Wearing a motocross T-shirt and Bermuda shorts, Mike Grondahl doesn't seem like the typical head of a large club company.
Not long ago, Grondahl was just an average guy trying to get his first club off the ground. As recently as four years ago, Grondahl owned five clubs. Now, Grondahl oversees about 90 times that number.
You might say Grondahl, the 43-year-old owner of Planet Fitness, Dover, NH, tried to take over the world last year, and in a way, he did. Grondahl and Planet Fitness purchased World Gym International, one of the most well-known brands in the industry, for around $10 million, most of which was borrowed from a mezzanine lender. As of press time, the company had more than 400 locations (170 Planet Fitnesses and 236 World Gyms). The company also had franchise agreements with 40 additional Planet Fitnesses and 25 additional World Gyms, bringing the combined club total to 471.
Just how much has Planet Fitness grown? Recently, Grondahl set up a meeting with a man from Amman, Jordan, to discuss opening a World Gym there.
Expanding the company into a global entity has been a daunting task for Grondahl; his brother, Marc, the chief financial officer for Planet Fitness; and Chris Rondeau, the CEO of franchising for World Gym. The hardest part for Grondahl et. al. has been trying to get World Gym franchisees on the same page, even though Grondahl and Rondeau don't want to convert all World Gyms into Planet Fitnesses.
“Trying to put systems in place, it takes longer than you hope,” Rondeau says. “It's kind of like your kids have been left to live by themselves for 30 years, and then all of a sudden, parents come in and put rules and regulations in place. It doesn't go over well, usually.”
The two models seemingly come from different worlds. The World Gym brand has largely focused on strength and bodybuilding. (Heck, Arnold Schwarzenegger, Mr. Olympia himself, once co-owned World Gym back in the 1990s.)
Planet Fitness promotes itself as a “judgment-free zone” where “lunkheads” are frowned upon and even exposed by a lunkhead alarm. Plus, Planet Fitness puts the “no frills” into a no-frills company, priding itself on the fact that there are no salespeople, and, consequently, no pressure put on prospects, who can join for as little as $10 per month.
As for the famed lunkhead alarm, which drew national attention last fall when a Planet Fitness member was escorted from the building after violating the club's “no grunting” rule, that will remain a Planet Fitness trademark but will not be installed in World Gyms. However, down the road, policies could be put in place at World Gyms discouraging grunting, Rondeau says.
“Long term, any club owner who encourages weight dropping and grunting, that's just crazy,” Rondeau says. “That's not the wave of the future. Those days are over.”
Changing the World
The Planet Fitness folks prefer the term “acquisition” to “takeover” when talking about their purchase of World Gym, which already was a key part of Planet Fitness's growth even before the acquisition. Of the first 50 Planet Fitness franchises, 25 were former World Gyms, Grondahl says.
With the help of Roger Bates, co-founder of the former Southern California-based athletic club Frog's, Grondahl eyed the entire World Gym chain. The purchase agreement was signed in October 2006.
“We knew there was a demand,” Grondahl says. “Our idea was, if we got 40 [World Gyms] to convert, that pays for the price of what we paid for World Gym.”
At first, then-World Gym CEO and president Mike Uretz was dead set against the merger, thinking that Planet Fitness was merely a low-price player. His wife was the one who encouraged him to at least take a first-hand look at the operation and meet with Grondahl and Rondeau.
“Not only were they successful with their operation,” Uretz says, “but I found out it had very little to do with low prices. It had to do with low operating costs and standards of operations that made sense and advertising that made sense. They knew how to operate gyms at a much lower cost than any of the gyms that I knew. They wanted a premium name gym, and they thought World Gym was the one.”
Rondeau says little tied one World Gym with another, other than the letters W-O-R-L-D G-Y-M on the outside of the building. Rondeau wants a more uniform World Gym, right down to using the same logo and the same vendors for equipment, flooring, paint, even pens and stickers.
“That's the reason that none of these franchises looked alike,” Rondeau says. “Just by using the correct vendor channels, it automatically starts to take care of half of the policing that you're trying to accomplish in creating that true brand. Can you imagine what would happen to McDonald's if people were allowed to color the Golden Arches any color they wanted to?”
One of Rondeau's goals is to connect all the World Gyms to the same Web site and the same domain so that people can find any World Gym from one site. One World Gym in Florida has its own Web site and uses the old gorilla logo, which Grondahl and Rondeau replaced with a “W” that wraps around a sphere. However, it is not Planet Fitness's intention to make World Gym franchisees change their logos overnight.
“Financially, it doesn't make sense,” Rondeau says.
Uretz, who now serves as an advisor to Planet Fitness, says a uniform marketing campaign is key to the transition, making the World Gym brand name relevant.
“I would not have done the deal to put World Gym out of business,” Uretz says. “It was 25 years of my life with Joe Gold and all the rest of the guys. I did it to improve it and to make all the gym owners successful. And I really believe they will be.”
Some World Gym franchisees have been reluctant to change, saying they haven't had much or any contact with their new owners. To help break down communication barriers, Grondahl and Rondeau scheduled an information forum for World Gym and Planet Fitness franchisees this month at the International Health, Racquet and Sportsclub Association National Fitness Trade Show in Las Vegas. (For coverage of the forum, go to www.fitnessbusinesspro.com.)
World Gym franchisees are divided into three camps: those who want to keep everything the same, those who buy into the new systems yet remain as World Gym, and those who want to change their clubs to Planet Fitness. An industry observer says two types of World Gym franchisees have shown the most resistance to change: one-off operators (who run only one club), and operators of higher-priced World Gyms and multi-club licensees who have developed their own management systems.
Some World Gym franchisees simply pay their monthly $1,000 EFT and want nothing to do with Planet Fitness, Grondahl says.
“The franchisees were not receptive to what we did,” Grondahl says. “When we bought World Gym initially, they looked at us as kind of like ‘The Evil Empire’ or ‘The Dark Side.’ They didn't think much of us. Things are softening up. There's a lot less negativity from where we started.”
David Stempler is the general manager of the World Gym in Wantagh, NY, and works with the owners of two other World Gyms in East Setauket, NY, and Coram, NY. Stempler says he has not received any information from Planet Fitness, other than vendor lists, T-shirts and the new logo. Stempler talked to other World Gym operators at the Club Industry East show in June in Orlando, FL, and found that many of them were as confused as he is.
“There hasn't been enough communication between us to know what I'm going to do,” Stempler says. “I would like to stay where I am. My clubs don't fit the Planet Fitness model. I have swimming pools. I have tennis courts. I have racquetball. There's so much I don't know at this point. I can't make a decision.”
Rondeau says he has called every World Gym location more than once, mailed letters and magazines to all of them, and e-mailed all the owners on his contact list.
“It gets to the point where we can't force feed them,” Rondeau says. “We have hundreds of leads that come through on a weekly basis, and half of them go unattended because they won't give us their e-mail address to be directed to. That's a shame.”
There are satisfied World Gym owners out there. Chip McElroy has owned a World Gym in Pawling, NY, for 18 years. Six months ago, he opened a new World Gym in Brewster, NY, about 10 miles away. McElroy says he stays in contact with Rondeau on a weekly basis.
“They give you a tremendous amount of support,” McElroy says. “World Gym, in my opinion, became dead in the industry. This kind of revitalized the whole World Gym concept, going from the gorilla to a softer logo to the intelligent approach to fitness. It's definitely marketing more towards where the industry is today. The ideas that these guys were talking about and where they planned on taking World Gym excited me.”
The 15,000-square-foot World Gym in Pawling has 2,000 members. The 11,000-square-foot World Gym in Brewster already has 1,500 members. Most of the change in the Pawling gym has been cosmetic, McElroy says. Over the next two years, McElroy plans to purchase new equipment and paint the club new colors.
Another rejuvenated owner is Greg Attwood, who owned four World Gyms in Colorado Springs, CO, before switching three of them to Planet Fitness. Grondahl says 12 World Gyms have converted to Planet Fitness.
By making the change, Attwood, who lives in Texas, says he cut 40 percent of his overhead, and new sign-ups have quadrupled on a day-to-day basis. Trimming the staff to 30 employees was a little difficult, Attwood says, but the elimination of childcare and group exercise was not a total loss. Only 3 percent of his members used those services, which demanded more than 30 percent of his overhead, he says.
Attwood also says he plans to purchase additional Planet Fitness clubs in Texas and Michigan.
“It's really been a smooth transition,” Attwood says. “I'm pretty happy.”
Texas is a state Grondahl is targeting for Planet Fitness expansion. He's also targeting urban areas like New York City. World Gym expansion plans reach outside the United States. In addition to the meeting with the man from Jordan, Grondahl and Rondeau are talking with prospective franchisees in Pakistan, Saudi Arabia and the United Kingdom. There are 36 international World Gyms, Rondeau says.
“World Gym is a much more Americanized name than Planet Fitness,” Rondeau says. “It's more like a Coca-Cola or Levi's, I believe.”
To help with the rising demands of running a 400-plus club company, which includes 16 corporately owned clubs spread over five states, Grondahl hired Ben Midgley as Planet Fitness's new president. Midgley had worked as an executive in the business development office at 24 Hour Fitness. Also, Grondahl recently solicited the help of a human resources company to enhance the company's compliance and management training efforts.
Grondahl may say that Planet Fitness still is a “mom-and-pop” operation, but it's not looking like one anymore.
“With consolidation in this industry,” Rondeau says, “in 5-10 years, the mom-and-pops will be gone, much like drugstores, supermarkets and hardware stores.”
Grondahl says private equity firms have approached him about buying Planet Fitness. One company, Grondahl says, offered $120 million. He turned it down.
One day, Grondahl hopes to take the company public.
“I'd love to do that. I think it would be cool,” says Grondahl, who expects sales to reach $45 million this year. “I think it would be a great exit strategy for most of my franchisees. At the same time, at that point, I would want to wash my hands of it. I wouldn't make a good CEO of a public company.”
Not while wearing that T-shirt and Bermuda shorts.
A Lesson in Gold for Franchisees
One way World Gym franchisees can work together under the Planet Fitness umbrella is to form a franchisee association.
That's what Gold's Gym International franchisees did a couple of years after the private equity firm Brockway Moran & Partners bought the company in 1999. Gold's Gym soon went from one company-owned store to 37, and in 2004, Brockway Moran sold the chain to TRT Holdings, owner of Omni hotels and oil interests.
Jerry McCall says he helped form the Gold's Gym Franchisee Association (GGFA) because of the uncertainty surrounding new ownership managing the brand. McCall recalls doing a lot of arm-twisting to get Gold's franchisees to join.
“It was apparent to me at the time that it's time to get organized,” says McCall, who served as the GGFA president from 2003 to 2005 and still owns five Gold's Gyms in San Jose, CA. “It's a slow process. A lot of people were thinking, ‘What are they going to do for me? What are they going to do with my money?’ But eventually, people have gotten it.”
GGFA mainly works in consultation with Gold's Gym International. One of the keys to the strength of the association is its legal counsel, McCall says.
Ginger Collins, the executive director of the GGFA, says the success of a club company transition after an acquisition depends on the purchasing company. Franchisees experienced a little uncertainty and fear each time Gold's Gym was sold, Collins says, but those fears subsided, especially after TRT Holdings purchased the company.
“TRT has been a great parent company to work with,” Collins says. “It's a very collaborative relationship that we have.”
Collins recommends that World Gym franchisees form their own association.
“It's worked for us,” she says.