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Planet Fitness Lures Franchisees

DOVER, NH — Less than two years ago, Joe Peppe stepped away from the World Gym license he'd held for many years on one club and stepped into a Planet Fitness franchise agreement for seven clubs. His move didn't come from disenchantment with World Gym, he said, but rather from a move to a different model — a low-priced, no-frills model.

Planet Fitness facilities don't include group exercise classes, day care or swimming pools — just selectorized and free weight equipment and cardio equipment. Providing just the basics means Planet Fitness can charge less for memberships. The average Planet Fitness membership is less than $15 per month, said Mike Grondahl, founder of the franchise. Fees differ by franchisee and by the package that the member buys.Peppe's Planet Fitness memberships average $14 to $15 per month compared to the $55 per month he charged at World Gym.

The lower membership fee has netted Peppe more members and profits. While he declined to give exact figures, he said that his member numbers are “much higher” now than prior to the switch. He has a penetration of 20-25 percent of the population in a three-mile radius of his clubs. And despite some of his clubs not being fully mature, he said that his clubs are generally a “great percentage more profitable” now than before.

Peppe isn't the only licensee/franchisee moving from a traditional gym model to Planet Fitness. Planet Fitness has nine corporate facilities and 54 franchised locations. Many of those franchised facilities are owned by former franchisees of World Gym, Gold's Gym and Powerhouse, said Grondahl. Their experience is helping to increase Planet Fitness' bottom line. The company had $9.8 million in sales in 2004, but Grondahl is projecting $12 million in sales this year.

Jeff Innocenti, a former Gold's Gym owner, switched his three facilities to Planet Fitness in June 2004. In March, he opened what has become his most successful club, a 20,000-square-foot facility in Nanuet, NY. On opening day, the club had already signed 8,000 members, and as of June, it had 13,000 members.

The average monthly membership at Innocenti's Nanuet club is $11 a month with a monthly electronic funds transfer of $145,000 and monthly expenses of $90,000.

Competition was a motivating factor for both franchisees in changing over. Not only had both seen other facilities pricing lower, but they had seen the success of Planet Fitness in the Northeast and decided that rather than someday competing with the business, they'd join up.

“I've been in this business for 10 years,” Innocenti said. “I've seen where it's gone. And now, if I keep putting up more clubs, it doesn't mean more money; it just means more aggravation. So where do I want to be in the next 10 years?”

The switch also allows both men to go after a broader market of people who have never belonged to a gym because the bodybuilder image of their former brands hurt membership recruitment in the broader market, they contend. Female enrollment at Peppe's Planet Fitness club is more than 55 percent, which is “tremendously higher” than at his World Gym facilities, he said. He continued by saying that his Planet Fitness clubs may attract more mainstream people because the free weight and strength equipment are kept to a minimum.

Planet Fitness also gave Peppe more opportunity to grow his number of clubs because territories are still relatively open compared to more established franchise/licensing gyms, Peppe said.

Both Peppe and Innocenti said that mid-priced clubs may find it difficult to compete in the future.

“We felt being that middle-priced club was dangerous for what we were trying to accomplish,” said Peppe.

However, not everyone thinks low pricing is the wave of the future.

“If the reason for being for a company is to offer the lowest price, what is going to stop someone from going to the next lowest priced club?” asked Mike Uretz, CEO and president of World Gym.

Still Uretz said there is room for everyone in the industry. “I look at the fitness business as a big tent,” Uretz said. “There's room for everybody. We will do our World Gym business, and they can do theirs.”

And “their” business seems to be astounding people with their low rates. People constantly question Innocenti about how he can run a club with $10 memberships. “We don't understand how other people don't do it,” he said.

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