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August 14, 2018
Franchising fitness for the masses

Photo: Orange Theory

Working out at Orange Theory

Sports Business

Franchising fitness for the masses

In the fitness business, the hunt is always on for the next craze.

Mike Vogel | 10/28/2014

In 2011, Fort Lauderdale serial entrepreneur Doug Birer visited his doctor and got bad news. He needed to go on meds for high-blood pressure. As it happens, Birer’s wife, Lisa, a marathon runner, was a good deal more fit than he was and had tried a new exercise club, called Orangetheory Fitness, at a shopping center where they owned a store.

Birer gave it a go. “It was a lot of fun,” Birer says. Orangetheory has group classes with intervals of cardio and strength training in which participants wear heart-rate monitors and are pushed into the “orange zone,” where metabolism and energy ouput increase and calories burn long after the workout ends.

Birer wound up not needing the meds. “It worked for me,” he says. “My wife said, ‘If this thing can hook you, we should look at buying a franchise.’” 

Birer opened his first Orangetheory in 2012 in northwest Broward in Coral Springs, a target spot for his soccer mom demographic if ever there was one, and it “did great.” He was even more pleased with the performance of the franchise he opened in Plantation in central Broward. He now has five — spread among Broward, Maryland and Southern California — and has licenses for 13 more that he plans in those markets and North Carolina. Plus, he’s an investor in Orangetheory units in Brooklyn and New Jersey.

The hunt is perpetually on for the next national fitness craze, and Fort Lauderdale-based franchisor Orangetheory, from whom Birer bought his licenses, is making its bid. The Sunshine State has a track record of success. The proprietary dance program Zumba was founded by Colombia immigrant Beto Perez in south Florida, for example. Another fitness venture, Lifestyle Family Fitness, which started in Lakeland and was headquartered in St. Petersburg, sold its 33 Florida locations in 2012 to L.A. Fitness and sold locations in other states to other chains. Lifestyle at one point had more than 50 clubs and more than 200,000 members.

But Orangetheory has a way to go in a crowded field. While it’s No. 399 on the Inc. 500 fastest-growing companies list at $7.1 million in revenue, with three-year revenue growth of 1,178%, it is No. 403 on Entrepreneur magazine’s Franchise 500. The top spot on Entrepreneur’s franchise list is held by low overhead, Minnesotabased 24-hour key-access club Anytime Fitness. On the Entrepreneur list are more than a score of other fitness franchisors targeting youth, seniors, individuals and groups. The various fitness flavors include mixed martial arts, boot camps, dance exercise, rock climbing walls and workouts inhome, at studios and big gyms.

Orangetheory came together in 2010 as a mix of fitness talent, business operators and investors. The concept started with Ellen Latham, a Broward physiologist, veteran spa manager and gym owner who designed the workout. Aside from her exercise chops, she knows business and media, having served as a fitness expert on TV, in columns for south Florida newspapers and a women’s fitness magazine.

Latham met Dave Long, who was looking for a fitness concept to franchise. Long, also a Broward resident, had made his mark with Massage Envy Spa franchises and then European Wax Center, a Browardbased chain that grew to hundreds of stores. His business partner, Jerome Kern, had worked with him on Massage Envy and European Wax.

Long and Kern looked at several concepts before finding Latham and co-founding Orangetheory with her. Franchises sell for $39,000 for a first location and $32,000 for each additional franchise. Orangetheory gets 6% of gross sales. Depending on the region, startup costs and working capital run $350,000 to $500,000 per site.

A 3,000-sq.-ft. space in a shopping center anchored by a supermarket is typical. “If you put me next to the most popular Whole Foods, I’m happy,” Birer says.

As of September, Orangetheory had 124 outlets in the United States and Canada with one in London and the Australian market set to open. Long projects 175 stores by year-end and 500 by 2017. “The product has been so good,” Long says. “That’s what’s driving the growth.” 

Most franchisees already have owned small businesses, own another franchise concept or are coming from mid- to upper-level management at a company. Twothirds have licenses for two or more locations.

While a big gym might need thousands of members, an Orangetheory gym works with 500, Long says. Depending on the number of classes a member signs on for, the price ranges from $50 to $159 a month, high end by fitness club standards.

The trick in the fitness business is staying current as exercise regimes and tools come and go.

Birer, 49, the franchisee, says he had to “wrap his mind” around the risk of putting his money in something that might prove a fad. “I have to keep a close eye on it,” he says.

But, so far, “everything’s been going great.”

Training to Fit

A former NFL wide receiver runs a fitness club in Tampa that caters to both professional athletes and regular Joes.

A long with improvements to their health, the 225 regular members of the Performance Compound training facility in Tampa’s Westshore area can count one other membership benefit: Name-dropping. They work out where Derek Jeter, No. 4 NFL draft pick Sammy Watkins, Phillies first baseman Ryan Howard and San Francisco 49ers running back Carlos Hyde have trained.

The stars help power marketing, acknowledges club co-founder Llewellyn “Yo” Murphy Jr. “It’s great to have them in the building. It’s exciting.” But “what sustains us,” he says, is the bread-and-butter revenue from the regular members.

Murphy went into the business in 2008 after a collegiate and pro career that spanned 15 years, from his All- American time at the University of Idaho, his native state, to seven years in the NFL and stints in the XFL, Canadian Football League and NFL Europe. A wide receiver and special teams player, Murphy ran back the opening kickoff for the St. Louis Rams in Super Bowl XXXVI, played for Grey Cup victors Vancouver Lions and Saskatchewan Roughriders and won MVP honors while with the Scottish Claymores in NFL Europe’s World Bowl Championship.

“I had to stay on top of my fitness because I was getting older, and the kids were getting younger,” Murphy says.

He fell in love with Tampa after playing for the Buccaneers in 1999 and made the city his off-season home. Along with broadcaster and two-time Super Bowl winner former Bucs defensive lineman Anthony “Booger” McFarland, Murphy in 2008 opened his first fitness club, a boxing gym that became Performance Compound.

As a trainer, he met and became close friends with Tampa native Scott Lee, now a principal at private equity firm HealthEdge Investment Partners. “I always told him that if he ever wanted to really ramp his business up and take it to the next level, then I hope I am very high on his list of people he would chat with,” says Lee.

The two became partners in Performance Compound, along with veteran trainer Jason Riley and McFarland. Their business was launched at a time when the number of fitness clubs was falling in Florida in the recession and its aftermath.

A hallmark of their gym is its targeted workouts — NFL Combine, MLB prep and others — geared for pros and aspiring pros. San Francisco 49ers rookie Hyde told online sports magazine Stack he came to Performance Compound to prepare for the NFL Combine and saw the most improvement in his 40-yard dash time, the benchmark for NFL speed. “It’s crazy how good I got at the first 10 yards of the 40. I’ve also gotten more explosive in the broad jump, being able to leap out farther than when I first came in here,” Hyde told Stack.

The 20,000-sq.-ft. facility lies just 48 feet from a beach on the bay. That means lots of workouts in the sand.

Lee says the business has about $1 million in revenue and is cash-flow positive. “It has been a fun ride, and we feel like we are just now starting to reap the benefits of our investment,” Lee says.

Membership types vary, but Murphy says the average is $100 a month. That places Performance Compound in the premium price range for fitness clubs, according to data on average membership fees compiled by the International Health, Racquet & Sportsclub Association. Pro athletes pay significantly more. The club also gets revenue from personal training sessions and various profit-sharing deals with joint venture partners.

Murphy says his staff focuses on knowing all members, group training and accountability for results among members and trainers. Along with weights and workouts, there’s yoga, physical therapy, hyperbaric chambers and other efforts to enhance recovery. “It’s not just about the workout. It’s a holistic approach,” Murphy says.

Murphy says he would like to open another one or two Performance Compounds. “We’re still getting our systems in order so we can replicate,” he says. “I want to do it right.”

Fitness Clubs in Florida 

Clubindustry.com ranks three Florida clubs among the top 100 in the country: 

  • Bailey’s Health and Fitness in Jacksonville, No. 50 on the list, had $17 million in revenue last year from 14 sites in Georgia and Florida, according to clubindustry.com. The chain, which employs 375, had 42,000 memberships.
  • Gainesville Health and Fitness Centers, the oldest chain among the Florida centers, was started in 1977. With three sites, all in Florida, it had $15.4 million in revenue last year, placing it at No. 55. The chain has 425 employees and 25,552 memberships.
  • At No. 95 on the list, Premier Health and Fitness Center in Tallahassee had $4.9 million in revenue last year from its one site. The club employs 93 and has 8,313 members.

Note: Orangetheory is not on clubindustry’s list because the company didn’t disclose revenue. Inc.’s revenue figure would put the company at No. 83.

Just the Basics 

Bare-bones club company YouFit, based in Deerfield Beach, saw its 83rd club opening in September as it sets a pace of three to four new club openings a month. Launched in 2008 by Planet Fitness founder Rick Berks, YouFit follows Berks’ vision of a slimmed down traditional gym that offers the gear most people use, cardio equipment and weight machines, at a lower price.

Tags: Sports Business

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