WEBVTT - Crunch Memberships Up Over 5% Despite Pandemic

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. The fitness industry

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<v Speaker 1>was not impacted equally during the pandemic. Those within person facility, storefronts,

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<v Speaker 1>Jim's Man, they were hit pretty hard. Those who could

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<v Speaker 1>pivot quickly, often to digital fare at a lot better. Some,

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<v Speaker 1>including fitness equipment prior providers, think Peloton fed pretty well

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<v Speaker 1>during the pandemic shutdown. Here with what's going on though

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<v Speaker 1>in the world of Crunch Fitness is Ben Midgeley. He

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<v Speaker 1>is CEO and founding partner of Crutch Fitness Franchising, and

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<v Speaker 1>he's on the phone in New Hampshire Crunch Fitness franchise.

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<v Speaker 1>Let me slow down, Ben, so I can get it right.

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<v Speaker 1>Say it five times fast. Hey, how are you great?

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<v Speaker 1>I'm doing well. Uh. You know, it's an interesting day

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<v Speaker 1>where we're being told by the CDC we can take

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<v Speaker 1>off our masks inside if you've been fully vaccinated. What's

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<v Speaker 1>going on in your world and how does it compared

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<v Speaker 1>to where we were a year ago? Well a year ago. Yeah,

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<v Speaker 1>we shut down around March fifteen, the holy industry shutdown

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<v Speaker 1>out and it was extremely hard on us and our franchise.

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<v Speaker 1>These were primarily a franchise based company. Um, the owners

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<v Speaker 1>had to really dig in and do a lot of

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<v Speaker 1>things right to make it out the other end. But

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<v Speaker 1>a year ago, if you look at March from March,

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<v Speaker 1>we actually, I believe we're the only major brand that

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<v Speaker 1>actually increased our members of the last year. We were

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<v Speaker 1>at five points six percent, while our primary competitors were

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<v Speaker 1>down anywhere from twelve to thirty five percent. So even

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<v Speaker 1>surprised us a little bit. It was a fantastic outcome.

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<v Speaker 1>And there's a lot of things they have to be

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<v Speaker 1>right along the way, but you know, we were coming

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<v Speaker 1>out the other end a bit stronger than we thought

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<v Speaker 1>we would, and we're really excited about what what's going

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<v Speaker 1>to happen that the surge is going to come. Well,

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<v Speaker 1>I want to hear positive surge going forward. I want

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<v Speaker 1>to hear about the future. Why do you think you're

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<v Speaker 1>up five percent? What did you do? What are members

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<v Speaker 1>telling you? Why are they coming back? Yeah, So, you know,

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<v Speaker 1>we look back at that a lot, and what was

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<v Speaker 1>interesting is if you look at our existing member base,

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<v Speaker 1>which I think is where most of the health was lost,

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<v Speaker 1>we only had a two percent dropped in our existing members,

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<v Speaker 1>which was fantastic, and then when we reopened, I mean

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<v Speaker 1>basically all of them came back very quickly. And we

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<v Speaker 1>think due to a couple of things. One is the

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<v Speaker 1>community field you get in the clubs. I think a

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<v Speaker 1>lot of people are just missing that interaction due to

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<v Speaker 1>such an elongated shutdown. Our clubs were in the low price,

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<v Speaker 1>high value space, but we have a lot more in

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<v Speaker 1>our clubs and most competitors do. You've got the weights,

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<v Speaker 1>you've got group fitness, you've got the rod, you've got

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<v Speaker 1>hit classes, personal training, you know, relax and recovery. Just

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<v Speaker 1>a tremendous amount of things, so more reasons I think

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<v Speaker 1>to come back to the club than some of the

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<v Speaker 1>other clubs might offer. And then UM member trust was big.

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<v Speaker 1>You know that the trust for our members that we

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<v Speaker 1>were doing the right thing for them was important. We

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<v Speaker 1>stopped feeling when we should when some other brands didn't.

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<v Speaker 1>I'm sure you saw that in the news that that's

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<v Speaker 1>what I wanted to just remind us what you did,

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<v Speaker 1>because I know that there's been places that I supported

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<v Speaker 1>just because they were small businesses and I didn't want

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<v Speaker 1>to see them go to the downside, so I was

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<v Speaker 1>still paying. But what did you guys do did your

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<v Speaker 1>members to keep the membership? Uh? Intact? Did you wave

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<v Speaker 1>monthly fees? What did you do? Well, we build every

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<v Speaker 1>day in our business, So if you joined on the

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<v Speaker 1>you know, the twelve, you get built on the twelve.

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<v Speaker 1>So as the days came up, which we closed around

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<v Speaker 1>the fifteenth and the sixteenth, we begin to stop building

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<v Speaker 1>people immediately after that. Now there was a little bit

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<v Speaker 1>of a rolling closure depending on the different states. It

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<v Speaker 1>didn't all happen within two days rolled in, but then

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<v Speaker 1>we sent out guidance to all the clubs and the franchises.

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<v Speaker 1>You know, they're independent business owners, but they're extremely receptive

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<v Speaker 1>and from a company standpoint, the best and the right

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<v Speaker 1>thing to do is to stop builing members immediately and

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<v Speaker 1>then you know, bill when you reopen. That's what we did,

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<v Speaker 1>and some other companies took a little bit of a

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<v Speaker 1>gamble and you know, continue to build or wait until

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<v Speaker 1>that next half on the April one, and just figured

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<v Speaker 1>we'll try that and that that obviously stung a lot

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<v Speaker 1>of people, and that was the wrong thing to do,

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<v Speaker 1>all right, So interesting, but that explains to how you

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<v Speaker 1>were able to kind of hold onto your membership write

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<v Speaker 1>those numbers. Yeah, And I think the other aspect of

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<v Speaker 1>that is, you know, the clubs took cleanliness really safely

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<v Speaker 1>and safety precautions extremely seriously, I believe, we mean as

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<v Speaker 1>they reopened, as they reopened even yeah, exactly. And prior

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<v Speaker 1>to that, we were I believe the first club to

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<v Speaker 1>have our our readiness plan out and to our franchisees.

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<v Speaker 1>We had it out to them within three weeks of

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<v Speaker 1>the closures. So that gave him a really good tool

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<v Speaker 1>to work on to make sure they were prepped and

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<v Speaker 1>prepared to open. And then you know, the franchiseess did

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<v Speaker 1>a great job with member communication, team training, and facility preparedness.

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<v Speaker 1>So um, you know, it's it's all on their shoulders,

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<v Speaker 1>all the credit and then of course the p PP loans,

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<v Speaker 1>the ideal, all that sort of support that really helps

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<v Speaker 1>him get through it too. Yeah. We talked to Jim

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<v Speaker 1>really over a crunch, you know, and he talked you know,

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<v Speaker 1>I think we talked him about the reopening plan and

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<v Speaker 1>it was pretty extensive, a lot of pages, if I recall, Yeah,

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<v Speaker 1>it was it was about forty pages, and there was

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<v Speaker 1>a was a really big team effort with their franchisees.

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<v Speaker 1>Jim led that process, of course, and then uh, you

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<v Speaker 1>know it was it was important, you know, but it's

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<v Speaker 1>one of those things that franchisees you probably look at

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<v Speaker 1>and say, Jesus a lot of writing, But when you

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<v Speaker 1>look back a year later, you think, hey, this was

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<v Speaker 1>great to have. Well, you have a playbook now in place. Uh,

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<v Speaker 1>And I do wonder are you guys planning for maybe

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<v Speaker 1>another shutdown in the future. Were are already talking with

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<v Speaker 1>the medical community about the importance of booster shots and

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<v Speaker 1>people are marking their calendars about I got the two vaccines,

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<v Speaker 1>but six months now from now, I've got to get

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<v Speaker 1>a booster shot otherwise we could see, you know, a

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<v Speaker 1>flare up. Are you guys planning for figuring out how

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<v Speaker 1>to maybe deal with another shutdown anytime in the near future?

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<v Speaker 1>And we've got about thirty seconds and I'll come back

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<v Speaker 1>and talk. We're planning for it. I hope it doesn't happen,

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<v Speaker 1>you know what I mean, We have it down, that's

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<v Speaker 1>down for this type of a situation. I mean, the

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<v Speaker 1>trick with business planning is you're continuency planning. How why

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<v Speaker 1>do you go Uh? You know, you've got to look

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<v Speaker 1>at natural disasters and all sorts of things. So we're

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<v Speaker 1>trying to constantly expand our our contingency planning and emergency

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<v Speaker 1>planning for whatever situation arises. Okay, let's get back to

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<v Speaker 1>Ben Midgeley, chief executive officer, founding partner Crunch fitness franchise,

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<v Speaker 1>still with us on the phone from New Hampshire, So

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<v Speaker 1>making your way back, Um, are all the franchises coming back?

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<v Speaker 1>Did anybody have to shut down permanently over the last year,

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<v Speaker 1>including international? We shut down a few clubs single digits.

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<v Speaker 1>Some of them were pre planned locations were too small

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<v Speaker 1>or had to move them or what have you. But

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<v Speaker 1>I'd say i'd say probably about four out of three

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<v Speaker 1>n fifty were you know, pandemic related. And then so

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<v Speaker 1>how are you thinking about the reopening trade and the

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<v Speaker 1>reopening of the economy. It's something I gotta tell you, Ben,

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<v Speaker 1>We are trying to assess day today. A lot of

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<v Speaker 1>CEOs and leaders aren't giving a lot of visibility. Still,

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<v Speaker 1>I think we understand we're going to have a significant

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<v Speaker 1>bounce back around now and maybe probably into the next

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<v Speaker 1>quarter easily as things reopen and there's a lot of

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<v Speaker 1>stimulus money out there, but how do you see it

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<v Speaker 1>and are you confident to make some significant investments in

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<v Speaker 1>terms of expansion at this point? Sure for us, I

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<v Speaker 1>think we're certainly on the more optimistic side, and you

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<v Speaker 1>know we're not shy about that for for a few reasons,

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<v Speaker 1>some not great, but at least for our industry. One

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<v Speaker 1>is we've had a loss of a lot of competitors,

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<v Speaker 1>which I say that with a heavy heart because you

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<v Speaker 1>never want to see you know a lot of folks

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<v Speaker 1>in the industry, which I've been in for thirty years,

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<v Speaker 1>so I know a lot of these operators have have

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<v Speaker 1>lost the businesses. But it's estimated that about se of

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<v Speaker 1>the health clouds of closing the industry, which actually during

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<v Speaker 1>your break it mentioned the joint sentence sponsorship for the

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<v Speaker 1>gim Zac, which is fantastic, So hopefully that that will

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<v Speaker 1>get traction and get past and be able to provide support,

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<v Speaker 1>UH support to industry operators. But there's a significant loss

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<v Speaker 1>of competitors, which which needs there is more market share

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<v Speaker 1>you have to go around. UH. Real estate is softening.

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<v Speaker 1>A lot of tents went out of business, so landlords

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<v Speaker 1>have become much more open and accommodating to bring in

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<v Speaker 1>thirty thousand square foot tenant that can bring you know,

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<v Speaker 1>six seven thousand people into the center. So that's worked

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<v Speaker 1>out really well for us. Our brands getting stronger, you know,

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<v Speaker 1>as our footprint expands, we're getting more exposures, so more

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<v Speaker 1>people are looking for Crunch to come in into the neighborhood.

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<v Speaker 1>And the momentum we carried throughout the the pandemic has

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<v Speaker 1>really helped us. Right if we opened about forty clubs

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<v Speaker 1>last year and we grew in membership. So for us,

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<v Speaker 1>that's a really good sign. As things open up and

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<v Speaker 1>people get back out, we've only got growth to go

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<v Speaker 1>from here. So Equinuh, Equinox always say it wrong. Uh,

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<v Speaker 1>you know them well, a competitor and they're talking about,

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<v Speaker 1>you know, going public via a spack. How does that

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<v Speaker 1>potentially maybe some new capital being put into them? Certainly

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<v Speaker 1>a well known changes like you guys, how does it

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<v Speaker 1>maybe change the dynamics for you in the competitive landscape.

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<v Speaker 1>I don't think it changes the competitive dynamic for us. Um.

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<v Speaker 1>You know, we're we're in the game for a while now.

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<v Speaker 1>We've got a longer term view. As you know, we

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<v Speaker 1>had a transaction with TPG Growth just a couple of

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<v Speaker 1>years ago. I know you and Gemen talked about that

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<v Speaker 1>several times. They're fantastic partners. They love the business and

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<v Speaker 1>and they like like you, who have also invested in

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<v Speaker 1>the business, were very focused on where we can take this.

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<v Speaker 1>I think looking at Equinox, that's going to be interesting

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<v Speaker 1>to watch. Right, that's really the first time something like

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<v Speaker 1>that could happen in our industry if that works out.

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<v Speaker 1>They had significant losses last year and they're looking for

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<v Speaker 1>a big valuation. So we're gonna certainly keep an eye

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<v Speaker 1>on that. Right, see why happens with that, But it

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<v Speaker 1>won't change our game plan going forward, Okay, it won't

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<v Speaker 1>change it in any ways. It's interesting. Well, you know,

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<v Speaker 1>it is fascinating to the private equity world. My former

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<v Speaker 1>co host Jason Kelly has written about it and his

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<v Speaker 1>his book Sweat Equity about you know, private equity and

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<v Speaker 1>their involvement in the fitness world. How are they really

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<v Speaker 1>great partners for you guys? Well, I mean every private

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<v Speaker 1>equity firm is different, so I can only speak. We've

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<v Speaker 1>had experience with our current partner, TPG Growth is extremely engaged.

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<v Speaker 1>They did a tremendous amount of diligence on the business.

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<v Speaker 1>I mean, they're fantastic company obviously part of the greater

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<v Speaker 1>TPG that you know has a tremendous amount of business

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<v Speaker 1>ownership at spotting trends and how businesses are going to

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<v Speaker 1>perform in the future. So um, you know, they did

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<v Speaker 1>a lot of research on our space. Obviously, we've always

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<v Speaker 1>been bullish on it as management. I mean, we grew

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<v Speaker 1>this company from no franchises ten years ago to almost

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<v Speaker 1>sold right and we're approaching two million members here pretty quickly,

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<v Speaker 1>so it's all worked out pretty well. And you know,

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<v Speaker 1>TPG growth brings lot of sophistication into the business perhaps

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<v Speaker 1>that we didn't have before. So we're just starting to

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<v Speaker 1>take advantage of that and see those changes come into motion,

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<v Speaker 1>which I think is really going to accelerate our growth

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<v Speaker 1>going forward. So one thing I'm curious about is what's

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<v Speaker 1>next and the future. I'm someone who's done yoga for

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<v Speaker 1>a long time, and my yoga instructor, who have started

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<v Speaker 1>with for years, was able to do things digitally and

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<v Speaker 1>she's really carved out a niche that she really wasn't

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<v Speaker 1>doing before. You know, she was traveling the world, you know,

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<v Speaker 1>teaching courses and teaching in her in her home town

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<v Speaker 1>as well. Um. But what's interesting is I was on

0:10:36.320 --> 0:10:38.040
<v Speaker 1>a class the other day and someone was in Japan,

0:10:38.120 --> 0:10:41.520
<v Speaker 1>someone was all over the country, and I do wonder

0:10:41.520 --> 0:10:44.840
<v Speaker 1>about the digital role in the fitness business. How do

0:10:44.960 --> 0:10:47.920
<v Speaker 1>you guys embrace it? Will it be important going forward

0:10:48.040 --> 0:10:51.760
<v Speaker 1>or not as much as the world reopens in your view? Well,

0:10:51.800 --> 0:10:54.040
<v Speaker 1>I think from that standpoint, in terms of the individual

0:10:54.040 --> 0:10:56.160
<v Speaker 1>operators that he talked about, it's fantastic that they can

0:10:56.200 --> 0:10:59.640
<v Speaker 1>expand their business right and getting people healthy, which is

0:10:59.679 --> 0:11:01.920
<v Speaker 1>the goal of the industry anyway. It cuted our goals

0:11:01.920 --> 0:11:03.520
<v Speaker 1>to help people get healthy, So the more people that

0:11:03.559 --> 0:11:06.679
<v Speaker 1>are exercising the better. In terms of digital is important.

0:11:06.960 --> 0:11:09.400
<v Speaker 1>Obviously there was a boom in it. Um. I think

0:11:09.440 --> 0:11:13.520
<v Speaker 1>any brick and mortar business has to integrate that properly.

0:11:14.200 --> 0:11:16.240
<v Speaker 1>Most of the companies in our industry, they certainly don't

0:11:16.280 --> 0:11:19.040
<v Speaker 1>have the jobs to go up against you know, Apple

0:11:19.120 --> 0:11:22.720
<v Speaker 1>in that space, or or Peloton or you know some

0:11:22.800 --> 0:11:24.400
<v Speaker 1>of these others Beach Body that have been doing it

0:11:24.440 --> 0:11:27.800
<v Speaker 1>for years. But you can certainly integrate really high quality

0:11:27.840 --> 0:11:30.600
<v Speaker 1>content into your offering to supplement what your members are doing.

0:11:31.040 --> 0:11:32.720
<v Speaker 1>We've been in the space for a while with something

0:11:32.760 --> 0:11:35.920
<v Speaker 1>called Crunch Live. Our workouts, which you guys have spoke

0:11:35.960 --> 0:11:37.840
<v Speaker 1>about before you know it jumped up to about a

0:11:37.880 --> 0:11:39.880
<v Speaker 1>hundred thousand workouts the day. They've gone down a bit

0:11:39.920 --> 0:11:43.040
<v Speaker 1>since then, but we've certainly looked at this as something

0:11:43.080 --> 0:11:45.840
<v Speaker 1>we need to reinvest in and make an even higher

0:11:45.920 --> 0:11:48.600
<v Speaker 1>quality product because our members do appreciate that. That doesn't

0:11:48.640 --> 0:11:50.320
<v Speaker 1>mean they're going to drop their health club membership and

0:11:50.320 --> 0:11:53.080
<v Speaker 1>switch over it is. It is a supplement and as

0:11:53.120 --> 0:11:55.080
<v Speaker 1>far as the greater industry goes, you know, there's sixty

0:11:55.120 --> 0:11:57.839
<v Speaker 1>million members of health clubs in the US and prior

0:11:57.880 --> 0:11:59.719
<v Speaker 1>to this pandemic the industry has going at three to

0:11:59.800 --> 0:12:02.400
<v Speaker 1>four per cent for about ten years. So as we

0:12:02.480 --> 0:12:04.600
<v Speaker 1>come out of this, we do expect that growth going

0:12:04.640 --> 0:12:08.000
<v Speaker 1>to continue to grow at that rate, maybe even faster.

0:12:08.240 --> 0:12:09.840
<v Speaker 1>And then one thing that a lot of people don't

0:12:09.840 --> 0:12:12.760
<v Speaker 1>think about is about thirty of the people who work

0:12:12.760 --> 0:12:15.880
<v Speaker 1>out at home or have a UM, you know, some

0:12:15.920 --> 0:12:18.440
<v Speaker 1>sort of supplemental exercise routine that they do also have

0:12:18.480 --> 0:12:22.160
<v Speaker 1>to about membership. So it's not really either or you know,

0:12:22.760 --> 0:12:26.040
<v Speaker 1>option amend each other and grow together well listen. I

0:12:26.160 --> 0:12:28.040
<v Speaker 1>really great to check in with you, and I hope

0:12:28.280 --> 0:12:29.680
<v Speaker 1>we can do so again a little bit later in

0:12:29.679 --> 0:12:32.199
<v Speaker 1>the year and see how things are going, especially as

0:12:32.200 --> 0:12:37.360
<v Speaker 1>the world fingers cross masks off that we continue to reopen.

0:12:38.040 --> 0:12:40.720
<v Speaker 1>Ben take care of stays safe. Ben Midgley, CEO and

0:12:40.720 --> 0:12:43.720
<v Speaker 1>founding partner of our Crunch fitness franchising on the phone

0:12:44.200 --> 0:12:45.359
<v Speaker 1>in New Hampshire,