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Everyone’s talking about...: Expanding overseas
As the economy improves, will health and fitness operators start to eye new markets, bringing about the next wave of international expansion, or will they build on their current bases?
One year ago in this panel feature, we looked at how health and fitness brands could go global. At that point, however, the situation was not overly positive: Fitness First was the biggest global player but had sold off clubs in Benelux, France, Spain and Italy, as well as the UK. Few companies seemed to have ambitions to become big global players.
A year on, things have changed. The UK economy is growing again, house prices and consumer confidence are on the up and the health club industry appears to have toughed out the recession.
There’s certainly a buzz about, but will this translate into the next wave of international expansion for operators?
A number of chains have announced they are looking at opportunities overseas. After some tough times, Fitness First is growing again, especially in Asia. Virgin Active is also expanding across borders, and Holmes Place has announced it’s stepping up expansion in central Europe and the Iberian Peninsula; with 31 per cent of its membership now in continental Europe, the chain has designs on being the leading premium health club in the region.
Meanwhile, in the budget sector, easyGym says it’s setting its sights on countries where easyJet has a strong presence, leveraging brand recognition. It expects to have 200 gyms, and one million members, in multiple countries within the next six to seven years. And The Gym Group has also recently announced plans to expand into “Europe and beyond”, kicking off in 2015.
Is this a trend more operators will follow? Will more budget chains look for new markets for their concepts as the competition gets tougher in mature markets? Or will barriers such as local market knowledge and capital costs make players more conservative?
Where are the main areas of opportunity, and will all the operators be fighting over the same territories? How risky is an overseas development strategy, and what part might technology play in international expansion? We ask our panel of experts for their thoughts.
Are you looking to extend your operation overseas? Email us: [email protected]
Mark Hutcheon,
Director of communications,
Fitness First
“Many operators are already expanding overseas: if you have a solid base in one territory, it makes it easier to go into markets with parallels.
At the moment, a lot of places are ripe for expansion. Fitness First looks for sites with rising populations and rising incomes – because of this, we think there will be a wave of expansion on a city by city basis, rather than country by country. Delhi, Istanbul and Rio are currently looking like they can be future hotspots. If you get in early with a flexible model and competitive proposition, when the penetration rate is still only about 5 per cent, there are good opportunities for expansion.
However, the risks are high. Overseas expansion is not a quick buck: it’s a long-term proposition so plenty of capital, patience and above all integrity is essential to long-term success. Companies have to invest in service and standards – they can’t cut corners and must continually differentiate to meet consumer demand.
Going forward, Fitness First’s international expansion will be more about digital products and services, with differently priced online memberships that take our expertise beyond the gym to a potentially larger audience.”
John Kersh,
International Development,
Anytime Fitness
“I’m not sure we’re set for a rash of overseas development. Expansion across borders requires an immense amount of capital and the risk of failure is high. It’s difficult enough for fitness operators to stay relevant and successful within their own borders, much less when spread thin across multiple countries.
A major challenge when expanding is to not divert attention from domestic business, while also devoting adequate attention to localising the brand in new markets. Local competitors know the market much better than a foreign operator and can more easily exploit local opportunities. A foreign operator can run into unfortunate challenges by misreading the market or making mistakes with legal or financial assumptions.
Although we’re seeing lots of interest from the Middle East and Asia, the challenge in both regions is the very low awareness of the benefits of exercise and joining a health club.
I view these markets as a very long-term growth opportunity.
At least one Australian company is expanding into Europe now, and several Asian and Latin American companies are crossing borders within their own continents. A handful of American and British companies are dabbling with foreign expansion, although very few are making great strides.”
Paul Lorimer-Wing,
CEO,
easyGym
“Ithink we’re ready for the next wave of international expansion, especially in the low-cost sector. As the world gets wealthier, the spending power of the middle class gets stronger; and as the world gets less healthy, the awareness of good health grows. All this will fuel the appetite for health clubs.
I think there are strong opportunities all over the world, especially in emerging markets. Even though the US is the market leader, I still see many opportunities for growth there, as well as across Europe, in parts of Asia, Brazil and Mexico. South Africa has opportunities and Nigeria has a large economy. The Middle East is also a strong contender.
The strongest, most capital-rich companies will go out and exploit these opportunities. If you don’t have the capital capacity or the appetite for risk, you won’t stand a chance – all these opportunities come with risk.
The main threats are not understanding the market and not having a local partner. A copy and paste approach is not the path to success: adaptation is necessary.
Neither is it a ‘get rich quick’ situation – it will require significant commitment and dedication, and finding the right properties at the right price will be crucial.”
James Balfour,
CEO,
1Rebel
“For companies that have an appetite for risk, the emerging markets can offer a huge amount of growth going forward. Meanwhile, both at home and in mature markets, there’s the opportunity for a shake-up. However, I don’t think the industry is set for the next wave of international expansion, as a lot of the major operators are laden with debt and acting cautiously.
One of the risks of expansion overseas is that operators take their eye off their core assets at home, neglecting their ageing estates and failing to attract new members. It’s important for businesses to stay ahead of the game in all their businesses while they are pushing ahead with international expansion.
Various franchise operators are seeing continued overseas growth, as franchising offers speed to markets, and this is 1Rebel’s preferred route for overseas expansion. We will be launching an international franchise department to take advantage of growing demand from key international cities, but we’re still taking a conservative approach. We think 20 clubs over five years is appropriate. Our brand works best in transient markets where the population changes, so we will be looking at locations such as Hong Kong and Singapore.”
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