Planet Fitness - Why The Health Club Industry Should Pay Close Attention

Change is painful, ask any retailer or grocer that faced the onslaught of WalMart’s expansion in the past few decades. New business models emerge when there is a market opportunity and it isn’t very comfortable for any business owner to face the fact that they will have to deal with new progressive competition or go broke.

Enter Planet Fitness. I had been skeptical about the press and buzz I've heard on this low cost health club concept but recently took the time to acquire their latest 2011 Franchise Disclosure Document [FDD]. The FDD is a document required by US Federal law and by various States that regulate the sale of franchises. It discloses pretty much everything you’d want to know about a franchise concept. Having a franchise background like I do and the Planet Fitness FDD in hand, it wasn’t long before I got a sense of what is going on with Planet Fitness from a business model perspective and now I think I understand why so many in the health club industry have disdain for the concept. Here are some highlights of what I extracted from the 2011 FDD document about the Planet Fitness concept:

From a revenue perspective, these numbers are impressive, given the low price point. These figures are EFT only and do not include other revenues or pre-pays, which do not represent many dollars in the typical Planet Fitness concept.

Even more impressive, however, are the operating results. According to the FDD, the 42 corporate clubs owned by Planet Fitness are generating EBITDA margins from 39% - 54%. This is exceptional in the health club business.

What does this mean ? With start-up costs for a new Planet Fitness location ranging from $653,000 to $1,658,000 (this includes from $250,000 to $450,000 in working capital) the RETURN ON INVESTED CAPITAL FOR A PLANET FITNESS IN THE WORSE EXAMPLE WOULD BE 28% . In the best case the annual return reaches over 150% ! Now results will vary, and this isn't an advertisement to buy a Planet Fitness Franchise (I have no affiliation with the brand or company), but the bottom line is that few other concepts in the health club arena come close.

Feel free to download the Planet Fitness 2011 FDD to confirm these figures if you'd like. So what does this mean ? With other concepts, like Equinox's Blink, YouFit, Fitness For 10, Fitness 19, Chuze, and many of Gold's Gym operators who have switched to low-price within the last 5 years, it is clear. The low cost competitors are here and they are not going away, they are going to grow. With returns like these how can you expect them not too ? For health club competitors not participating in this business model approach it means that you've got to deliver exceptional service and programming that Planet Fitness and others do not to distinguish your club and to justify your higher dues. This is the market bifurcation trend I've referenced before in other postings.

So tell me, Bryan O'Rourke, what do you think about Planet Fitness and other "budget" health clubs ? Please share your thoughts and if you enjoyed this information and found it useful please like it or share it. Thanks !