THE BACKGROUND - Once the domain of body-builders with bulging biceps, gyms have, over the years, changed their image from sweaty weights rooms to high-tech establishments offering the latest fitness equipment, running classes from hip-hop dance to karate and providing services from personal trainers to sports massages. A greater awareness of healthy eating, driven by government activity, a campaigning celebrity chef and body makeover TV shows, has helped fuel a wider interest in getting into shape, resulting in a year-on-year increase in club membership.
Whether it's fitness fanatics searching for the body beautiful or the health-conscious trying to ensure they meet the recommended weekly quota of cardio, health and fitness clubs are becoming increasingly popular.
For many, fitness clubs not only provide a means of exercising free from the vagaries of the British weather, but also act as a social hub, which has helped to make the industry worth more than cinemas or nightclubs.
We live in contradictory times: on the one hand obesity rates are rising, while on the other there has never been more focus on our bodies and health. Many people's working lives mean they achieve very little physical exercise during the normal course of their day, which means they are turning to clubs as a convenient place to exercise.
Despite the rising number of people looking to get fit, the market has faced some difficult times, not least because the fixed costs associated with running a club have risen. The biggest component of this has been rising energy costs, with gas and electric bills often doubling between 2004 and 2006, resulting in a considerable impact on margins.
Increasing membership fees is an obvious way to recoup some of these costs, but because the market is so competitive, it is unfeasible to raise them at the same rate.
The health and fitness club market - private clubs, as opposed to those run by, or for, councils - was worth almost 拢2.3bn in 2006, according to Mintel.
It comprised 4.68m members, or about 9.4% of the UK adult population. Between 2002 and 2006, revenue increased by 26%, while member numbers grew by 28%.
These private clubs have been boosted by an increasingly affluent population who can afford health-club membership and are willing to include it in their regular outgoings.
This consumer affluence has further led many clubs to adopt strategies to increase revenues from existing customers via added-value services such as personal training.
In 2006, membership revenues improved as discounting became less prevalent, though the trend has been toward joining fees being reduced or waived in quiet times or during promotions in a bid to attract new members.
Despite having strategies in place to lure new customers, retention is a challenge. New Year resolutions and the run-up to summer sees membership rises, but it is common for that interest to wane. Although some will continue to watch direct debits leave their accounts as they remain inactive, many are likely to cancel.
The good news is that according to BMRB, one in 10 adults who have never used a fitness club say they are keen on in doing so, which means a pool of potential customers is waiting to be tapped.
The market is dominated by Fitness First, with Whitbread taking second place, while both Virgin Active and LA Fitness have been highly acquisitive, building share as a consequence.
Fitness First is the world's biggest health-club operator, with 500 clubs worldwide. In the UK, it has 183 clubs, of which 12 are women-only. Two go under the Kaizen name, a new concept aimed at people who find traditional fitness clubs intimidating or unfamiliar.
The company has also started to look at sub-brands in the form of Fitness First Platinum (a more upmarket version) and Express (a basic option that often offers pay-as-you-go access).
As well as expanding organically the company has made acquisitions, most recently buying London-based Fitness Exchange in September last year, which added 18,000 members and 10 more clubs to its portfolio.
Its strategy has been to keep its clubs small, which means they do not usually have swimming pools, and this type of format means the company can keep its fees competitive.
Whitbread bought the David Lloyd Leisure business in 1995, which has since performed very well for the group. However, at 59 clubs, Whitbread is still well short of its stated aim to reach 100 clubs in the UK. As the name suggests, there is a strong tennis heritage to the David Lloyd business, but Whitbread's clubs are now split between those that have tennis centres (45) and those that do not (14). The clubs tend to be positioned at the premium end of the market, charging up to 拢75 a month membership for tennis sites.
The future direction of the clubs will fall to their new owner - earlier this month, Whitbread announced it was selling the business to private-equity firm Versailles Bidco for 拢925m.
As mentioned, elsewhere in the market there has been considerable acquisition. Virgin Active bought Holmes Place last October, while LA Fitness acquired Dragons. Duncan Bannatyne, best known recently for his appearances on Dragon's Den, boosted his fitness-club portfolio with the purchase of LivingWell Premier clubs in August 2006.
The typical club user is young, affluent and single, so the predicted growth in 20- to 34-year-olds and ABC1s is important for the sector. But the rise in the 45-plus age group could also be an opportunity for the market if they are targeted appropriately.
By 2012 Mintel predicts the fitness and health-club market will be worth 拢3.44bn, up 38% from 2007, with membership reaching 7.55m.
UK HEALTH AND FITNESS CLUB OPERATORS BY NUMBER OF MEMBERS
Company Brand Members Clubs Average
members/
club
1 Fitness First Fitness First/ 452,000 183 2470
Holdings Fitness First for
Women/Kaizen
2 Whitbread David Lloyd 325,000 59 5508
3 Virgin Active Virgin Active 288,301 72 4004
4 LA Fitness LA Fitness/Promise 261,000 87 3000
5 Esporta Group Esporta 220,000 53 4151
6 Bannatyne Fitness Bannatyne Health 180,000 61 2951
Club/Just Fitness
7 Cannons Health
& Fitness Cannons 177,000 52 3404
8 JJB Sports JJB Health Clubs 175,000 39 4487
Source: Mintel
UK HEALTH AND FITNESS CLUBS MARKET BY REVENUE SOURCE
2006 2002 02-06
pounds m % pounds m % % chge
1 Membership/admission fees 1722 76 1349 75 27.7
2 Joining fees 45 2 72 4 -37.0
3 Other revenue 498 22 378 21 32.0
(eg beauty, sunbeds, bar, food, shop etc)
Source: Mintel
BODY MASS INDEX (BMI) TRENDS OF ADULTS IN THE UK (%)
Desirable/ Overweight Obese
underweight aged 25-30 over 30
under 25
Men
2001 32.4 46.6 21.0
2002 34.5 43.4 22.1
2003 34.6 43.2 22.2
2004 33.5 43.9 22.7
Women
2001 43.6 32.9 23.5
2002 43.5 33.7 22.8
2003 44.5 32.6 23.0
2004 45.0 33.9 23.2
Source: Health survey for England 2004/Mintel
ANALYST COMMENT - TERRY PRUE, SENIOR PARTNER, HPI RESEARCH LTD
Estimates suggest more than 5m of us will be members of health and fitness clubs this year, pushing the industry's value to a lofty 拢2.5bn. Demographic and economic trends are swelling the ranks of affluent under-35s, and healthy lifestyle advocacy continues unabated. All things considered, the health-club market should be booming
But this is a tough business in which to make money. Expensive premises, high running costs and the need to constantly update equipment exert pressure. Equally, intense competition from both public sector and private clubs means offsetting these costs with higher fees is risky.
Currently, seven major players exist with more than 50 premises. Of these, no less than four (Fitness First, Esporta, Cannons and Virgin Active) made losses in their last published accounts. Even those in profit are finding the going tough - Whitbread is selling David Lloyd Leisure to Versailles Bidco to relieve a hefty debt burden.
Two trends are emerging, the first of which is more amalgamation and cost-slimming (often driven by new private-equity owners). Fewer operators decrease total sector overheads and bring benefits of scale to promotional activity.
The second is a drive to build value. The best clubs will move far beyond council leisure centres (usage of public facilities remains almost double that of private clubs). Successful operators will be 'clubs' in the broadest sense: places that like-minded people utilise beyond the functional reasons. Among the most interesting developments are all-female clubs.
Ultimately, like their members, clubs must work hard to achieve their desired results.