Operators must investigate new revenue channels to grow in 2013, says Mintel’s Michael Oliver

The UK health and fitness clubs market has endured particularly tough trading conditions during the past three years, as consumers have struggled to come to terms with their real disposable income contracting month-by-month due to a combination of flat earnings growth and high inflation. That’s not to say that some businesses haven’t seen growth, but as a whole the fitness market has been relatively flat.

The mid-market segment has been particularly affected, as consumers have traded down to the fast-growing number of budget clubs springing up all over the country. Clubs which target a more affluent and older audience, and which have a greater emphasis on customer service, have found themselves to be slightly better insulated from the cold winds of austerity than others.

Faced with reduced scope (and funding) for further significant expansion of their operations, operators have been forced to look at maximising the revenues from, and efficiencies of, their existing estates. While there is undoubtedly further scope for improvement in these areas, the next few years are likely to be more about how the major health and fitness operators can extend their brand outside the walls of their clubs, particularly in terms of penetrating the digital space with products like apps and services which can be accessed digitally from the home.

These are some of the topline findings of Mintel’s latest Health and Fitness Clubs - UK report, published in November 2012.

Lifestyle choices
Despite the tough trading environment, the market for health and fitness clubs has held relatively firm, with only a slight reduction in total member numbers over the past three years – this despite the lingering effects of two recessions and a period of government-induced austerity. Our report predicted there would be 5.32 million gym members in the UK by the end of 2012.

What this demonstrates is that, for many consumers, their health and fitness club membership is now regarded as an essential part of their lifestyle – something they are not prepared to give up. Instead, they are cutting back in other areas, such as food shopping and going out to pubs and restaurants.

Around one in six adults (16 per cent) now use a private health and fitness club, with around three-quarters of these (12 per cent) being members and the balance using clubs on a pay-as-you-go basis. Reflecting the maturity of the industry, almost 40 per cent of Brits have been members of a club at some stage, while just under a quarter (23 per cent) are lapsed members. On a positive note, around a fifth (21 per cent) show an interest in becoming members in the future.

Average revenue per member, which was boosted in 2010 and 2011 by two successive years of increases in the rate of VAT, is expected to have slipped back slightly in 2012 as a result of cutbacks in secondary spending, reduced joining fee income and the growth of more affordable budget clubs. By the end of 2012, total UK market value was expected to be around £2,650m, with an average revenue per member of £498.

Regionally, the impact of unemployment and government austerity measures seems to have been most marked in the north of England, with the result that this part of the country has proved a fertile breeding ground for the budget health clubs sector.

Flexibility please
Mintel’s research has found that flexibility is the key to making health club memberships attractive to consumers. Many people have been deterred by long-term contracts and onerous terms and conditions; indeed, there continue to be a number of horror stories in the news which serve only to reinforce this impression.

But increasingly, operators have introduced more flexible membership packages, with ‘easy-in, easy-out’ options offering no contracts (for more money per month) or shorter-term memberships. This, according to Mintel’s research, is the way to go.

Customisation is a key consumer trend at present, with the ‘one size fits all’ philosophy increasingly irrelevant in today’s society. In our research, the strongest demand was found to be for a customisable membership where you only pay for the facilities you want to use, picking from a menu of options.

As well as a fully customisable membership, there is also some interest in a flexible membership package consisting of access to the fitness equipment, with a pay-as-you-use scheme for all other facilities.

Clearly, implementation could present some logistical challenges, but with access to new technology – such as the RFID wristbands/tags that are increasingly used at music concerts and major events – it is not beyond consideration.

Both of these options illustrate an underlying demand among consumers for more control over what they pay for within the health and fitness club environment: almost half of all users (47 per cent) would like an element of flexibility and customisation in their membership package. Given the current difficult economic situation, with consumers’ finances under considerable pressure, people do not wish to pay for facilities they do not use, preferring to have the option to pay for them only if they choose to use them.

Brand extension
With many of the major operators not considering any significant new openings, and member numbers flat or in some cases declining, it’s important that they look to new revenue streams for growth. Mintel’s research has found good levels of interest in products and services that would allow operators to extend their brands and generate more revenue from both members and non-members.

The most prominent of these is fitness assessments, which nearly two-fifths of consumers said they would be prepared to buy from health and fitness club companies. Around a third also expressed an interest in paying for advice on diet and nutrition, as well as physiotherapy, massage and medical assessments.

All of these are products that could be delivered inside or outside of the club environment. They also have the major advantage of offering clubs a way of establishing a dialogue with non-members, providing a platform from which to try and encourage them to trade up to membership.

Additionally, there is an opportunity to make inroads into the at-home fitness sector, through the provision of exercise videos that can be downloaded and followed at home – perhaps even a live YouTube channel so people can follow classes at home. In our research, these concepts were particularly appealing to younger consumers.

Similarly, younger people were also much more likely than average to be interested in paying for mobile phone apps from health and fitness operators – another area that could help extend operators’ brands beyond the confines of their clubs, generate incremental revenue and stimulate membership sales.