Breaking Even Should Be A Snap For Fitness Franchisee

A timely move north

(Monday, June 01, 2009) - The economic downturn has left a lot of would-be franchisors wondering what type of franchise model can survive these conditions. But for Peter Taunton, the answer is simple: Find a recession-proof concept and expand internationally, very fast.

The founder and chief executive of Minneapolis-based Snap Fitness 24-7 Fitness Centres says he has found that model and his aggressive expansion in the past year into Canada, Mexico, Australia, New Zealand and India would seem to reinforce his commitment to this strategy.

Snap Fitness typically opens locations in the suburbs where residents pick up their dry-cleaning or milk, or get a coffee, often strip malls with strong anchor tenants with lots of walk-by and drive-by traffic.

They're smaller than the big-box health centres, are always open (largely unstaffed much of the time), but still offer most of the same services as their larger competitors.

In the past year, Mr. Taunton's company opened 370 new locations, raising the number of operating outlets to more than 1,000, with a total of 2,000 franchises sold and under development. There are 107 locations open across Canada and he plans to have 350 to 500 locations in the country within five years — a conservative number by his estimate.

"We dialed our growth back this year," he says, "but even with our dialed-back growth we still believe we'll open 200 to 250 stores this year [system-wide]," says Mr. Taunton, who has owned and managed some of his larger competitors.

Darko Vasic, director of Canadian franchise development for Snap Fitness, says the company's success largely hinges on convenience. That translates into location, location, location plus being open 24 hours a day, seven days a week.

"People tend to sign up for gyms for a variety of reasons, but they end up cancelling," Mr. Vasic says. "We've given them no excuse not to use it."

If they cancel for any reason, there are no shackles. "What we've done is removed the biggest barrier to entry … which is that contract you have to sign," he says. "There is no long-term contract, but despite that we still have the lowest attrition rate in the industry."

The locations range from 225 to 315 square metres and have the full spectrum of cardio and exercise machines and free weights, change rooms, washrooms and some with showers.

"Most members live within two to three kilometres, so they prefer to go home to shower," Mr. Vasic explains.

The target market is married, middle-income people aged 35 to 55. "Where we really flourish is the low-hanging fruit — these small communities of about 5,000 to 15,000 people," he says, adding that urban locations tend to be on secondary streets and in strip malls closer to the inner city.

The typical franchise owner, interestingly, is a club member.

Dick Ott shied away from larger fitness centres because he says it felt like a meat market.

"I just had in my mind that there's a growing number of people like me that care about fitness, want to work out, but don't want the hassle and big-box scene," says Mr. Ott, who formerly built businesses from the ground up in power sports and equipment dealerships in Ontario.

"I don't want it to be a big production," he says.

He and his business partner bought the rights to nine franchises. They have opened one of those locations and secured leases on another two, with plans to open three a year for the next three years.

Snap Fitness sells franchise agreements on a single basis, in "three-packs" or multiples of three.

While the company's tagline is "fast, convenient and affordable," Mr. Vasic insists quality is paramount. "We're definitely not the K-mart of fitness, but you're going to find a tremendous amount of value."

Members receive security access cards to come and go as they please under the careful watch of video surveillance, which can be monitored remotely by the owner.

At launch a location is typically staffed 40 to 50 hours a week, but that generally falls off to around 20 to 30 hours a week, not including personal trainers who are often there longer.

The cost to buy a "turn-key franchise" in Canada is about $250,000. Mr. Vasic says the break-even point usually comes within three to four months as membership hits the low $300,000s.

What makes all the growth possible in this competitive industry are the processes and systems that set the global standard for the chain.

"It really is an assembly line," he says.

Even in tough economic times, it appears people aren't willing to part with the need to keep physically — and socially — active. It all boils down to convenience for Snap Fitness.

"What we know for sure is that if it's fast and convenient, you're more likely to work out," Mr. Ott says.

Adds Mr. Vasic: "Convenience becomes the tipping point."

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