Planet Fitness: Fitness for Everyone
How Planet Fitness revitalized the gym concept to appeal to the mass market
Planet Fitness was founded in 1992 with a simple mission – to provide a high-quality fitness experience in a welcoming, non-intimidating environment. Prior to their entrance into the market, fitness centers featured a lot of non-essential amenities, including personal trainers, group classes, pools, day care centers, etc. These high price add-ons were leading to expensive monthly rates that alienated a large segment of the population. By streamlining the gym concept and offering a correspondingly low $10/month membership fee, Planet Fitness has been able to appeal to a much broader customer base and dramatically grow both users and total store locations.
Business Model:
Planet Fitness’ business model focuses on ‘fitness for everyone’ by positioning themselves as a gym concept that is both accessible and affordable.
Accessible: One of the big draws of Planet Fitness is its community atmosphere. Their locations are all “Judgement Free Zones” where everyone, regardless of fitness level, can feel they belong. There is no prerequisite for fitness before joining and all members are applauded for achieving their goals, big or small. As a result, Planet Fitness has been successful in attracting both the occasional gym-goer and the ~80% of the U.S. and Canadian population who are not currently gym members, particularly those that find the traditional gym experience intimidating.
Affordable: For $10 per month, members receive unlimited access to a single Planet Fitness location. Alternatively, PF Black Card members have access to all Planet Fitness locations and the option to bring a guest at each visit (which further helps to attract new members) for $19.99 per month. Because of this low monthly cost, Planet Fitness’s product offering can even be seen as complementary to other a la carte, higher priced offerings. In addition to growing its membership base, Planet Fitness is focused on shifting to a higher percentage of PF Black Card members in order to leverage its existing fixed costs and improve margins.
Operating Model:
Store Level
Low fixed costs: Each store is typically 20,000 square feet which is about half the size of a full amenity gym. By removing extraneous service offerings, Planet Fitness’ locations are able to reduce rent and overhead expenses while maximizing space to include more circuit and weight training equipment. As a result, Planet Fitness does not need to impose unpopular time limits on their machines and there is less overcrowding at peak hours.
See below for a sample store layout:
Low labor costs: Similarly, lower labor costs are another value driver of the Planet Fitness model. By not offering expensive services including towels (laundry is labor intensive), classes (need to pay instructor and support scheduling) and daycare, locations are able to significantly reduce the amount of personnel needed on site. Further, removing personal training services also results in big reduction of associated employee costs.
Low capital cost: Planet Fitness locations are no frills, as their locations have removed personal trainers, juice bars, day care, spas and classes. Without these extras, there are less high fixed costs in the operating model that would weigh down operating margins and make property management more complex.
Corporate Level
As of June 2015, Planet Fitness has 1,014 locations. Of these stores, 956 are franchised and 58 are corporate-owned.
Marketing: Franchisees are required to contribute 5-7% of monthly membership dues to local advertising and 2% to the national advertising fund. These dues help Planet Fitness create significant brand strength, which in turn helps drive new member growth. Through their marketing campaigns, the company emphasizes its unique “Judgement Free” culture as a way to entice consumers to join its community. Planet Fitness’ diverse customer base, both from an income and age perspective, is a testament to the success of its marketing campaigns and community.
Ubiquity and scale: One of Planet Fitness’ major competitive advantages is the sheer scale the company has been able to achieve in a short period of time as a result of its aggressive roll out and franchisee model. Planet Fitness is ~7 times larger than Retro Fitness, ~29 times larger than Blink Fitness, and ~10 times larger than Youfit, making it the dominant player in the low-cost segment. This ubiquity is a main driver of new customer additions, as convenience is an important factor when purchasing a gym membership.
Sale of equipment: Planet Fitness required franchisees to purchase equipment directly from them at a mark-up. Planet Fitness negotiates directly with the equipment manufacturer and uses its significant scale to obtain equipment at a lower cost than any individual franchisee could on their own. This represents a significant revenue line for the business.
Sources:
http://www.sec.gov/Archives/edgar/data/1637207/000119312515281167/d888681d424b4.htm#rom888681_1
http://www.sec.gov/Archives/edgar/data/1637207/000119312515310710/d29839d10q.htm
“Planet Fitness, Inc.: Pumped up growth should lift valuation; Initiate Buy”. BofA Merrill Lynch, Rafe Jadrosich. Aug 31, 2015
“PLNT: Differentiated Concept and Multiple Growth Drivers Put This Story in Good Shape”. Credit Suisse, Seth Sigman. Aug 31, 2015
“Planet Fitness: Initiating at OW; Pumped Up with Asset Light Growth”. JP Morgan, Kevin Milota. Aug 31, 2015
“Proven Model, Deep Pipeline & Strong Brand Provides Long Growth Runway; Initiating Overweight”. Piper Jaffray Companies, Sean Naughton. Aug 31, 2015
Awesome analysis! I had never considered the added costs of things like towels and trainers that you take for granted at gyms. I would have expected customers to be annoyed by not having some of those features, but clearly there is a huge market for low cost gyms. What do you think is stopping more competitors from entering the industry? It doesn’t seem like there is much of a barrier to entry since it is just a lot of cost cutting.
Hi Brian,
Thanks for your question! You are right – there are not a lot of barriers to this concept and that has been a main focus of Planet Fitness’ strategy from the beginning, hence the aggressive franchise model. The proliferation of these franchises allowed PF to gain scale and expand their number of locations very quickly very early on, deterring competitors from entering the market. At this point, it would be very difficult for a new entrant to compete as number of locations offered is a huge convenience factor for customers and therefore a big selling point. Furthermore, this national presence has created strong brand equity as consumers are familiar with the name and know they are receiving a quality experience. Hope this was helpful!
Best,
Daniella
Really interesting to see how Planet Fitness has disrupted the “lower end” of the fitness industry. Their real estate / store layout strategy that you detail above reminds me a lot of the business I wrote about (SoulCycle), even they they serve completely opposite ends of the market! Both businesses have really focused in on the features that their customers want and stripped away the unnecessary amenities so that they can have small boxes and maximize productivity. Makes me worry about the health of the big box gyms that try to be everything to everyone (e.g., 24 Hour Fitness, Gold’s Gym, etc.). Like a lot of other consumer-facing industries, feels like there’s been a real bifurcation in spending with high end and low end doing well and the middle being squeezed…