The MD of budget operator Xercise4Less talks to Kate Cracknell about a brand new partnership with Tesco

Jon Wright is a happy man, and justly so. When we speak, the MD of budget gym chain Xercise4Less has just announced a new partnership with Tesco to open health clubs within Tesco Extra stores – the larger format, out-of-town hypermarkets.

And there will be no half measures with these new clubs. Standalone Xercise4Less sites typically measure 2,800–3,700sq m (30,000–40,000sq ft) and the first in-store Tesco site – set to open in Stockton-on-Tees, north-east England, in October – will measure 3,000sq m (31,910sq ft).

“You need space with a budget operation, and we wouldn’t go below 30,000sq ft now unless it was an exceptional circumstance,” says Wright.

“We would go beyond 40,000sq ft though, if the location were right – outside of the Tesco deal, we’re currently looking at a site in Bradford that’s 47,000sq ft. We just feel we need the size, firstly to put in the additional facilities we like to offer in our clubs, and secondly to cope with the huge number of memberships that we generate. We average 11,000 members per club now, all on 12-month contracts; in Leeds we have 13,000 members.

“So we need space, because it doesn’t matter if you’re paying £15 or £50 a month: if you can’t get on kit, you’ll leave.”

Mixing it up
Supplied by Matrix, Xercise4Less gyms typically offer 400 stations of CV and resistance equipment alongside a large studio. The large footprint of the sites also means there’s space for additional facilities: there are ladies-only gyms in every club, as well as combat areas offering boxing rings, bags and MMA cages. CrossFit zones are next on the agenda.

“To put in a boxing ring costs £3,000 or £4,000 – the same as a couple pieces of kit,” says Wright. “MMA cages and CrossFit rigs cost even less. They cater for multiple users, create theatre in the club and keep things fresh and interesting for members. They also help us attract PTs into the business, ensuring they have the facilities they want to train their clients.

“We’re not trying to be all things to all people, but we do want to offer a lot of variety. I know it sounds a bit like a political statement, but we really do want to bring fitness to the masses, appealing to a broad spectrum of people and giving them the opportunity to try lots of different activities. If you just keep doing the same programme, day after day after day, you’re not going to get the results, and we’re very much results-driven. We want people to get in shape, lose weight and be fit and healthy. That’s our goal.”

He continues: “One of our early press releases ended up in the Yorkshire Post about three years ago, and the paper came up with the term ‘the people’s gym’. That’s pretty much what we’re trying to achieve: making fitness available and accessible to everybody.

“With our standard monthly fees of £15 – or £9.99 off-peak – we’ve already addressed one of the biggest obstacles to joining a gym: cost. Now, by opening clubs in supermarkets, we’re also addressing the issue of accessibility. We’re trying to remove all the barriers to exercise that we can.”

Growth plans
Wright set out on the budget gym path four years ago when he changed the model of his existing facility.

“We opened Xercise Health and Fitness Club in Castleford in 2006 and it wasn’t hugely successful for the three years it operated as a traditional club, breaking even at best,” he says with refreshing honesty.

“We switched to the budget model in January 2009. I don’t think we were visionary in that respect though – the club just wasn’t making any money and we knew we had to do something different, simple as that.

“We took the paid instructors off the gym floor, so anyone who wanted a programme had to see a personal trainer. We also removed two of our three studios, reducing the class timetable, to make way for more kit, allowing us to cater for higher volumes of members. Those were the only physical changes though, as there were no wet facilities at the club.

“We dropped our monthly fees from £25 to £15 and pretty much doubled the membership in the first three months. It’s not easy changing models by any stretch of the imagination – that’s one of the reasons we’ve steered clear of all the Fitness First clubs that came onto the market – but we managed to turn a business that was breaking even into something quite profitable within 12 months. We haven’t looked back since.”

The rebranded Xercise4Less expanded at a measured pace over the next few years, focusing primarily on the north of England. However, with club number 10 set to open in Nottingham this month, terms already agreed on sites in Bristol, Swansea and Falkirk, and Tesco lining up potential sites across the country, it’s clear the business now has a broader geographical spread in its sights.

The speed of the rollout is also set to accelerate, even independently of the Tesco deal. “We’ve just completed a minority equity sale to private equity firm The Business Growth Fund: we’ve sold 17.5 per cent of the business and raised £5m, which will allow us to massively speed up our rollout. We now expect to open 100 sites in the next three years, and we have the next 30 lined up. We’ll start ramping up to opening two clubs a month by the end of this year, and then probably three a month next year and going forward. By this time next year, we think we’ll have 34 sites open.”

Low-cost, full-service
So how does today’s Xercise4Less offering compare to the original remodelled site? What does ‘budget’ look like at an Xercise4Less facility, and who is the target market?

“The phrase we use is: ‘The only thing budget about us is our price’,” says Wright. “We have staffed receptions, a wide range of facilities and full studio timetables – around 40 classes a week, mostly with live instructors, although we’re also trialling MyRide to offer some virtual classes too.”

There are also add-on offerings such as baby ballet and karate, which cost extra, with plans to launch summer camps and an Xercise4Kids programme next year. “I think we’ve taken the best elements of budget clubs and the best elements of traditional clubs and combined them,” says Wright.

He continues: “The demographic we appeal to tends to be quite young, so our facilities have a clubby vibe. There’s a female bias: around 60 per cent of our members are women thanks to the focus on group exercise, as well as our ladies-only gym areas.

“And because our clubs are staffed, they’re very friendly. We think that’s critical. We’d never go down the faceless, self-service route. That’s not what we’re about at all, and it’s particularly important when 30 per cent of our members have never belonged to a gym before.”

That’s as may be, but with most budget operations only able to deliver low prices thanks to a heavy reliance on IT over staff, how can Xercise4Less afford to employ full-time receptionists?

“The profit margin we make on secondary spend alone covers the reception costs,” says Wright. “We sell a lot of supplements, including quite a few female ranges.”

He continues: “When we were in Las Vegas for IHRSA in March, we visited a number of clubs. They all had massive retail areas at the front selling supplements. Obviously supplements are much bigger in the US, but they’re becoming much more mainstream in the UK now too. We see that as a huge growth area and will look to build bigger retail outlets in our receptions.”

Role of technology
Beyond the reception staff, however, technology is as vital to Xercise4Less as it is to other budget clubs. “Everything’s web-based now – tills, CCTV, security… even our environmental controls are web-based, so we can control all our air handling and air conditioning units from head office.”

The focus on the gym floor remains on personal training: around 20 per cent of members take up PT at £25 an hour, with 10–15 PTs working in each club on a rental basis. However, technology is also used to drive high levels of member education, with an extensive library of instructional videos, tips and advice freely available on the Xercise4Less website to help members drive results.

“We’re also launching downloadable programmes this month,” says Wright. “We already have QR codes on all the equipment – just swipe your iPhone for a demo video on how to use the kit – but from this month you’ll be able to buy one of our new six-week programmes for £0.99. If you’d like, you can also buy a nutritional programme that accompanies it for £0.49. You just download them onto your iPhone.

“For now, we’ve come up with about 20 starter programmes such as Get Strong, Get Fit, Get Trim. Some are more male-orientated and some female-orientated. We’ll have big boards in all our clubs with details of the programmes and corresponding QR codes, so members can just scan the one they’re interested in and download it. At the end of the six weeks, the system will prompt you to move on to the next stage – we’ve developed six stages to work through.”

Tesco partnership
So turning again to the Tesco partnership, what differences will there be – if any – between the Xercise4Less at Tesco offering and the standalone Xercise4Less clubs?

“Size and offering-wise, I don’t think the model will vary much,” says Wright. “If anything, I imagine our Tesco sites will be even more female-friendly. We’ll monitor and evaluate as we go along, and it will depend on the demographics of the location, but it’s quite likely the free weights won’t be as big as we’d normally put in, for example.

“The opening hours will be the same as at other Xercise4Less sites – 6.00am-10.00pm during the week and 6.00am-8.00pm at the weekend – unless that conflicts with Tesco’s opening hours.

“They will be membership clubs just like the others too, with the same £15 a month fee. People can visit on a ‘pay as you go’ basis, to tie in with their shopping, but that costs £5 a time and membership gives you reciprocal use of all our gyms anyway, so really it makes sense to opt for the £15 a month deal.

“I expect usage patterns to be pretty much the same as at our other clubs too, as the sites are similar – they’re all big, out-of-town clubs. When we do our due diligence on a new site, one of the things we look for in any case is to be close to a big supermarket, as we know that will give us huge footfall.

“From our perspective, the key benefit of the new partnership is that it offers prime locations through which we can reach more people, to get even more people into fitness.”

Meanwhile, the partnership helps Tesco reinforce its healthy living message: the supermarket chain already announced a deal with online lead generation company payasUgym.com late last year to provide gym passes to up to 16 million Clubcard members (see http://lei.sr?a=a1F2U).

“Our store will continue to offer everything our customers need for their weekly shop, with the added benefit of a gym to help them lead a healthy lifestyle,” says Doug Wilson, Tesco corporate affairs manager. “The health and wellbeing of our customers and staff has always been a key focus for us. Fitting exercise into our days is never easy, but having a gym alongside the Tesco store means customers can access the facility at a time that suits them.”

The agreement is essentially a landlord/tenant deal, with the clubs operated by Xercise4Less. Wright says: “We’ll open the first in-store club next month – the first of many – and we’re already in discussions about the next few sites. Going forward, we’ll work together to identify potential locations.

“If you’d spoken to me 12 months ago, our business plan was to get to 40 clubs by mid-2016 in the north of England. We’ve now rewritten that business plan to get to 100 clubs UK-wide in the same timeframe. One of the catalysts behind that was the Tesco deal – it’s a great springboard to get us UK-wide.”

Success story
So what does Wright believe is the secret of Xercise4Less’s success?
“Timing, clearly: there’s never been a better time for a budget offering, with the state of the economy driving demand. I also think the lack of good customer journeys within the fitness sector as a whole plays into the hands of the budget operators – if premium clubs don’t look after their members, it only helps reinforce our value for money message.

“But the biggest thing has been the impact of the economy on the cost of setting up and running clubs – more specifically, property. Our property costs are already a bit lower than for other operators, as we opt for larger out-of-town units, but we’re probably paying no more than 30–40 per cent of what we’d have been paying six years ago. And we’re still seeing downward pressure on commercial property. I can’t see that recovering for at least another 10 years. That’s plenty of time to grow the Xercise4Less estate to the 100-club mark and beyond.”