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Fitness First

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by

Nicole Riche

on 30 January 2014

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Transcript of Fitness First

About the case

Fitness First
& THE UK HEALTH & FITNESS CLUB INDUSTRY
A case presented by:
Dylan Ellerman
Tyler Hood
Nicole Riche'
Brandon Trahan

The Course of Industry Evolution
Key Success Factors
Porter's Five Forces of Competition: Profit Potential
Industry Segmentation
Fitness First Ltd. conducts meeting to discuss capital expenditures over the next four years

Proposes expansion and upgrading aimed at maintaining and strengthening Fitness First’s leadership position

Want to ensure satisfactory return on investment

Began in 1993 as a single health and fitness club
In 1996 shares became available for purchase on London’s AIM market
AIM is the London Stock Exchange’s international market for smaller growing companies
With the funds raised, Fitness First began to expand rapidly
In 2011 Fitness First claimed to be one of the largest private health and fitness club operators with 474 clubs and 1.3 million members

About Fitness First

Health club chains became popular in the 1980’s and are associated with the rise of the “young professional” social and cultural group
Major contrast between “old gyms” and the “new health clubs”
Early entrants to the industry were typically start-ups which started as a single establishment and expanded with venture capital funds

Development

Clubs differ in sophistication and luxury and in the range of equipment and services they offer
The typical pricing policy for health clubs is through annual membership contracts
An important source of profit for the industry was from consumers who signed up for memberships but used the club very little
Local authority owned gyms pressured private health clubs to lower membership fees

Facilities, Costs, and Pricing

During the financial crisis people saw health clubs as a luxury and not necessity
New club membership sales slowed
New clubs continued to grow
There has been a consolidation of the industry
Introduction of a new breed of low cost health club chains

Recent Developments

Horizontal factors
Competition from Substitutes
Competition from Entrants
Competition from Established Rivals

Vertical factors
Power of Suppliers
Power of Buyers

The Fitness Industry and
Porter’s Five Forces of Competition

Running
Private Clubs
League Sports

Competition From Substitutes

Very High Threat of Entry
Modest Cost Barrier
Low Product Differentiation
Few Legal Barriers

Competition from Entrants

Product Differentiation
Private
Commercial
Ratio of Fixed to Variable Costs
Scale Economies


Competition from Established Rivals

Price Sensitivity
How much is too much?
Bargaining Power
How important are you to the gym?

Power of Buyers

Price Sensitivity
Quality of Equipment Critical
Bargaining Power
Many Buyers in Comparison

Power of Suppliers

Saturated Industry
Small Growth in Demand
High Price Competition
High Threat of Entry


Profit Potential

Segmentation Analysis
5 stages
1. Identify possible segmentation variables
2. Construct a segmentation matrix
3. Analyze segmentation attractiveness
4. Identify key success factors in each segment
5. Analyze the attraction of broad versus narrow scope

Fitness First’s Segmentation
Most attractive: income and age

Segmentation

Influencing Industry Evolution
Important for survival in industry
Stagnant demand
Low-cost offering essential
Buyout vs Starting from Scratch
Possible closures of existing facilities
Leaving full service branches in high income areas, perhaps offering limited access to patrons of low-cost subsidiary.
Sources of Competitive Advantage in an Industry
A firm must meet
two
criteria:
1. Must supply what customers want to buy.
2. Firm must survive competition

Analysis of Demand
Who are our customers?
What are their needs?
How do they choose between competing offerings?
Analysis of Competition
What drives competition?
What are the main dimensions of competition?
How intense is the competition?
Fitness Industry Key Success Factors
The ability to offer commercial equipment at a reasonable price to consumers
Having many locations is possible if funds are available, otherwise choice of location is often endless
Easy to update what is offered and simple improvements/updates can be done to equipment as needed
http://www.fitnessfirst.co.uk/rewritefitness/
Full transcript