Orangetheory operator fills gap in London
Illustration by Jonathan Hankin
We’re a nation of slugs. The Department of Health and Human Services, for example, reports just 5 percent of adults participate in 30 minutes of physical activity each day and only one in three exercises enough. The Centers for Disease Control claim 93.3 million adults in this country (or roughly 40 percent) are obese. And we haven’t even mentioned children.
The growing businesses operated by multi-unit franchisees Jamie Weeks of Orangetheory Fitness and Michelle Lounsberry of Profile by Sanford demonstrate how eager growing numbers of Americans are to address these issues.
Weeks has grown his fitness franchise from two to 25 across four states over the last five years mainly through consolidation. He expects to have at least 35 in his stable by year-end if the letters of intent he’s signed are agreed to.
Meanwhile, the 43-year-old former financial services executive recently become master franchisee for London, England, after a three-unit affiliation between Orangetheory Fitness and London-based David Lloyd studios tanked.
“Fitness in London is fitness in the U.S. 10 years ago. It’s just starting to boom, and I wanted to be in that cycle,” declares Weeks, who intended to open two London studios by August when we talked in mid-June.
That boom is clear from recent research by market intelligence firm LeisureDB. Last month, the London-based group reported there are 9.9 million gym members in the U.K., an annual 2 percent increase. What’s more, 275 “facilities” have opened in the last 12 months, slightly more than the 272 in 2017.
Weeks, who initially wanted to open just two Orangetheory Fitness studios in Atlanta, where he lives, ended up self-funding the first 17 before partnering with private equity in January. Until a few years ago, in fact, he still worked as a wealth management adviser. Today, his empire extends from Charleston, South Carolina, to Portland, Oregon.
According to the franchise disclosure document, an Orangetheory Fitness studio requires an investment between $448,405 and $994,360 (including a $42,400 to $49,500 franchise fee). Item 19 says three of six “affiliate-owned outlets” open for two years grossed an average $1.086 million in 2016. Median gross was $989,648; median membership was 735.
Weeks identifies sites by first looking for nearby Chick-fil-As, Targets and Whole Foods. “That’s our demographic,” he notes. Yet Portland, Oregon, was a different story, because there are fewer outlets of those three in the fast-growing city than in cities of similar size, he says.
Nonetheless, the market made perfect sense to him. He claims Portland “is the No. 1 fitness city in America—with the worst weather possible.”
Despite high rents at his four Portland gyms—25 to 35 percent higher than his two in Charleston, he estimates—sites don’t require parking lots. “People there are used to taking public transportation, riding bikes and walking,” he claims.
Sioux Falls, South Dakota-based Michelle Lounsberry, an attorney, is also growing her stable of weight-loss clinics at a rapid clip. “We should have six to eight more stores by year-end,” she told me in early June. That would put her total at 12. She currently owns three.
Profile by Sanford is an arm of Sanford Health, a large, nonprofit rural health system, clustered where South Dakota, Minnesota and Iowa converge. According to the Sanford Health website: “Profile is a low-carbohydrate, low-fat system for weight management that was developed by Sanford physicians and researchers.”
Customers pay $150 a year for a membership that entitles them to purchase special foods and receive weight-loss counseling from coaches.
Michelle and her husband, an internist at Sanford, were early franchisees of the six-year-old company. A frequent dieter, she was already a customer before the company launched franchising. “I am short and squatty and no body. That’s what drove me to Sanford,” she recalls.
Looking for ways to use her law degree and MBA, the couple had explored various franchises and discovered many required they operate as well as invest. “Our idea was, we’d both work full-time and have a passive investment income,” she says.
Then Michelle learned Profile by Sanford was franchising and asked for more information. The franchisor provided her with profit margins on food products and average annual spend of members. “They also gave us a brief overview of what their stores in Sioux Falls were doing, and they were very positive,” she remembers.
The Lounsberrys purchased their first Profile by Sanford in Sioux City, Iowa, a corporate store 86 miles away, for $350,000—and paid for it with the equity from their house and a $50,000 line of bank credit. “We needed it to be successful because that’s all we had beyond our retirement savings,” Michelle recalls. It was, and began cash-flowing within two months. Six months later, they opened a second in Grand Forks, North Dakota.
Like Sioux City, Grand Forks was a handy locale; Profile by Sanford has stores in nearby Fargo. The franchisor shared research showing 400 likely members in the area. “It was a no-brainer. My pro forma said I needed 400 members to break even the first year,” Michelle says. The couple, however, had used up the equity in their house. They resorted to using an SBA loan, which proved too expensive and time-consuming.
The Lounsberrys, meanwhile, bought two-store rights to Cedar Rapids, Iowa, where Sanford Health isn’t well-known. Their marketing spend swelled. Says Michelle: “It’s five hours from me and no one knows about Sanford. So it’s taking us a little longer to ramp up.”
On the bright side, the couple changed lenders, financing their third Profile by Sanford with a loan from Profile Capital. You guessed it—another arm of the Sanford system.
Correction: A previous version of this story listed Jamie Weeks as a franchisee of Planet Fitness. Weeks is not associated with the Planet Fitness brand.
David Farkas and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at email@example.com.