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It’s a Planet Fitness World
 
Published Monday, December 22, 2008
by ERIKA COHEN

More than once a week, Planet Fitness executives field calls from private investors looking to buy the Dover-based fitness club chain. But founders Mike and Marc Grondahl and Chris Rondeau aren’t ready to cash in on the sweat equity created during the company’s 10-year history.

They aren’t necessarily ruling out selling the business, but with the amount of cash rolling in, it would take a lucrative offer. “If we get the right price, we go,” says Rondeau, operations chief. “But we don’t have to do anything. We’re fine as is.” Rondeau isn’t kidding. Revenues increased 472 percent between 2004 and 2007 to $48.5 million in an industry that generated $18.5 billion in revenues last year. This year, the company expects revenues to reach near $100 million and net profit to hit $30 million. That growth landed it on Inc. magazine’s annual list of the 5,000 fastest growing private businesses in the United States (732 overall and first among health clubs).

So what’s the secret? Low fees and a low tolerance for gym rat behavior. Planet Fitness’s monthly fees range from $10 to $19.99 and, unlike many gyms, does not require a contract for regular memberships.

Planet Fitness also enforces a “Judgment Free Zone” that prohibits grunting and dropping weights so their main clientele-—first-time and occasional gym users—can feel comfortable working out. The company grew from five corporate clubs in NH in 2003 to 240 Planet Fitness franchises in 30 states (including 11 in NH), with 410 additional signed agreements. The club’s members total 1.1 million people.

That exponential growth, however, has not been without missteps. In November 2006, the company acquired World Gym, a “muscle-head gym” that is the antithesis of Planet Fitness, and its nearly 300 clubs, for about $10 million. Two years later, company executives are looking to sell all World Gym assets. “We were more excited about them than they were about us,” says Mike Grondahl.

Planet Fitness saw World Gym as a brand with a great tradition that could be improved. But franchise owners often brushed aside marketing and operations directives from Planet Fitness. Grondahl says the lesson was simple: “Never buy a competing brand.” Instead, company founders are investing in successful Planet Fitness franchisees, a move that both helps individual franchises grow and provides the founders with an economic stake in that success.

Mike Grondahl describes Planet Fitness as the “Wal-Mart” of the fitness industry. Until recently others hated them for their business model and their successes. Now, he says, “they accept us in the industry, but very reluctantly, like eating crushed glass.”


Unlike most other health clubs, Planet Fitness has no group exercise, no child care and no sales people. Clubs have cardio and lifting equipment in an open floor plan to allow minimal staff to keep watch over the club. All clubs have a “lunk alarm,” which staff set off when someone breaks club rules by grunting or dropping weights. Back around 2000, the alarm would sound once week and repeat offenders were being kicked out at that same rate. Now, Grondahl says, those people don’t join. Grondahl says the club has also severed contracts with a handful of franchisees for not keeping up cleanliness or other brand-related standards.

If Planet Fitness seems selective about their clientele, they are—and they’re proud of it. When the New York Times wrote a front-page story about a former member being kicked out of a New York gym for grunting last year, Rondeau said it was the best advertising ever. “I wish it would happen again,” he says of that story. “It just screamed everything we stood for.”

Marc and Mike Grondahl first got into the gym business in 1991 when they ran a Gold’s Gym. Within 10 months, the club went bankrupt and the Grondahl’s bought a health club in Dover. As a matter of necessity, the Grondahls’ offered a one-time $99 fee for the year to raise money. They sold 2,300 memberships in four months (at Gold’s they didn’t sell 500 in a year).

Franchisees pay an initial fee of about $25,000 and a monthly fee between $500 to $10,000 depending upon revenue.
That experience laid the groundwork for the Planet Fitness brand. Other aspects—such as the judgment-free zone—were also created to get a jump on the competition. That unique atmosphere, they say, gives them access to 10 percent of the population in a three-mile radius that no other gym can touch. “We’re not concerned about the competition,” says Mike Grondahl, who first got into the business because he liked lifting weights. Planet Fitness clubs have an average member retention rate of 66 percent, below the 73 percent average for the 5,700 health and fitness facilities that belong to International Health Racquet and Sports Club Association, a trade association in Boston.

Despite that lower rentention rate, Planet Fitness’s fee structure and offerings exposes them to a wider potential membership pool than most health clubs, Rondeau says. Planet Fitness will be moving its corporate headquarters to a 15,000-square-foot facility in Newington next year, providing three times more space than they have now. Thirty-one people work in the corporate office, 12 of whom were added in the last year. “People try to copy us but they can’t,” Grondahl says of their success. “It’s a lot more complicated than it looks from the outside.”
For more information, visit www.planetfitness.com.


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