No- Frills Gym Chain Bulks Up Thanks to Workout Boom

man on treadmill at Planet Fitness

By Jaewon Kang

March 19, 2019

Planet Fitness Inc. PLNT +0.00% is expanding by going lean, pulling in customers with a $10-a-month membership fee and a no-frills atmosphere.

As other gyms add juice bars and workout classes to emulate high-end boutique studios, the company is winning over newcomers with a simple selection of machines, free pizza nights and television commercials that poke fun at gym buffs. The fitness chain, one of the country’s fastest-growing, also taps into the workout-enthusiast segment by serving them as a cheap second gym.

Planet Fitness’s revenue has increased more than 30% over the past year and its valuation has nearly quadrupled to about $6.2 billion since it went public in 2015. The chain has more than 12.5 million members and operates over 1,700 locations with the goal of ultimately running 4,000 sites.

An early mover in the low-cost gym format, Planet Fitness is benefiting as Americans increasingly focus on their health. At the same time, it is filling in workout gaps for fitness connoisseurs who are gravitating to costlier, specialized options from $2,000 Peloton bikes to studios offering unlimited classes for $300 a month.

“We have an inclusive atmosphere regardless of people’s physical shape and build,” said Planet Fitness Chief Executive Chris Rondeau, who started working at the chain about 25 years ago as a front-desk agent. “It’s kind of like going to a bar and one drunk guy is ruining the environment for everyone else. We take it serious and the members appreciate it.”

Revenue in the U.S. health-and-fitness-club sector climbed 44% over the past five years, hitting $32.3 billion last year, and is expected to reach $43 billion by 2023, according to research firm Mintel Group Ltd.

The rise in spending has helped spawn a new ecosystem of premium fitness studios offering classes for spin, yoga, barre and boot-camp workouts as well as boxing and strength training. Many traditional gym chains have responded to the new competition by boosting offerings beyond equipment, incorporating group classes and providing services such as massages and spas.

Planet Fitness has gone the other way, targeting what it regards as an overlooked market: people who have never used a gym. “The atmosphere allows nonactive gym users to feel comfortable and to want to be a part of that community,” said Jefferies LLC analyst Randal Konik. “It’s an underappreciated aspect of the model.”

Founded in 1992 in Dover, N.H., by brothers Michael and Marc Grondahl, Planet Fitness also offers $22 premium memberships that come with perks like free guest passes and tanning services. Its equipment largely consists of cardiovascular and circuit-training machines rather than free weights.

The strategy has resonated particularly well with millennials, who account for roughly 45% of Planet Fitness members. For many members, the chain is a counterweight to the more structured, demanding workouts they do elsewhere.

Gabriella Salzillo, 21, said she takes two classes at high-intensity workout studio Orangetheory Fitness and goes to Planet Fitness four times a week. The college student in Austin, Texas, said she often pushes herself hard in her strength-training classes and likes the less-competitive environment at Planet Fitness. “It’s nice to do my own workouts,” she said.

“It makes sense that if you’re a SoulCycle spinning person then your second membership is more economical,” said Mr. Rondeau, referring to the popular stationary-bike studio that charges $36 per class in New York. “We’re a great second option.”

Workout Fees

Monthly cost, with access to all locations in Manhattan

  • Planet Fitness: $10
  • Retro Fitness: $20.89
  • 24-Hour Fitness: $79.99
  • New York Sports Club: starts at $99
  • Crunch Fitness: $130

Other health clubs are trying out the low-cost approach. Crunch Fitness—which has promoted inclusivity for years with its “No Judgments” slogan—and 24 Hour Fitness USA Inc. now offer pricing tiers for their membership. Luxury gym chain Equinox Holdings Inc. rolled out its low-cost Blink Fitness line in 2010, while Retrofitness LLC opened in 2004 with monthly memberships that start at $20.

Planet Fitness will face more competition as chains introduce low-cost offerings, new clubs open and corporate gyms gain popularity—but analysts say its footprint will make it difficult for others to catch up. The key for growth will be providing a consistent experience across its locations and sticking close to its mission, said Cowen Inc. analyst Oliver Chen.

Accessibility was a selling point for Rick Garrett, 62, who travels often for work. He and his wife started going to the chain about two years ago.

“There are locations in most major cities. We have access when we’re on the road,” said Mr. Garrett, a comedian and motivational speaker who lives in Indianapolis. “They’re doing a good job getting people like me—everyday, off-the-street Joe—to live more healthy lives.”

Gym goers are also less inclined to freeze or cancel a $10 or $20 membership even if they stop going for long stretches. When members do cancel, many come back precisely because it is an easy commitment, Planet Fitness said. Roughly 20% of members were customers in the past.

The chain still sees room for growth.

“Only 20% of the U.S. population has a gym membership,” said Mr. Rondeau, adding that efforts to introduce Planet Fitness to Generation Z are going well. “We want to get in front of more and more people in the U.S.”

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