Low-cost vs luxury gyms

With consumers already familiar with limited service hotels, why not provide them with budget gyms too, says Miles Rimell, head of marketing at fitness equipment supplier Precor

In a region known for luxury, wealth and all-things opulent, where every new development is the biggest, the tallest or the most expensive, surely the low-cost sector doesn’t stand a chance? After all, budget means basic and basic often translates as ‘roughing it’, and we all know that’s not what customers used to the finer things in life want. Or is it?

Whether it’s caused by the recession or just savvy customers asking ‘why should I pay more?’, consumers are starting to wear their ‘budget’ purchasing decisions as something of a badge of honour. Whereas once what we bought and how much we paid was an indicator of success, suddenly it’s hunting out a bargain that demonstrates both wisdom and social standing.

“Chief executives now fly easyJet, businessmen mix and match a £500 (US $784) designer suit with a bargain shirt and sales directors drive their luxurious Mercedes to sleep at a £29 ($45) per night Premier Inn,’ says Ray Algar, managing director of UK-based Oxygen Consulting and author of the 2010 UK Low-cost Gym Sector Report.

“‘Cross-shopping’ has taken off because consumers are realising that low-cost operators are not peddling inferior goods. You can sleep well at a Premier Inn, and easyJet uses the sophisticated Airbus A319.’”

Low-cost may not immediately spring to mind when you consider leisure facilities in the UAE, but the trend towards precision-guided purchasing and value-for-money offerings has already started. Budget hotels are already one of the region’s fastest growing travel sectors. The easyHotel Dubai, Jebel Ali — the chain’s first venture outside Europe — recently opened its doors and Premier Inn has plans to open low-cost hotels in Abu Dhabi, Muscat, Doha and Riyadh following its success in Dubai. It’s only natural that gyms are next in line.

“The shift to low-cost has gained momentum over the past year as the recessionary environment has encouraged consumers to test low-cost brands,’ says Algar. “‘Can I pay less?’ is an obvious question that many gym-goers are now asking.”

What is a low-cost gym?

In order to embrace the low-cost gyms concept and ensure it has an impact on the bottom line, it’s vital to understand what it means.

“An ‘authentic’ low-cost gym has five key characteristics (see Figure 1: Definition of a low-cost gym). These help to create a new and exciting consumer proposition that fundamentally ‘disrupts’ the rules upon which the fitness industry was first built,” explains Algar.

A low-cost gym is a compact, tightly-run and efficient operation. Gone are the costly non-core elements such as swimming pools, studios, cafés and treatment rooms associated with ‘traditional’ health clubs. In their place are new USPs such as online joining, computerised terminals offering programmes and exercise advice, 24-hour opening and quality equipment that could rival any mid-market club, all at a membership fee that’s 50% below the industry average.

“A low-cost gym isn’t an inferior experience, just a narrower one,” says Algar. “The operator chooses not to offer ancillary services, instead focusing on creating a very good gym-only offering.”

This means design, ambience and commercial grade, branded equipment that benchmarks well against mid-market alternatives. Outdated equipment just won’t do — when the ethos is to do less, what is done must be done well.

“Walking into a low-cost gym and finding it full of top of the range equipment helps to create the ‘surprise factor ’ which in turn spreads a good reputation,’ Algar says.

It’s a business model that seems almost tailor-made for the UAE — the solution to turning a largely unused apartment or hotel gym into a profit centre in its own right. And in a region where obesity is now making headlines, low-cost gyms offer a creative way to capitalise on the increased demand as local residents begin to make fitness a focus.

The experiences of low-cost gym providers in the UK, Europe and the US show that if the model is right, consumers will flock in droves. Take McFit, Europe’s leading low-cost gym business. It has been trading in Germany for 13 years, is credited with fundamentally changing the structure of the entire German fitness industry, and should have a million members at the end of 2010.

“The factors we’ve seen driving the growth of low-cost gyms have been affordability, simplicity, consumer opinion of ‘traditional’ clubs and a backlash against conspicuous consumption,’ explains Algar (see Figure 2: Key market drivers).

“Many first-time gym goers are attracted because low-cost gyms cost at least 50% less than the average rate, often with a ‘no contract’ proposition. This means they can try, safe in the knowledge that they can leave at any time.

“Stripping away the extra facilities associated with a ‘full-service’ club also makes the proposition very clear. Coupled with this, the pricing policy is reduced to a maximum of one or two options (a monthly ‘leave-at-any-time’ price or a lower contract price) taking away the ‘choice trauma’ that comes from having too many membership types and prices,” Algar adds.

For customers who are already gym members, but attend infrequently, the low-cost offering can make ‘traditional’ clubs look poor value. These gym switchers are drawn because they can choose service elements that have specific personal value to them. A consumer who never uses the pool at their gym still ‘pays’ for it, whereas at a low-cost gym, the term ‘you get what you pay for’ comes into its own.

“McFit, for example, charges members 0.50 cents for a shower. Some may think that’s foolish, because the accepted ‘wisdom’ is that this is included in the membership price. However, the reality is that many members don’t use club showers. So showers ‘included’ provides no value to them,’ says Algar.

Lastly, the move away from conspicuous consumption is not to be underestimated. “Not so long ago, surrounding oneself with ‘aspirational’ items and showing them off at every opportunity helped to define our place in the social ‘pecking order,’” says Algar. “Consumers now seem less concerned with purchasing ‘status’ and more interested in receiving value. It’s no longer a contradiction to ‘mix and match’ premium and ‘low-cost’ brands.”

Moving forwards

The UK low-cost sector now has a strong sense of momentum, with several brands planning to take advantage of affordable property created by the recession to increase their club portfolio. In the last two years, six new low-cost brands have launched, each with aggressive growth strategies.

“In Germany, where the low-cost formula has been established for 13 years, approximately one-third of all members now belong to this category,” says Herman Rutgers, executive director of the European Health and Fitness Association.

The trend has already begun to infiltrate the Middle East’s fitness scene — Fit4less (an énergie fitness clubs brand) has opened a low-cost club in Qatar.

“Location is key. We target territories that are well catered for by mid-market and premium operators. These areas already have the savvy past and present fitness club members who value the Fit4less proposition,” says group brand and marketing director, David Beattie.

Even in a region that defines itself by offering unmatchable luxury, it’s a trend that can only continue. The mid-market and premium sectors will play a key role, but they must clarify their added value.

“We shouldn’t expect consumers to automatically flock back to premium goods and services after a recession,’ says Algar.
The market, ultimately, drives the price and in the long run, the consumer will define which sectors will succeed. Those who provide the facilities to meet the need will reap the benefits.