Planet Apathy: Everyone knows that the fitness industry is “barbell-ing”, growing fastest at the low end and the high end. The high end is represented by companies like SoulCycle, CrossFit, and Orangetheory. The low end is represented by Planet Fitness and since going public, it is thriving. From The Motley Fool:
It was another strong quarterly workout for Planet Fitness (NYSE:PLNT). Shares of the discount gym operator hit more all-time highs last week, fueled by blowout financial results.
Investors are used to strong quarterly outings at Planet Fitness, and they've been rewarded handsomely in the process. The stock is trading 59% higher in 2018. Planet Fitness shares have risen by at least 46% in each of its first three full years as a public company, more than tripling since going public at $16 in the summer of 2015.
The thing about the “barbell-ing” is that it’s not just about the price point, it’s growing at the apathy and passion ends as well. Planet Fitness has figured out how to turn apathy to its advantage. Gyms have always benefited from members that didn’t use their membership. The problem with that free money is that eventually those members will cancel and have to be replaced and acquiring new customers is expensive. There is a finite period of time that people will pay $30/month for something that they never use. Planet Fitness is based on a bet that there isn’t a finite period of time that people will $9.99/month for something that they never use. Or at least that it is a much longer period of time. Then they designed the entire company around this bet. They built their gyms to appeal to people who don’t work-out regularly and alienate those who do. This meant getting rid of free weights, instituting the lunk alarm, and even banning certain types of exercise like plyometrics. You don’t need 30,000 square feet to accommodate your members because they’re not going to show up anyway so they save a lot of money on rent. Then to hedge against those members canceling anyway, they added pizza nights and free bagels so that members would still feel like their membership was worth it even though they never worked out. And it’s working!
The case for the upside at Planet Fitness is that the concept is not limited to hardcore workout junkies. Planet Fitness sets members back as little as $10 and only as much as $20 a month, which explains why it's been able to grow to more than 12.2 million members. It crossed the 10 million-member mark just early last year. Joining a Planet Fitness is not a bank-breaking decision.
Planet Fitness has ramped up to 1,646 units in short order, but it hasn't even hit half as many fitness centers as it hopes to open. The goal here is 4,000 units, and by then it expects have enhanced its money-making potential through in-store initiatives and brand partnerships. In short, as good as things have been for investors since its 2015 IPO, there are still more than a few reps to go before this workout is complete.
Planet Fitness has figured out how to monetize people’s apathy towards fitness. The other end of the barbell is the passion side. It’s consumers paying a lot of money because they’re so passionate about their work-out. The joke about CrossFit is that the first rule of CrossFit is to always talk about CrossFit. I understand why that can be annoying but that is a reflection of how passionate CrossFitters are. What’s really interesting is that the home exercise equipment market has shifted over to the passion side after years spent on the apathy side. From Vox:
Peloton is not like the exercise bikes and NordicTracks of yore that largely ended up as clothing racks. It’s managed to harness the energy, connection, and competitiveness of a live group fitness class. Thanks to a methodical “casting” system for instructors and a well-tended and well-studied community presence on Facebook, people are exceptionally loyal to the exercise modality. The company was founded in 2012 and delivered its first bike in 2014; it boasts of having more than 1 million users.
Now, at-home, “connected” fitness options, like Peloton’s answer to SoulCycle, are ascendant. There are an abundance of class streaming apps, like the audio app Aaptiv, the so-called “Spotify of fitness,” that you only need a phone to use. But increasingly, more companies have been inspired by Peloton’s success to the point that they are asking customers to commit to pricey home equipment. There are now several Pelotons of rowing (Hydrow, Cityrow), a Peloton of weight training (Tonal), a Peloton of boxing (Rumble), and a Peloton of group cardio studio fitness (Mirror).
Like a lot of things that emerge from the wellness industry, Peloton comes at a steep price. It costs $2,000 for a bike, and that’s before you add in the monthly streaming service. The company is valued at more than $4 billion, and an IPO is likely imminent. Since people are busier and boutique fitness is more popular than ever, it’s not surprising that a business that accounts for both of these things is thriving. Peloton’s success is also a convincing sign that high-priced fitness has been normalized. It wasn’t long ago that SoulCycle’s high class prices were raising eyebrows, but now people are willing to pay up for a stationary bike of their own at home.
Everyone is consumed with building the next Peloton but we really should think about what home exercise equipment used to be. It was Nordic Tracks and cheap treadmills that ended up becoming expensive coat racks in most households and those cheap barbell sets that you could get at Walmart. It was also gimmicky crap like thigh masters and shake weights. Now it’s $2,000 Peloton bikes and Rogue Fitness products. It’s not about cheap crap and gimmicks anymore, it’s about gear that will allow you to get a gym-quality work-out in the comfort of your own home. The schism in fitness isn’t just a price thing, it’s also a schism in enthusiasm. And the home market is switching sides.
The Vox article also had an interesting depiction of what it is like to participate in a cycling class that is being streamed.
In the cycling studio, 12 instructors record classes about eight to 12 times a week each, in front of a live group of actual riders at an NYC studio; a separate treadmill studio is ramping up its offerings as the treads start to ship. Classes at the studio are $32. Lunchtime classes, which are hard to fill with paying customers, are often free.
Taking a live Peloton class at the company’s fitness studio feels like being in a TV show about a spin class, because that’s essentially what it is. The lights, cameras, and some scripted patter of the instructor are clues that this class is different from SoulCycle, Flywheel, or any of the other popular spinning classes that have taken over gym culture in the past decade. There are cameras mounted on the ceiling that zip around getting shots of the instructor from different angles, ultimately feeding the footage to a huge, high-tech video studio in the basement level.
The instructor takes care to speak to the camera more than to the IRL class. It felt slightly stilted, a thing that I found weird since it feels so authentic when you’re actually on the bike at home. I felt a little bit like a prop in the room. Brad Olson, the senior vice president of member experience at Peloton, acknowledges that having bodies in the physical space to create energy “does translate on camera. Ultimately, we’re optimizing for the million members, not for the 50 folks in the room.”
How does this play out as streaming classes continue to proliferate? They want people in the classes because they want it to feel like a real class but if the participants feel like a “prop”, then they’re probably not coming back. Do these companies have to start offering classes for free (as Peloton is already partially doing)? I even wonder if, as the number of streaming companies grow, they will have to start competing for people willing to go to these classes. Maybe that’s with some kind of perk or benefit or maybe it’s with straight up cash.
Big Government: The Department of Health and Human Services released the second edition of its guidelines to physical activity this week and there was one major change. From Gizmodo:
The U.S. government has released its latest recommendations on how physically active we should be to stay healthy, and do we detect a hint of desperation in their tone? The guidelines, as before, call for adults to aim for 150 minutes a week of moderate aerobic exercise, or 75 minutes a week of vigorous exercise, to get the most optimal benefits of physical activity. But they also make clear that any physical activity, no matter how short or relatively mild, is better than nothing at all.
What makes the guidelines different this time around, though, is the emphasis on convincing people that any extra exertion is worth the effort, even if they don’t meet the above numbers. There is no longer a mandate that people have to be active for at least 10 minutes at a time for it to count toward their weekly exercise. They also state, as recent research has suggested, that people can benefit from any level of exercise they are able to accomplish, no matter how small.
It will never stop surprising me how hard it is to get people to exercise. I think that this was the right move on the part of HHS because you want to make exercise as accessible as possible. If you tell people that they should exercise for 1 hour a day, what most people hear is that you can’t do that then why bother doing anything.
A lot of people have a weird all-or-nothing attitude towards fitness. We’ll be seeing it in a couple of months when people are flooding the gyms. Maybe it’s a desire for instant gratification or a focus on short-term thinking, I don’t know. Sometimes I think that people are trying to flip a switch and turn into a “fitness person”. The quote that always comes to mind is from Bill Gates: “Most people overestimate what they can accomplish in 1 year and underestimate what they can accomplish in 10 years”. That’s the most daunting thing for most people: there is no secret. If you want to be fit then you have to do the work day in and day out for the next 10 years and the rest of your life.
The psychology around getting people to exercise is fascinating because it is so complex and often counter-intuitive. Fitness is the best product in the world. It will make you look good and feel good, it will make you healthier and smarter, it can earn you the respect of people around you. It can get you laid! This sounds like something that should sell itself yet selling it is incredibly complicated. HHS is discovering that. They’re basically pleading with Americans to just do something, anything and they’re not wrong to do so.
For the cynics in the crowd, though, the more lenient guidelines seem to also reflect just how few Americans are physically active. According to the HHS, only around 26 percent of men, 19 percent of women, and 20 percent of teens meet the current guidelines. And annually, around 10 percent of premature deaths and $117 billion in healthcare costs might be attributable to people not getting sufficient exercise.
We are on a collision course with disaster if we can’t figure out how to get the majority of Americans to start exercising.
Rule the World: A couple of months ago, CrossFit began the process of revamping the process for qualifying for the CrossFit Games. It laid off dozens of employees whose main responsibilities had been in documenting and promoting the Games. The original narrative was that founder Greg Glassman was “anti-Games” and was re-structuring the company to re-focus on affiliate growth and CrossFit Health. The Regionals were discontinued and a plan to partner with existing fitness competitions was disclosed. Now that we can see the primarily international composition of the qualifying events, I am proposing a new narrative. I don’t think that Glassman was ever “anti-Games”. He just never saw the CrossFit Games as an end unto itself. The end goal wasn’t to find out who the Fittest Man and Woman was; it was to be a marketing tool for the affiliates. The only thing that’s changed is that CrossFit is getting most of its growth internationally instead of domestically. From Morning Chalk-Up:
CrossFit in Brazil is exploding, adding approximately 353 new affiliates in 2018. That’s 31%, or nearly one third, of the current gyms in Brazil. Also notable are France, Italy and Spain which added 143, 148, and 118 new affiliates, respectively.
Brazil — 353 new affiliates (31% of total)
Italy — 148 new affiliates (22%)
France — 143 new affiliates (30%)
Spain — 118 new affiliates (26%)
China — 47 new affiliates (31%)
China, which had about 15 affiliates in 2014, has exploded with a 920% increase in the past four years, adding more than 130 new affiliates.
Analyzing the chart above, it shouldn’t be surprising that the locations of sanctioned events closely mirrors the list of fastest growing markets as well as the top 15 countries. In fact, 14 of the 17 sanctioned events are in the top 15 countries. The only exceptions are Argentina, Iceland and United Arab Emirates.
It was time to take the show on the road. The problem is that holding a series of international events is both very expensive (the Brazil Regional cost over $1 million) and a huge pain in the ass. So CrossFit decided to partner with competitions in the countries where it was seeing the most affiliate growth. This is just Phase 2 of the CrossFit story. Phase 1 was rapid expansion in North America and the Regionals/Games reflected that. Phase 2 is where the majority of growth is coming from Brazil, Australia, Europe, and China. And now CrossFit has re-configured the sport side to reflect that and drive more growth in those countries. They have an eye for Phase 3 by crowning National Champions based on the Open results. I am sure that they are hoping to identify and encourage growth in a new set of countries once growth starts to slow in the Phase 2 countries. Once that happens, expect to see a re-jiggering of the qualifying events again.
None of that means that they will abandon the U.S., they just announced another U.S. event for the 2020 season. From BarBend:
The latest CrossFit Games sanctioned event (qualifier) has been announced for the 2020 CrossFit Games season. The event is set to take place in March of 2020 in Del Mar, California and is being coined the West Coast CrossFit Classic. Live and Loud Sports, who also host the Wodapalooza CrossFit Festival based in Miami, Florida, will be the hosts of this event.
Del Mar was also the home of the California/West Regional. California is the birthplace of CrossFit and home to a lot of affiliates. There wasn’t a West Coast event before this was announced and this will be a new event. The geographic placement of all these events, both international and domestic, is being carefully considered. The 2020 season will have 5 U.S. events spread across the country (Florida, California, Ohio, Texas, and Maryland). There is a method to the madness.
Nutrition: In the world of fitness and nutrition, there are trends and there are fads. Tae-bo was a fad, group exercise classes are a trend. If you want to avoid looking foolish, then you need to be able to distinguish between the two. Which brings us to the keto diet. The keto diet is booming and companies hawking products related to it are popping up all over the place. From Grub Street:
To track the keto trend, Yeji Lee, a marketing insights specialist who follows the keto craze for Kerry Taste & Nutrition, says they track consumer habits to see how many people look and act as if they’re on keto diets. That, specifically, means butter. While the market for butter, in general, has grown 5 percent this year, keto-focused butter has exploded. “One core ketogenic staple is grass-fed butter,” she explains. New data shows grass-fed butter sales are up 45 percent this year. “You see a general trend toward carb-conscious foods — which grew by 10.3 percent in the last year — and moving away from no-, low-, and reduced-fat foods, which declined by 4 percent over the same time.”
Meanwhile, Bulletproof Coffee — a keto pioneer of sorts and the group that popularized the idea of adding butter to coffee — has grown 80 percent since 2012, runs cafés in Seattle and L.A., and now sells coffee pods, as well as something called “Brain Octane MCT oil” in Whole Foods. This year, Bulletproof also raised $40 million from Starbucks investor Trinity Ventures, and $17 million the year before that.
The keto diet is the fad, cutting back on carbs is the trend. Keto isn’t even the first diet craze in the carb cutting trend. It seems like everyone was on Atkins in the ‘00s and the keto craze has given it new life.
The Atkins plan is still around, of course, thanks to some corrective re-strategizing. Rob Lowe is the new spokesman, and there’s an Atkins 100 program rolling out: It’s a diet that allows up to 100 carbs per day, five times more than the old diet plan allowed. The thinking behind this is that the original plan was “unnecessarily restrictive” for some people, says senior vice president of innovation Linda Zink. “We want to get the message out that, yes, we offer a way to lose weight, but this is also a lifestyle.” As far how much Atkins interest is due to keto-fueled interest in low-carb diets in general, Zink says that Atkins has seen “continued growth for years,” and “we don’t see the pendulum swinging back the other way to low fat.” to it as well.
One rule of thumb that I employ is the ten year rule: is this something that will seem ridiculous ten years from now? Cutting back on carbs? No, that seems reasonable. Putting butter in your coffee? That will seem ridiculous.
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