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In the true spirit of an entrepreneur, Chris Rondeau followed his passion for hard work and risk taking to help build Planet Fitness (PLNT) into a company that has turned the health club industry on its head.

Rondeau, who became CEO of Planet Fitness in January 2013, joined the company while he was in college working at the front desk of the gym in 1993, a year after the company was founded by brothers Michael and Marc Grondahl.

And he's been at Planet Fitness ever since, working his way up as a club manager, then regional manager of several locations. In 2003, he became a partner with the founders and chief operating officer. When Rondeau became CEO, he replaced Michael Grondahl, who has since left the company.

Drawing on the leadership principles shaped by his various positions at Planet Fitness and by lessons he gleaned from his father, Rondeau played a major role helping the founders develop and refine the business model that has helped grow the business into a mighty contender in the fitness industry.

Rondeau learned about being an entrepreneur from his father, who dropped out of high school but eventually owned and operated several pharmacies throughout Massachusetts while Rondeau was growing up.

"As a child growing up I saw him working hard," Rondeau told IBD. "I got my work ethic from him."

"The one thing my father taught me is I could do anything I set my mind to," he added. "Coming from him without a high school education, he was living proof."

Took Risks

That lesson came into play when Rondeau and the Planet Fitness founders revamped the traditional health club environment aimed at fitness buffs to one that caters to first-time gymgoers with a non-intimidating, low-cost business model.

Rondeau says over 40% of current Planet Fitness members had never gone to a gym before signing up at Planet Fitness.

"The key to success in business is not to be afraid of doing things differently," said Rondeau. "Don't be afraid of going against the grain. When you think of the Apple (AAPL) iPhone, people didn't realize there was anything better than the flip phones that were offered to them by every phone company out there. Apple wasn't afraid to abandon the flip phone and the competition by creating something new."

Similarly, Rondeau and the founders of Planet Fitness went against the grain and created a completely different gym experience than what was in the industry. People didn't realize the experience and affordability they were missing until Planet Fitness created it.

Rondeau and the founders not only created an innovative new business model, they also transformed Planet Fitness into a major force in its space.

"Planet Fitness is exceptionally competitive because of its national footprint and growing awareness of its different approach to the market aimed at non-gymgoers," Cowen & Co. analyst Oliver Chen told IBD. "It's a business model that's revolutionized fitness because of the attractiveness of this model to a wide market and low price. It's offering a very premium gym experience at a low price."

Planet Fitness is one of the largest owners and operators of health clubs in the U.S. in terms of the number of members and locations, Dorvin Lively, president and CFO of Planet Fitness, told IBD.

It boasts over 10.5 million members, up from 7 million at the end of 2012, just before Rondeau took the helm. And it has 1,500 locations nationwide. Over 95% of its stores are owned and operated by franchisees.

"We are clearly opening more health clubs in the U.S. at a faster rate than anyone," Lively said. "We've opened roughly 200 stores a year for the past three years."

On the financial front, he adds, Planet Fitness has had 43 straight quarters of positive same-store sales.

"That's 10 years plus three quarters," Lively pointed out. In the 2017 third quarter, same-store sales jumped 9.3% from a year earlier and revenue climbed 12.1%.

Another reflection of Planet Fitness' financial success is that over 95% of its stores opened in the last three years were opened by existing franchisees and more than 90% of all of the new territory being sold has been sold to existing franchisees, Lively says.

"That proves that the brand is growing and the profitability is there, and franchisees want to continue to invest in their businesses in their local markets to grow the brand," he added.

Pursued Passion

Rondeau, 44, grew up in Methuen, Mass. He started busing tables and dishwashing at age 14, and at 16 he got a job working at his father's pharmacy business. But at age 19 Rondeau told his father he didn't want to work for him anymore because he decided he wanted to work at a gym - Planet Fitness.

Eventually, Rondeau dropped out of college - the University of New Hampshire - to work full time at Planet Fitness, and earned an associate degree rather than a bachelor's degree.

Why did he opt to stay at Planet Fitness?

"Unfortunately, I was never one for school, yet I loved to work, and haven't stopped since my first job busing tables and dishwashing at the age of 14," Rondeau said. "Planet Fitness is only the third job I ever had. I liked fitness and I liked the work environment at a gym, meaning it's a positive atmosphere, and we were doing good things. I believed we were onto something special with making fitness affordable and comfortable for the masses. So I stayed, followed my passion, and chose not to pursue my bachelor's degree."

Moving up through the ranks at Planet Fitness helped Rondeau become a better leader.

"The lesson I learned from being in various jobs at Planet Fitness is being able to put yourself in the mindset of your customers and understand how they're thinking. And that allows you to service them better and market the business better," Rondeau said.

That lesson helped Rondeau and the founders design the new business model.

"In high school and college, exercise was my passion," he said. "As I continued to get older into my late 20s it started to become more of a chore that I had to do for health and wellness vs. a hobby."

Rondeau says that the founders shared his feelings about exercising becoming a chore as they got older with more "responsibilities on their plates."

As they built the business, that attitude about exercise helped the three of them better understand what the average person goes through when joining the gym, he adds.

Today, given his responsibilities, Rondeau says he works out more for "mental focus and energy."

Created Judgment-Free Environment

Rondeau came in on the ground floor of building the business.

When he joined Planet Fitness, it was struggling as it faced heavy competition for the same customer as the other gyms in their small town in New Hampshire - those who already had a gym membership.

Rondeau and the founders saw an opportunity to move in a different direction than the rest of the pack.

As Rondeau and the founders looked at the industry, they saw that 80% of the population didn't have a gym membership.

"We thought to ourselves 'how do we come up with a model that is affordable and comfortable that would motivate the 80% to give fitness a try?' "

The answer: Change the gym environment and create what the company calls a "Judgement Free Zone," where there was no "intimidation" and members are accepted and respected for who they are.

"The founders are truly visionaries," he adds. "We didn't have juice bars or heavy free weights. We have free pizza once a month for members and free Tootsie Rolls at the front desk. We have a very unorthodox business."

They unveiled the judgment-free philosophy and the discount business model with a $10 monthly membership in 1997. In 2003, they started franchising. Over 95% of its stores are owned and operated by franchisees.

"Today, with our size and scale, we are a marketing machine that happens to be in the gym business," he said. "We're a franchise business and the franchisees are required to spend 7% of their membership dues on marketing locally. And corporate spends 2% of membership dues from company-owned gyms on the national level. When you think about the marketing spending, every incremental member is 9% more dollars spent on marketing. Our budget continues to expand. Every day we sell memberships, it allows us to tap into the 80% of the population that doesn't have a gym membership."

Rondeau has nurtured a culture where both corporate and franchisees share the same passion for the brand and the company's goals.

"It's truly important that both the corporate staff and franchisees wholeheartedly believe in the judgment-free zone," said Rondeau. "A lot of our staff and franchisees have been members of our clubs, and they've seen and experienced the judgment-free zone firsthand and they believe in it. That culture keeps us grounded and doesn't allow us to get diluted as we continue to scale. We all have a common belief to make fitness comfortable, affordable and accessible to the first-time gym user."

Added Lively: "He has developed and built a corporate culture where he's able to bridge the gap and be the leader of the franchisees at the same time."

Rondeau says he looks at the franchisees as part of the team.

"If I can gain their respect and they have my passion, then they'll do right for our members," he adds. "I always tell my staff we're in a unique business with two sets of customers - our franchisees and our members. If we can make our franchisees a happy customer, then that will trickle down to our members. I have a very collaborative and open relationship with franchisees. We have about 200 different franchisee groups. I look at that as an asset. Our franchisees bring me ideas and thoughts on how to fine-tune the business and we work collaboratively."

Rondeau says an important part of his growth strategy since becoming CEO, one that's been even more important since he took the company public in August 2015, is the use of more data analytics than before.

Rondeau points out that Planet Fitness has locations in every state, every demographic and every ethnicity and over 10.5 million members.

"The data we're able to hone allow us to fine-tune the business, drive same-store sales, drive store openings and better service the franchisees."

For example, because Planet Fitness is membership based, by analyzing certain data they know how far people are willing to drive to a gym.

"This insight allows us to know where the next gym location should go," he added.

Through data analytics, the company can better segment its marketing according to certain demographic groups. For example, because the company knows the names, ages and sex of its members, it knows that 49% of its 10.5 million members are millennials.

Analyst Chen rates Planet Fitness stock an outperform.

"We feel Planet Fitness is 'un-Amazonable' because health and wellness can't yet be purchased online," Chen said. "Looking forward, we expect Planet Fitness to execute on creative digital innovation, including predictive analytics and big data."

Rondeau's Keys

Helped revolutionize the fitness industry with a business model geared to first-time gymgoers. He helped turn Planet Fitness into one of the largest owners and operators of health clubs in the U.S. in terms of the number of members and locations

Overcame: Competition from traditional gyms and skepticism from naysayers who didn't take their approach seriously.

Lesson: You can do anything you set your mind to.

"The key to success in business is not to be afraid of doing things differently. Don't be afraid of going against the grain."

February 7, 2018


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