Will Orr Unveils The Gym Group's New Strategic Direction

The Gym Group (TGG) had a strong year in 2023, with revenues increasing by 18% year-on-year to £204.0 million from £172.9 million, driven by membership growth.

By the end of the year, membership stood at 850,000, growing to 909,000 by March 2024. The report attributes membership growth to new site openings rather than expansion of the existing estate, which remained unchanged.

With 233 sites open, this gives an average membership per site of 3,900.

In 2023, there was a 9% increase in average revenue per member per month at The Gym Group.

The percentage of members subscribed to the top-tier 'Ultimate' package stood at 31.7% by year-end.

Additionally, the introduction of the 'off-peak membership' in 2023, starting at £13.99, has been successful in attracting a more diverse range of members, particularly older individuals with greater time flexibility.

While the focus in 2023 was primarily on revenue, the company's focus for 2024 will shift towards enhancing retention rates and increasing lifetime value.

The rise in average visits per member by 10% in 2023 supports this strategic shift, indicating that consistent attendance leads to higher engagement.

The Gym Group achieved high member satisfaction levels in 2023, with 92% of members giving a rating of 4 or 5 out of 5 for overall satisfaction.

In terms of pricing, The Gym Group's membership is on average £2 cheaper per month than its closest competitor.

Price adjustments are planned for the upcoming year.

Financially, the Group's Adjusted EBITDA less Normalised Rent increased by 1% to £38.5 million, with a significant 57% year-on-year improvement in the statutory loss after tax, reducing it from (£19.3 million) to (£8.4 million).

Non-property net debt decreased by 13% from (£76 million) to (£66.4 million), showing improved financial stability.

Cashflow also saw a strong increase of 62% from £16.7 million to £27.0 million. The company aims to finance the expansion of new sites using its existing cash reserves.

The company started 2024 positively, with revenue for the first two months up by 16% year-on-year and like-for-like revenue up by 12%.

This growth is vital, especially considering the challenges faced by some US operators due to adverse weather conditions in early 2024.

Orr expressed optimism about the strong start in 2024, highlighting the growing demand for health and fitness services and laying a solid foundation for future growth.

Three-part strategy

The company's fresh initiative, Next Chapter, represents Orr's inaugural strategy since his arrival at the company.

This approach will begin by fortifying the core business to enhance returns from the current assets. Subsequently, it will focus on expediting the deployment of top-tier locations.

Finally, the strategy includes expanding growth by exploring new revenue avenues, as outlined by Orr.

Strengthening core business“There's a significant opportunity to improve member retention, which will in turn drive both yield and membership volume,” he said.

“The highest rate of churn occurs in the first 45 days of a membership, before a habit has formed.

We will, therefore, focus on the early life of a new member, helping them to build lasting habits, whether that’s via our expert teams in the gyms or through digital channels, such as our app.”

A number of growth drivers have been identified to deliver increased returns: yield and revenue management; member acquisition and improving retention, with Orr’s experience with recurring subscription models at The Times a key reason for his appointment.

“Our analysis shows that within the catchment of our existing 233 sites, there are a further circa five million people within our target age range, who are either members of another gym or considering joining a gym,” said Orr.

The launch of Hyrox fitness programme in 27 clubs has also been successful and is popular with members, giving them goals to work towards and helping retention. TGG is aiming to get to 50 sites with the programme this year.

Accelerating rollout

Given how vital new openings are to driving membership growth, the development pipeline will be critical to success going forward.

The company opened six sites in 2023 and is planning 10-12 this year, 16-18 in 2025 and 20 in 2026 to make a total of 50 as growth ramps up.

Analysts have been excited by the company’s plans to open these 50 sites with the target of a return on investment (ROI) of 30 per cent, against the 20 per cent achieved for existing locations.

Orr did not divulge how this will be achieved, although Pure Gym has been reducing its build costs on new sites over the last year, so it’s likely The Gym Group will follow suit as one part of the strategy.

Orr explained TGG will have a laser focus on finding the right site, saying: “We’ve identified the key characteristics of high-returning sites and it's clear that Greater London and urban residential locations deliver the best returns for us.

This, therefore, is where we are concentrating our site opening programme for the time being.

Retaining discipline in selecting the right sites – in terms of location, footprint and local market – is critical to maintaining the attractive 30 per cent target ROIC.

He doesn’t rule out international expansion at some stage, he said the current focus is very much on optimising the UK market.

Orr pointed to recent but as yet unpublished research into the low-cost health club market from PricewaterhouseCoopers (PwC), that found the potential for a further 600 to 850 locations in the UK, with two-thirds of these at the current standard size and the other third delivered in smaller formats to suit less densely populated areas.

PwC released its inaugural edition of the low-cost insight in March 2019, indicating the potential to expand the number of locations from 650 to approximately 1200-1400.

While no current topline figures were shared for the 2024 PwC report to compare with the 2019 data, Orr mentioned that PwC's forecast projects another 10-15 years of growth potential in the UK market at the current pace.

Despite past growth through acquisitions, future strategies are now focused on organic expansion.

Orr emphasized the plan to expedite The Gym Group site expansion over the next three years, highlighting the ample opportunity for low-cost gyms in the UK.

The company is dedicated to enhancing accessibility to high-value, low-cost fitness for all individuals.

In 2023, significant improvements and investments were made in over 100 sites, including new equipment, refurbishments, and upgrades.

These actions build upon previous transformations, including the rebranding from The Gym to The Gym Group in August 2022.

The collaboration with Fiit for Fiit Pods, announced in 2021, remains ongoing.

While the Fiit Pod pilot at The Gym Group's Oxford Street location is operational, the White Hart Lane and Altrincham locations are no longer active.

The Oxford Street site, previously a Virgin Active and easyGym before TGG's acquisition in 2018, stands as one of the company's flagship properties.

The partnership with Fiit for content delivery continues, with on-demand workouts now bundled with the Ultimate membership package, a shift from the previous subscription model.

Looking ahead, PwC is exploring various avenues for growth, including format innovation, expansion of corporate wellness programs, and the introduction of new revenue streams to complement the existing business.

Orr expressed optimism for the year ahead, noting a promising start in 2024 with a 12% increase in like-for-like revenue during the first two months.

Source: healthclubmanagement