Brighton, UK. National chains of low-cost, high technology self-service gyms are set for accelerated growth in 2014, introducing new nationwide brands to high streets (and the odd grocery superstore), bringing down monthly membership fees across the industry, grabbing market share and further squeezing established middle-market names such as LA Fitness, Fitness First and Bannatyne, whose futures may depend on reinventing themselves and deciding exactly what their business models actually are.
These are among the predictions in a new and substantial 23 page report, “2013 review of the UK Health and Fitness Industry and an outlook for 2014”, written by industry expert Ray Algar and released this morning by Oxygen Consulting (http://www.oxygen-consulting.co.uk ), the Brighton-based global fitness industry consultancy.
The report, which costs £50 but is free to journalists for the next ten days (see below), divides the market into three segments: low-cost, with monthly membership fees below £20, mid-market, with fees below £50, and premium.
One of the report’s first observations is that the facilities in the ‘squeezed’ mid-market, which include Britain’s most well-known brands, needs an overhaul, not only experimenting with price, as Bannatyne Health & Fitness has perhaps reluctantly been doing, but to justify its charges, perhaps by returning to more personal services and instructors, upgrading specialist facilities and beginning to compete at the premium end, as LA Fitness is doing with its LAX premium club brand and David Lloyd Leisure with its DL Studios high street ‘micro clubs’ (with announcements about both of these expected in the first quarter) … or perhaps by offering ranges of price points across the spectrum, as LA Fitness and Fitness First both seem to be trying.
Competitive pressure is intensifying from a new generation of well-financed chain names such as The Gym Group, Pure Gym and Xercise4Less, which all secured significant new funding during 2013 and will now be spending it opening low-cost clubs across the country on almost a weekly basis. In 2010, there was just one low-cost operator in the UK’s top 30 gyms. By the end of 2014, Ray Algar’s report estimates, there will be eight.
These chains are joined by the ‘salami slicers’: new, nimble, focused studios that offer a specialised service – be it solely machines, exercise classes, indoor cycling – and steal customers from the full-service establishments by only charging for what the users really want and often offering pay-as-you-go. Not least among these is Colin Waggett, former CEO of Fitness First, who plans to enter the London indoor cycle studio segment in the first quarter of 2014 with the launch of ‘Psycle’.
Falling subscription rates and the threat of pay-as-you-go may be unattractive to some operators but they could help to stabilise an industry which tends to haemorrhage customers. The report shows exactly how churn continues to blight the industry and how companies can now no longer try to stem losses with tough, lock-in member contracts (The Office of Fair Trading has seen to that). So, quite conceivably, the answer lies in making the industry more accessible, which starts with affordable fees and simpler joining and leaving practices.
But not everything in the middle is squeezed. The report shows how the public sector offers substantial opportunities as spend-cutting local authorities continue to outsource, enabling leisure trusts and leisure management operators, such as GLL, DC Leisure and Parkwood Leisure, to anticipate a year of healthy growth.
Nevertheless, the industry is changing. The report not only sees many low-cost brands displacing mid-market names in the top 30 list but also looks at market share, with some very telling graph work showing the mid and premium market players losing share, while the low-cost operators are set to enjoy a dramatic rise from 14% of clubs in 2013 to a full 25% in 2014. Lower prices are encouraging consumers to try the gym for the first time so there is much for the industry to look forward to so long as they can hit a customer’s ‘sweet spot’.
Author Ray Algar says: “The rise of the low-cost gym sector continues to re-shape the UK health and fitness industry. This means the established mid-market clubs are having to re-invent themselves to remain relevant to very savvy consumers who increasingly are very clear on what they need and value. As I say in the report, change is hard, really hard, but running an irrelevant business is no fun at all.”
Whatever the final outcome for individual brands, the UK health and fitness industry is entering a potentially fascinating year, of interest not only to UK market watchers but to international observers, as the UK is something of a world barometer in health and fitness.
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