Tension Builds Between Gold’s Gym International and Gold’s Franchisees

After two sales of the company in the past 10 years, Gold's Gym International (GGI), Dallas, has become like a parent of children from three marriages. Some of the children, in this case the franchisees, are from a first marriage created when a group of investors owned the company from 1979 to 1999. Some of the children are franchisees who were born when Brockway Moran & Partners owned Gold's Gym from 1999 to 2004. Yet even more children came after the current owner, TRT Holdings, took over in 2004.

Both Brockway Moran and TRT Holdings are private equity firms, and their ownership has produced a lot of unrest among their “children” over the past 10 years. The older franchisees have vocalized their displeasure with the company, its direction, its changes to franchisee agreements and its attention to new franchisees and corporate-owned clubs.

Their concern that their complaints were falling on deaf ears was one reason the franchisees formed the Gold's Gym Franchisee Association (GGFA) in 2001. That group was to offer one loud voice to let corporate know that the franchisees who had been with the company before private equity firms entered the family picture want to run their clubs much the same way they've always run their clubs. They don't want to pay increased franchisee fees, and they say they're not getting a good return on their investment.

All the grumblings and disenchantment led GGFA President Blair McHaney to write a letter to his members. In the letter dated July 7, McHaney asserts that GGI does not see the value that franchisees bring to the Gold's Gym system.

“GGI's philosophy is that the franchisor should have the answers and will hand them downstream for franchisees to employ,” McHaney writes in the letter. “I suppose they see themselves as having diminished value if the answers are coming from franchisees. I have news — most every great innovation in other franchise organizations came from franchisees, and great franchisors recognize that.”

Rather than calling the letter a cry for help, McHaney says his intentions were to formally let GGI know of the GGFA's concerns, minus any name-calling. McHaney and the GGFA requested that GGI outline its strategy for franchising, marketing and corporate operations at the annual Gold's Gym convention, which was held the week of July 21 in Las Vegas.

Gold's Gym CEO David Schnabel did unveil a few initiatives during the convention that the company plans to roll out in the near future. But was that enough to satisfy the disenfranchised franchisees?

That Family Feeling

Gold's Gym started as a single club opened by Joe Gold in 1965 in Venice, CA. That club still brings warm fuzzies to those who remember the popularity of Gold's Gym in the 1970s, highlighted by appearances by Arnold Schwarzenegger and Lou Ferrigno, and the club's appearance in the cult classic documentary film “Pumping Iron.”

Gold sold the club to a pair of owners in 1970. The company was later sold to bodybuilder and fitness expert Ken Sprague in 1977. Two years later, Pete Grymkowski, Tim Kimber and Ed Connors bought Gold's Gym, and in 1980 began licensing clubs all over the country. By the time the Grymkowski group sold Gold's Gym to Brockway Moran for more than $50 million in 1999, there were 538 Gold's Gyms around the world.

Paul Grymkowski, Pete's brother, joined the group in 1980 and was the international director and president of Gold's Gym Franchising Inc., a division of Gold's Gym Enterprises. He remembers how licensees would call his office in Southern California to discuss their problems. They would sometimes travel to see Grymkowski in person, and if needed, he would put them up in his house.

“We spoiled them,” Grymkowski says. “Whenever we had a dispute with the gym operator, we'd talk it out. It's more of an East Coast way of doing business.”

Rich Minzer, who worked under Paul Grymkowski as the assistant franchising director, adds, “The key was the visibility of who we were. Anybody could call us 24 hours a day. There was no hiding. If you had a disagreement, you'd work that out. There was always a way to work it out. We were in the customer service business, and that's forgotten.”

Paul Grymkowski says one of the mistakes Brockway Moran made after buying Gold's Gym was not continuing to build the brand and involving franchisees more with the company, which Grymkowski says could have been worth $1 billion today had Brockway Moran continued growing the company like it had been growing before the purchase. Instead, Brockway Moran was more concerned about making a return on its investment.

“They were looking at the small picture,” Grymkowski says.

Back in the early days, when the Grymkowski group owned the company, the first Gold's Gym convention attracted about 12 franchisees. As the company grew, so did the conventions, which provided a chance for licensees and company staff to meet and greet. Gold's Gym paid for up to a three-night stay for attendees. If the Grymkowskis walked by a restaurant and saw a bunch of Gold's Gym club owners, “We'd pick up the tab,” Grymkowski says.

Some Gold's Gym franchisees who remember those convention days have not felt the same parent-child vibes when franchisees and corporate staff have met at recent conventions. Jerry McCall says he almost didn't go to this year's convention. McCall, the former president of the GGFA, is the longest continuous owner of a Gold's Gym in the United States, dating back to 1982. He has five clubs in the Silicon Valley, CA, area.

McCall, who ended up attending this year's convention, says communication is a problem between franchisees and the corporate office.

“We feel like foster children,” McCall says. “We're waiting to run away from home. I'm still one of the children, but I'm not one of the resilient ones. I still like being at Gold's Gym.”

Some franchisees have run away from home. John Grossi was a Gold's Gym franchisee until two years ago when he branched out with a new brand, Latitude Sports Clubs. Grossi runs four clubs and is building a fifth club, all in the state of Massachusetts.

Grossi says that the Gold's Gym brand was not moving fast enough to keep up with his clubs. Grossi's clubs had more amenities, employees and overhead than most Gold's Gyms, he says. Grossi charges about $50 a month, similar to what he charged when he was with Gold's Gym. He did not feel comfortable with the fact that a Gold's Gym just a few miles away, paying one-fifth of the overhead that Grossi did, might charge $19 a month, with the possibility that members of that club might use his club from time to time while still paying the lower rates.

After TRT Holdings took over the company, Grossi was originally offered a royalty agreement in which he would have to pay fees from 5 percent of his revenue,3 percent for franchising and 2 percent for advertising. Prior to TRT's ownership, Grossi paid a flat annual fee of $6,000 for each of his clubs.

Grossi's clubs last year generated more than $10 million. Had Grossi still been with Gold's Gym and paid the 5 percent fees, he would have paid around $500,000 to Gold's Gym, compared to about $24,000 under the original arrangement.

Despite his success as a club owner, parting ways with Gold's Gym has been tough for Grossi, who says the Gold's Gym name felt like his last name and his identity.

“It was like a divorce for me,” he says.

Royce Pulliam, once the largest Gold's Gym franchisee, also broke from Gold's, turning his 25 clubs in Kentucky, Ohio and Tennessee into Urban Active Fitness last year. Through a spokesperson, Pulliam declined to be interviewed for this story.

“Royce Pulliam outgrew the brand name,” says Grossi, who predicts that more franchisees will leave the Gold's Gym system.

While there are frustrated franchisees who have differences of opinion with the corporate office — much like children and their parents — mending and then growing those relationships are important to the Gold's Gym system, McHaney says.

“Gold's Gym is really, in its heart, about family,” he says. “My business feeds my family and puts my kids in college. My family knows other franchisees' families. You've seen their kids grow up. Then the family spreads upward from there. This is what this brand was built on.”

In a conversation before the convention, McHaney says Schnabel told him that he cares about every family in the Gold's Gym system. McHaney says he believes Schnabel, but he relayed one message back to him: “Can you get your organization to demonstrate that same caring?”

Coming Together

McHaney estimates that about 25 percent of Gold's Gym franchisees need some sort of assistance in areas such as marketing and working to get a better price point. That assistance can come from the corporate office and other franchisees.

“Guys are saying, ‘Send help. I don't know what to do,’” McHaney says.

Help may be on the way. On the first day of the convention in Las Vegas, Schnabel outlined a marketing campaign called Mission Dialogue in which members of GGI's marketing department will talk to franchisees face-to-face and share some ideas. Keith Albright, senior vice president of franchising for Gold's Gym, calls the campaign an extensive “road show.”

Albright says that the assertions made in McHaney's letter point out the need for the company to sharpen its skills with the franchisees and for them to gain a better understanding of the programs in place at Gold's Gym.

“It's hard to read that [in the letter], given all the stuff that has been going on in the 2 ½ years that I've been here, where we've worked mostly with the franchise community on lots and lots of issues and produced a lot of good results,” Albright says. “We've got something that nobody else has. We've got an engaged franchise community. These guys care about the brand, they care about their businesses. There's not a lot of franchise organizations that have that. We believe very strongly in the power of collaborating and working together with the franchisees. We want to make every Gold's Gym the most successful operation in its market around the world.”

Some of the programs that Gold's Gym is working on include relationships with national partners such as the AARP and Blue Cross/Blue Shield. Gold's Gym also has initiatives such as a customer retention management program and an online lead generation program to help franchisees gain more leads.

“What we showed at the convention is the sum of all these [programs] already is covering the cost of [franchisee] fees,” says Dave Reiseman, director of communications for Gold's Gym International. “With the programs that we have coming down the pipeline, we're confident that not only is it going to cover, it's going to more than cover it for all of our franchisees. It's one of those things that you can only get by being part of the Gold's Gym family.”

That family, as of late July, consists of 475 domestic locations, 65 corporate locations and 140 locations in 27 other countries, according to Albright.

If there was one thing that Gold's Gym franchisees came to agreement on after the convention, it was how much they liked the new advertising agency, McKinney, that Gold's Gym hired. Based in Raleigh, NC, McKinney focused the theme of its advertising campaign on the commitment of Gold's Gym, from its franchisees to their staff to their members, McHaney says.

“The process by which we chose McKinney was an absolute full-on team effort by GGI and the franchisees,” McHaney says. “It was an intelligent process that we went through. I need to give kudos where they are due.”

What McHaney hopes will happen after the success of the combined efforts on the advertising campaign is for both Gold's Gym franchisees and the corporate staff to understand the difference between authority and influence.

“In this Gold's Gym system, authority doesn't mean much to franchisees,” McHaney says. “You need influence. If you want to bring everybody together, you have to have influence. And if you're going to have influence, you need to create buy-in and trust. This process of choosing the ad agency was a process of building buy-in and trust.”

McHaney also hopes this type of cooperation will continue in the future, and the two groups will make a genuine attempt to communicate.

“Communication is two things: You convey meaning and you gain understanding, and oftentimes, people mistake communication with just conveying meaning,” McHaney says. “My hope is that we all take a deep breath here, that we listen to what each other has to say. This isn't a negotiation. This is time to find our strengths, build it out together and make this brand as strong as it can be.”

Gold's Gym Timeline

1965: Joe Gold opens the first Gold's Gym in Venice, CA.

  • 1970: Gold sells Gold's Gym to Bud Danitz and Dave Sachs.

  • 1977: After Sachs sells his share to Danitz, Danitz sells Gold's Gym to Ken Sprague.

  • 1979: Sprague sells Gold's Gym to group led by Pete Grymkowski. The group includes Tim Kimber and Ed Connors.

  • 1980: Connors becomes the company's first licensee when he opens a Gold's Gym in San Francisco.

  • 1999: The Grymkowski group sells Gold's Gym to Brockway Moran & Partners Inc., a private equity firm, for more than $50 million. There are 538 Gold's Gyms in operation. Licensees become franchisees.

  • 2001: Gold's Gym Franchisee Association forms.

  • 2004: Brockway Moran sells Gold's Gym to TRT Holdings Inc., a private equity firm, for more than $158 million.

  • 2005: Gold's Gym headquarters moves from Venice, CA, to Dallas, where TRT is headquartered.

  • 2006: Gold's Gym International CEO Gene LaMott resigns; David Schnabel is appointed the new CEO.

  • 2008: Gold's Gym International has 475 domestic locations, 65 corporate locations and 140 locations in 27 other countries.


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