Small Business

Let's get physical

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Think franchise outlets and most of us visualise fast food operations with some of the biggest names in fat inducing take-away pleasures. But now franchising might be providing the solution to a problem it helped create with the explosive growth of fitness franchises.

And driving the growth has been a spectacular surge in women-only operations. Peruse the franchise directories and the names are both well known and unknown.

On one hand, there are the big advertisers such as Contours Express and Fernwood Fitness to the lesser known Full Circle, energie, Bouncing Bodies, BodyLogic Health and Beach House Fitness. It’s becoming an increasingly crowded market, but the players reckon we haven’t seen anything yet.

“When we started in 1989 the fitness industry had barely started,” recalls Diana Williams, founder of Fernwood Fitness. “Then only five per cent of Americans were in formal exercising programs, but now it is 20 per cent. It’s around eight per cent here and so we have a way to go.”

David Hundt, who in 2004 bought the Australian rights for Contours Express, which originally hailed out of Kentucky, has been knocked out at the growth of his business.

He along with his three business partners — IT executive Steve Sacks, lawyer Will Deane and chartered accountant Peter Hammond — have sold 189 franchises of which 112 have already opened, with the remaining 77 poised to come into operation.

“Since we started we’ve sold a franchise every four days and opened up every eight,” reveals Hundt. “We have had growth of an unbelievable 1308 per cent.”

Healthy growth

In the first 18 months of operation, Contours had a little over 80 franchisees with over 8000 studio members and generated revenue in excess of $7m. And based on this growth, the business predicted revenues in 2006/7 in excess of $25m with a net profit projection of between $5m and $10m.

That’s a health barometer of the fitness franchise business that has even shocked David Hundt.

“The growth of the business has really surprised me,” he says.

Diana Williams is a legend of the gym industry, pioneering women-only gyms and encountering some bad press in the early days.

“We spent many a time before the Equal Opportunity Tribunal,” she says. “And the gym at Altona Gate was the worst.”

In 1996, Fernwood Fitness replaced a gym that had gone out of business and the centre operator had promised to look after the men who formerly attended the gym, but they reneged on their promise.

“When all of these guys turned up and found out we were a women-only gym, all hell broke out,” says Williams. “There were petitions, television cameras and the Equal Opportunity Tribunal.

“It was emotional, but great for business with all those media stories about our business.”

Fernwood now has 75 outlets and Williams says it is still growing.

While both Contours Express and Ferwood Fitness cater to the women-only types, Hundt doesn’t believe they are direct competitors.

“Fernwood and Fitness First cater for women who want showers, childcare and all those extras,” he says. “We cater to the time-poor mum who only has half an hour three times a week for a workout.”

Williams says her members see the gym as a club, which offers more than just a workout. “Ours is a very personal atmosphere where our personal training has been very popular,” she says. “But our weight control program has been our best-received innovation.”

Beach House Fitness is another business targeting the time poor with its promotions suggesting all you need is “half an hour three times a week”.

The company was runner-up in BRW’s hot franchises list 2007, with revenue growth of 132 per cent and 47 outlets.

How Hundt and his partners stumbled on their business says a lot about what is driving the fitness franchise boom. “Steve Sacks is a Californian and his mum wrote to him and told him that she had joined Contours Express and how much she liked it,” he explains. “He looked into it and we bought the rights for Australia.”

When you add the body-obsessed Generation Y and Generation X mix to the new age baby boomers, you can see why the workout business is working.

“There’s no one on the planet who doesn’t know they have to exercise and watch their weight nowadays,” says Williams. “And even the medical fraternity, with their better advice, is helping our industry.”

Room to move

The fitness industry could easily qualify as the next big thing if you take a line through a recent investment by the smart guys at Macquarie Bank.

The bank’s publicly-listed investment vehicle Macquarie Leisure Trust (MLT) has forked out $60m for the Goodlife Health Club chain.

Established in 1998, it is regarded as the second-most profitable business in the $60bn fitness industry behind the big name Fitness First franchise. Goodlife gyms have a very big footprint in Queensland and is the country’s second largest operator in Australia.

When MLT took over the business, its spokesman compared the penetration of gyms here compared the USA. In Australia, it is around nine per cent while in the US, it is closer to 15.6 per cent.

“The Australian health club market is under-developed and offers excellent growth opportunities,” says MLT’s chief executive, Greg Shaw. “They get very good money out of personal training.”

And on his admission there is still plenty of room for new businesses.

“We see significant opportunities to expand the portfolio in Australia's metropolitan markets over the next three years, particularly as health club ownership in Australia is highly fragmented and market penetration of approximately 9 per cent is well below that of other developed countries at approximately 15 per cent,” he says.

This is not the first interest in fitness by the big end of town. MLT bought the chain from Colonial Private Equity Funds. Meanwhile, the company’s founder, Leon McNeice, still holds five per cent of the business.

While the site selection is always important for any franchise, the corporate smoke suggests the fitness business is on fire.

Published on: Thursday, June 18, 2009

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