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Attracting Your Market Share

The solution to the 14-percent penetration problem involves analyzing your facility's market.

There has been much discussion of late, in Fitness Management and other industry publications, about fitness center "penetration rates." It seems that the penetration rate of U.S. fitness centers is 14 percent of the population, and everyone would like to see that figure move higher. As the owner of an independent, small club business, much of the angst surrounding this issue is lost on me. Is it a big surprise that 86 percent of the population does not want to buy what we are selling? If that figure were only 84 percent or even 80 percent, would we all breathe a sigh of relief and think we've solved our problems?

The supply driven mentality

I have seen many arguments over the years that the fitness industry needs still more locations, to sell to more people and have more sophisticated sales processes. The argument seems to be that if we can get our product in front of enough people, and if we employ more sophisticated sales techniques, then surely our penetration rate would grow. In fact, in the second edition of the International Health, Racquet and Sportsclub Association's (IHRSA) Guide to the Health Club Industry for Lenders and Investors, there are statistics that clearly support the notion that more facilities will lead to more members. To quote page 47, "To a significant extent, the U.S. health club industry remains 'supply driven,' which is to say every new club creates its own coterie of new first-time club members. Currently, according to American Sports Data, 45 percent of all health club members are first-time members; i.e., the club to which they currently belong is the first and only club that they have ever joined. Hence, in the health club industry, the competitive issue is not solely one of dividing the pie into progressively smaller pieces. It is also a function of how successful the industry is in expanding the number of first-time health club members."
Fitness centers are popping up everywhere, and you need to anticipate where the next one will be.
This supply driven mentality has been in full force for many years. According to IHRSA statistics, since 2000, the number of fitness centers has increased by 70 percent, while the number of members has increased by about 25 percent. If the increase in supply brings more demand, where did everybody go?

We're competing for the same members

Let's face it. The reason our penetration rate misses 86 percent of the population is that we sell a product most people don't want. Additionally, our industry seems better at replicating more locations that compete for the same members than attracting brand-new exercisers. New geographic locations might attract new people who finally have a facility that is within their travel time and pricing tolerance. But, we're obviously doing a lousy job of appealing to anything other than proximity and price, and of keeping the people we already have.

Your club and the 14-percent penetration rate

What's the small club owner to do? I think it relates to the phrase, "think globally, act locally." Think globally about your market. The 14 percent penetration rate is important because it will help you analyze your fitness center. Do you know how many people live within eight to 12 minutes of your facility? When you take that figure and multiple it by 14 percent, you'll have a thumbnail figure on the potential market surrounding your facility. In some locations, especially in urban areas or where there are higher education and income levels, the penetration rate could be as high as 20 percent, but I never suggest using a best-case scenario for any market analysis. I'd suggest you use 10 percent penetration and an eight-minute travel time so that you are better safe than sorry when it comes to estimating your potential market. You also need to know your competitive landscape and where the markets overlap, but I'd suggest that you go a step further and start assuming that a new club (or clubs) will open that will overlap even more with you and/or directly compete. Fitness centers are popping up everywhere, and you need to anticipate where the next one will be. Even if you are wrong about the location, at least you'll be running your business with a healthy paranoia that acknowledges the inevitability of more competition. How you run your facility, who you attract, your reputation in your community, your staff and every other detail of your business then become the "act locally" part. Everything you do, every prospect's first impression, every member's ongoing experience, will determine whether you attract your fair share of that 14 percent. And, in the long run, whether that 14 percent figure grows.
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