinion, wasn’t good in business terms, so I think it was an obvious market to disrupt,” he says.

“Once we had the commercial property crash after 2008, that was the catalyst for people to start doing this.”

Budget gyms are thriving by setting up in large sites (up to 46,000 sq ft in Xercise4Less’ case) at as low cost as possible, keeping overheads such as employment costs low and being able to accommodate members in high volumes.

Treble in size
Almost nine million people are now members of well over 6,000 gyms across the UK and around 200 new facilities opened between 2014 and 2015. It’s an industry on the rise and Wright says there is evidence to suggest the budget sector has the potential to treble in the coming years.

“Right now there are around 300 budget clubs across the UK as a whole and the research on the many transactions in the sector suggests that could increase to 1,000 clubs in the near future,” he adds.

“We have just opened club number 36 and should be up to 50 by the end of the year. We are getting into a steady flow and would like to be opening two new gyms per month in an ideal world.

“I suspect the number of budget gyms as a proportion of the gym market as a whole in the UK will grow to well above 30 per cent.”

To describe their rise as rapid would almost be an understatement and it doesn’t look like slowing any time soon. Budget gyms have revolutionised the fitness industry and are not only here to stay, but could be set to take over the market.

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