WHEN PUSH-UP COMES TO SHOVE - The fitness industry is one of the great success stories of the '90s - and one that is set to continue. As the nation's waistline expands so does demand and health clubs are attracting a new kind of customer. Rhymer Rigby muscles in on the act.
Business dreams are made of this. The affluent middle classes are catching on to your product in a big way and your market is growing spectacularly.
No matter how many outlets you and your competitors open, there is still plenty of demand. Punters are prepared to pay handsomely, so margins are good, profits are better and your share price a thing of beauty. Sure, things may not always be this good but at the moment, you're coining it, hand over fist.
Surprisingly, the companies enjoying this boom do not have a .com suffix.
They have little to do with technology or virtuality. They belong to the very physical world of personal fitness clubs, one of the great overlooked growth markets of the 1990s.
The financial community and media have belatedly woken up to the potential of these places. A skim through the business pages reveals that health clubs are growing as fast as the nation's desire to do something about its waistline. LA Fitness recently floated at considerably more than its £60 million estimate; Fitness First shares are trading at a whopping 44 times prospective earnings and Cannons Group reported a muscular 52% leap in half-year profits and then snapped up Peak Fitness for £85 million.
'At the moment,' says Patrick Henchoz, managing director at Esporta Health & Fitness and chairman of the Fitness Association, 'there's a huge latent demand for the product. In general terms we haven't begun to compete yet.
It's a very good business to be in. Fitness companies are achieving huge market ratings.' He should know: First Leisure (as Esporta then was) had one club in 1996; it now has 23 and a further five under construction.
Good times, indeed. But where did all this come from? Well, in case you hadn't noticed, over the past five years a health consciousness has swept the pie-and-chips-addicted British public, particularly the middle classes.
Its most visible manifestations have been in the growth of vegetarianism and organic foods and the explosion in 'health clubs' (please don't say 'gyms'). There has also been a commensurate change in the nature of the clubs themselves. The 'gym' (there's that G-word) used to be a sweaty place, redolent of rugby locker rooms, where big blokes worked out. Facilities were basic, niceties non-existent and they were marginally more female-friendly than lap-dancing clubs. Over the past decade, however, gyms have cleaned up their image: upmarket American-style chains now offer a smorgasbord of diversions.
'The growth has been fuelled by the change in the focus of fitness centres,' says Fred Turok, founder and CEO of LA Fitness, a 19-club mid-market chain.
'It's not just blokes who look like Arnie with good abs any more. It's all-round health, and quality facilities.' Nowadays, the health club is more of a lifestyle package: swimming pools, saunas, spas, carpets throughout and coffee bars downstairs. Some even have decent restaurants. And, for the plusher clubs like David Lloyd, there has been a big shift in the way they market themselves. No longer a convenient place for an hour's squash, they are now destinations in their own right. The idea is you spend half a day there. There is even talk of these clubs becoming the so-called 'third place' after home and work - a soubriquet enjoyed by pubs in less healthy days.
So health clubs such as David Lloyd, Fitness First, LA Fitness, Holmes Place, Cannons, Esporta and now Virgin Active are currently springing up all over the place. Chances are there's one in your town; you may even be a member of one. Mintel research shows that one in three British adults would like to join a private club and one in two would 'like to do something' about their fitness. At the moment, however, only one in 20 does. This compares to about one in eight Americans (12%) and US forecasters predict this will double. UK operators can therefore expect their market to expand accordingly over the next few years. 'There's a long way to go and lots of opportunities. It's a very buoyant market,' says Steve Philpott, managing director of David Lloyd Leisure, which opened eight clubs this year, bringing its total to 38.
Although there hasn't been that much overt competition yet - the vast pool of untapped demand sees to that - there has been a fair bit of consolidation, almost exclusively at the posher end of the market. Along with Cannons buying Peak Fitness, David Lloyd recently snapped up the Rackets & Healthtrack chain for £78 million.
'I think we'll see further consolidation of the market,' says Philpott.
Turok, whose LA Fitness chain is positioned at the almost completely unconsolidated lower end of the market, agrees: 'In the future I expect it'll be a bit like the supermarkets. There will be five or six key chains, with plenty of room for smaller niche players, like good country clubs. At the moment only 12% of the fitness clubs in this country are in groups of 10 or more.
This will reverse: eventually the majority of gyms will be in groups of 50 or more.' In the meantime, competition is limited to vying for the plum development sites, and the odd case where a club opens near the turf of an existing establishment - in which case the original club usually experiences some loss of members but recovers within a year.
Not everyone shares this view of the market. 'I hate them all,' says Frank Reid, managing director of Virgin Active. 'I want to go out there and shake the boat.' His contention - one which enjoys a fair bit of support - is that the fitness industry is a big rip-off. In most cases, you not only have to pay a monthly membership, but also a whopping joining fee - usually about £100 but often more. 'They're all over-worthy and overpriced. We thought we'd turn it on its head. We decided we could compete on volume and our premise was to give people what they want. So we canned joining fees and made it more affordable. There are no annual commitments.'
Virgin's monthly fees, like those at LA Fitness (which does have a joining fee), compare with monthly memberships of local authority gyms. Virgin has just two centres, in Preston and Leeds (and is in the process of acquiring a third) but it plans to build four or five a year until there are 20.
The biggest will be vast and will benefit from thorough research: Richard Branson sent his team around the world to cherry-pick the best in the planet's fitness centres. They struck gold in some strange places: the design of the sauna/solarium area, for instance, is influenced by German nudist parks. Virgin's 'in your face' approach was also obvious in its advertising which - shock, horror - used fat people. Looking at literature from other chains one could be forgiven for thinking overweight or unattractive people didn't exist.
In terms of development, the British market - as in so many other areas - seems to be somewhere between the US and Europe. The Continent is some way behind and the British chains, realising that rich pickings at home may not last for ever, are gazing hungrily across the Channel. 'Most leading operators have plans to go into Europe,' says Philpott. 'We will be opening our first gym in Brussels in the next 12 months.'
A gradual invasion of Europe is a likely source of future growth for the more ambitious Brit-gyms, but the fact is there is still plenty to be had at home. For all the speed with which the clubs have rolled out across our city centres and out-of-town retail experiences, there are still only 3,600 clubs in the UK and only 1,300 with 800 or more members.
More importantly, only 700 of these are termed 'quality' clubs - and there is thought to be sufficient demand to support at least twice this number.
'In three years' time,' says Henchoz. 'We may begin to see a shortage of demand.'
Certainly we are likely to see the clubs encroaching on each other's territories. This is rare at the moment because, with plenty of untapped demand, there is little point in setting up shop where there is an established player.
Reid is blunt with his prediction: 'Competition isn't having any impact at the moment, but 100 new health clubs will have opened in 1999. We think it's only a matter of time before developers start choosing poor sites.
Someone is going to screw up.' There is also going to be more and more emphasis on the services offered by the clubs. Excellent facilities and plenty of fripperies are now the norm, so companies will be forced to compete on the level of service.
However, real price-slashing and margin-cutting - competition to undercut your peers out of business, like that practised by the supermarkets - is still a way off. There are simply too many people queueing up to pay £100-plus to join the latest must-have lifestyle accessory.
Ultimately, supply will catch up with demand. Then, as Reid says, 'the rules of the game are going to change'. Even if the 'great gym war' is still some way over the horizon, the scene has been set and a few skirmishes have already occurred. Maybe Virgin Active has fired the first shot. As for the existing operators, they should enjoy the here and now while it lasts. Times don't get any better than this. And they should get in shape for what is to come.
'I was feeling a little below par and went to the Holmes Place across the road to work out and de-stress,' says gymtrepreneur Joel Cadbury.
'I came back and phoned Ollie (Vigors, his business partner) and said 'we've got to buy it' because it seemed so fascinating and there were so many changes I wanted to make.' That was two years ago. Since then Cadbury and Vigors - who have been in bars and restaurants for 10 years - have found a site in London's Soho, picked up backers including PR supremo Matthew Freud, and will open a 35,000 sq ft health centre by the middle of next year.
The focus, says Cadbury will be value and convenience: 'People go work-gym-home, not work-home-gym-home, so we gave our agents a Tube map when we were looking for a location. We wanted to be near as many transport lines as possible and now we're 70 yards from Piccadilly Circus.' The centre will also include one of the UK's largest alternative medicine centres and an organic supermarket.
Like other operators Cadbury believes there is an enormous amount of latent demand: 'In the UK just over 5% of adults belong to clubs; in the US it's 10% plus. In sophisticated environments like New York City the figure is closer to 20%.' Hip cities are where he sees his market. He wants to build smaller, satellite gyms throughout London but is not inspired by out-of-town centres or rolling out across England. I'm more interested in Europe as a land of opportunity that's 10 years behind us like we're 10 years behind the US.' So London, Paris, Milan then?
'Yes, I see it as more of a capital city brand than anything else.'
HOW THE CLUBS SHAPE UP
HEALTH AND FITNESS CLUBS SITES MEMBERS
DAVID LLOYD LEISURE & 41 132,000
CURZONS THE GYM
(PART OF WHITBREAD)
CANNONS GROUP 48 123,000
FITNESS FIRST 43 88,000
LIVING WELL 74 84,000
(PART OF HILTON)
FORTE SPA/ESPREE/FFI 103 81,000
ESPORTA HEALTH & FITNESS 23 78,000
HOLMES PLACE 23 73,000
LA FITNESS 15 32,000
VIRGIN ACTIVE 2 10,300.