The Southwest Airlines of the gym businessNovember 21, 2013: 9:21 AM ET
With its low prices and just-the-basics approach, Planet Fitness is muscling out the competition and growing fast.
By Beth Kowitt, writer
FORTUNE -- Sometimes the fastest path to growth is to keep it simple.
Case in point: Planet Fitness, the fastest-growing "full-size" health club chain in the U.S., which opened its 700th location last week. For just $10 per month, its members get a no-frills experience that CEO Chris Rondeau says makes his company the Southwest Airlines of the gym industry.
That approach means the business is easy to franchise—all you need is a good location and basic equipment. The Newington, N.H.-based operation, in which investment firm TSG Consumer Partners bought a majority stake last year, has nearly tripled its store count since 2008—including 150 new gyms this year. The company projects that it will hit 1,000 total locations in 2015, with an eventual goal of 2,000-plus gyms across the country. The company currently has some 4.5 million members. System-wide sales reached $679.5 million in 2012.
According to the International Health, Racquet & Sportsclub Association, Planet Fitness is not only the fastest growing but the largest of the full-size clubs. L.A. Fitness, with 600 gyms, is the largest wholly-owned chain. Among franchisors, Anytime Fitness has more locations (about 2,000) than Planet Fitness. But it doesn't qualify as "full-size" because its facilities are smaller and unstaffed; members access the gyms with their own key.
Thanks to its low fees, it's not hard for Planet Fitness to acquire new members. And the average customer only comes in a couple of days a week. Rondeau describes his approach as a volume game, which he likens to turning tables in the restaurant industry: By being highly efficient, he can get more customers through the system. Each location of Planet Fitness has north of 6,000 members on average.
The very first Planet Fitness in Dover, N.H., didn't look anything like the company's gyms today. Rondeau's partners purchased a failing Gold's Gym in Dover, N.H., renaming it Planet Fitness, and Rondeau started working at the gym in 1993 while attending the University of New Hampshire. They followed the Gold's model of having heavy free weights, classes, daycare, and a juice bar.
The gym was struggling because there just weren't that many people in rural New Hampshire, let alone people interested in joining a gym. The partners started slashing prices, which upped membership volume. But the increase in numbers put pressure on services because customers had to work out on a set schedule—say, when classes were taught or when babysitting was available.
When Planet Fitness opened its fourth location in Portsmouth, N.H., in 2000, the company couldn't find a big enough piece of real estate to support its traditional model. The location didn't have the square footage for classes, babysitting, or a juice bar so the partners opened without them. Despite the cut in offerings, membership numbers held. Fewer services meant fewer employees—a dozen rather than the 40 at the first three sites—which led to better margins.
"The members were just plain happier because we couldn't let them down," says Rondeau. Customers knew what they were getting: access to their treadmill 24 hours a day, seven days a week. There wasn't much to mess up. They went back and ripped all the other stuff out of the previous locations, and lost very few members. In simplifying the model they realized they could replicate it faster, and started franchising in 2003.
After operating for 20 years in the state of New Hampshire, Planet Fitness has signed up 7.3% of the state's total population. Rondeau views that as a mark of the brand's potential. At this point Planet Fitness has captured 3.2% of the population of the Northeast and just 0.5% of people living in the 11 westernmost states (excluding Hawaii and Alaska). So Rondeau sees plenty of room to grow.
While most of the industry is designed and run by people who like to work out, Rondeau believes that the Planet Fitness strategy has worked because he himself thinks about going to the gym differently. "I compare it to mowing my lawn," he says. "I don't want to do it. I know I have to." So do his customers. And they don't want to pay too much for the privilege.