How Orangetheory and 39 more brands drive smart growth
Bathed in orange light—and sweat—a couple dozen people hustle from rowing machine to treadmill to TRX suspension rigs as an instructor urges them to stay in the orange zone. On the other side of the glass Dave Long notes how much he enjoys visiting studios when he’s on the road because he’s able to see his brand in action.
The co-founder and CEO of Orangetheory Fitness is in Houston, a market with a dozen locations open and plans for at least 25 by the end of 2019. The growth is indicative of the Orangetheory system as a whole, which crossed the 800-unit mark in early November.
“Now we’re opening six a week,” says Long, who’s on the second leg of a trip that’s already had him in Oregon, with Tennessee up next before returning to Orangetheory’s Boca Raton, Florida, headquarters. “One week we opened 11 locations—that was kinda crazy.”
“We frontload operational support when a studio opens,” says Orangetheory CEO
In the three-year span from 2014 to 2016, Orangetheory grew its unit numbers by 218 percent and its systemwide sales increased 351 percent, statistics that would have any other franchise executive giddy but that Long takes in stride.
“From the beginning, I was pretty sold that this would work,” says Long simply. “This” is instructor-led group fitness classes with intervals of cardio and strength training. Everyone wears a heart rate monitor and the stats are displayed on large screens for all to see.
The workout works, continues Long, his own fit-and-trim figure a walking advertisement for the brand, and he says it’s the No.1 reason for Orangetheory’s continued growth. Orangetheory classes are developed around the concept of excess post-exercise oxygen consumption, or EPOC. The company says its heart rate-monitored training “is designed to maintain a target zone that stimulates metabolism and energy”—also known as the orange zone. Calling it the “afterburn,” Orangetheory claims members burn an estimated 500 to 1,000 calories in 60 minutes and keep burning calories at an average rate of 15 to 20 percent higher than their standard resting calorie burn for up to 36 hours post-workout.
Co-founder Ellen Latham, whose Ellen’s Ultimate Workout gym in Florida was the foundation for Orangetheory, continues to develop the workouts but it’s franchising that has pushed the brand beyond the borders of its home state.
Long, who was a VP at Massage Envy while the concept rocketed from 20 stores to 800, says at that company there was a “relentlessness around the franchise development process” that he’s carried with him to Orangetheory, along with full confidence in the model he saw in action at Massage Envy with real results.
“We are big believers in the area representative model,” says Long. “With that model, it supports us not just for rapid growth, but making it sustainable. There’s a bigger commitment level with the area representatives.”
In purchasing the rights to a specific territory, an Orangetheory area representative solicits and screens prospective franchisees and is paid 40 percent to 50 percent of the initial franchise fees received from franchises sold in their territory. Area reps also receive 33 percent of royalties collected from franchisees in that territory.
The AR model, says Long, helps Orangetheory “keep the needle moving on the best real estate,” something he lists as “challenges 1 through 10.”
“Everyone wants to be next to Whole Foods,” says Long, which of course is impossible, so Orangetheory and some of its franchisees said they’d “take a risk” and try locations that didn’t necessarily have the requisite high foot traffic and high visibility. “We found, surprisingly, that we had huge success in smaller communities, neighborhoods, secondary markets.” The year-old Houston location he’s visiting, for example, is in Sawyer Heights, an older neighborhood that’s re-emerging as a creative hub with a mix of art studios, shops and other retail taking over former industrial spaces.
Orangetheory has also built a strategy around educating landlords, particularly letting them know “we’re not just going to take up all the parking,” says Long, and also touting that a 2,800-square-foot studio can drive 100 to 200 unique consumers to a retail location every day.
Keeping members engaged is key to Orangetheory’s success, so staffers will call people if they miss a class.
Plus, Orangetheory has a shockingly low number of closures: zero.
Corporate bought two locations from franchisees early on, and there have been some transfers, but no closures, says Long, a testament to the concept’s foundation, its popularity and the strong unit-level economics it’s driving.
The average gross revenue of franchise studios in operation for more than a year exceeds $1 million, according to the company’s franchise disclosure document, and studios have an average of 751 active members paying anywhere between $59 and $159 per month. Orangetheory also focuses on a robust presale of memberships, signing up anywhere from 400 to 450 members before a location opens.
“We’re able to really leverage that we have busy studios right from the start,” says Long.
The system as a whole also continues to benefit from a pause taken in early 2012, when “for a few months we just stopped opening franchise locations so we could refocus on our training materials,” Long explains.
“We integrated a lot more touchpoints” with the franchisees, he continues, with the aim of “getting them on a great routine right out of the gate.”
Orangetheory provides franchisees with what it calls OBI—Orange Business Intelligence—insights into specific metrics such as workout traffic, plus marketing tools.
“And we frontload operational support when a studio opens, all looking at topline sales, so they can get on the right track from the start,” says Long. As more studios mature there’s deeper dialogues with franchisees, looking at everything from controllable expenses to ways ‘zees can drive revenue.
In February 2016, Orangetheory landed Atlanta private equity firm Roark Capital as an investor, a move Long calls “very intentional.”
“We wanted a partner that had expertise in growing to thousands of units domestically and had that international expertise,” says Long of the group that has investments in more than 50 franchise and multi-unit brands operating in 75 countries. “We’ve got a really strong team in our corner.”
Long uses the word “massive” when describing the international market potential for Orangetheory, with the expectation of 75 international openings in 2018. The brand already has locations in 15 other countries, including England, Australia and Japan.
As Orangtheory grows, Long says he often thinks back to the first studio opening in Fort Lauderdale in 2012, when they held a weight loss challenge and became particularly connected with the first batch of members.
“Now we focus on staff having a good relationship with members to where they’ll contact a member if they miss a class—there has to be that relationship,” says Long. “Keeping members engaged is integrated throughout the system.”
Long doesn’t just want members and employees to live the brand, he does so himself and says that level of commitment is necessary to take Orangetheory to the next level. “Health and wellness is my No. 1 passion and so I’m in a business that I believe in 110 percent.”
“We’re not an absentee-owner business,” says Shannon Hudson, right, with 9Round co-founder and wife, Heather.
Specialized fitness studios
Shannon Hudson said sustainability is the magic word when it comes to growing 9Round, the kickboxing-themed studio fitness concept he founded with wife Heather in 2008. 9Round debuts on our Fast & Serious ranking in the No. 2 spot. “We could grow a lot faster,” said Hudson, 9Round’s CEO, “but I think we’re the most strict, standards-wise, when it comes to choosing franchisees.” In addition to meeting financial qualifications, prospective ‘zees have to pass a fitness test, and even as the brand grew from 172 to 449 locations from 2014 to 2016, Hudson still sits down face-to-face with every franchise owner. “If you sell to everyone who can fog a mirror—and you can do that—you run into some problems,” said Hudson. “Early on we did that and we did have those problems,” including franchisees who didn’t understand or were unwilling to put in the necessary time and effort. “We’re not an absentee-owner business, we’re an owner-operator franchise,” continued Hudson. “They have to be all in.” From there, Hudson said he’d love to point to a “magic bullet” that guarantees success, but “nothing trumps strong operations, period.”
Hand & Stone’s CEO Todd Leff controls growth by selling no more than three units at a time.
3. Hand & Stone Massage and Facial Spa
Massage and facial spas
Todd Leff’s franchise concept could be growing even faster, but Hand & Stone doesn’t sell more than three units at a time, a decision that was made early on to ensure an intense focus on operations and the customer experience in each spa. “We’ve really sacrificed, in some cases, the pace of growth in favor of making sure it’s the right growth,” said Leff, president and CEO of the massage and facial concept that had 150 locations to finish 2014 and by the end of 2016 was up to 307. The brand’s skincare services have proven to be a key differentiator for Hand & Stone in the sector, accounting for 30 percent of revenue in 2016.
"Skincare has had the most dramatic impact on the business since we launched it in 2010,” said Leff, and it’s also proven effective in alleviating some of the usual staffing challenges. “It’s helped us meet the challenges of hiring massage therapists because aestheticians are more readily available,” said Leff. Hand & Stone, which is up five spots from No. 8 last year, does have relationships with massage schools and is ramping up recruiting to support its unit growth.
Dorvin Lively is CFO of Planet Fitness, which doubled in size.
4. Planet Fitness
One team, one planet. It’s the motto Planet Fitness aims to embed in its system at the corporate level and within the franchisee community, particularly as the brand more than doubled in size in three years. “We want everyone embodying that mentality and extending it to members,” said Dorvin Lively, president and CFO of a franchise system that added nearly 1,000 gyms in a three-year period, from 918 to end 2014 to 1,900 to close 2016. In addition to being an extension of the inclusivity Planet Fitness seeks to foster with its “Judgment Free Zone” brand positioning, that motto has also proved crucial as a reminder to resist the temptation to stray from its core model. “There’s been a lot of boutique and studio concepts that have come up in the last few years, and our franchisees see that, but we’ve gotta stay focused on what got us here,” said Lively of the low-cost model without a lot of fluff. “We’re not changing the brand or the offering just because of the latest fad. What we’re offering is exactly what the first-time user wants.” Planet Fitness is adapting its marketing strategy, shifting ad dollars to more digital, mobile and social media channels versus billboards and other traditional advertising. Lively noted 25 percent of Planet Fitness members are now signing up online and the brand is focused on messaging that pushes potential members into action. New gym development continues to come from the 180 Planet Fitness franchise groups, with “over 95 percent of new store openings by current franchisees in the last two years,” said Lively.
Randy Simon became CEO of Freddy’s in October 2017.
5. Freddy’s Frozen Custard & Steakburgers
Family dining chain
Strong infrastructure is what supports sustainable growth at Freddy’s Frozen Custard & Steakburgers, which aims to make the development path for franchisees more efficient through vetted vendors and its own real estate, construction, purchasing and marketing teams. There’s an emphasis on consistent operations, said CEO Randy Simon, and a culture that “permeates through the restaurants and is established by a strong and committed management team.” Simon was named CEO and president in October 2017 and succeeds his brother and co-founder Bill Simon, who died of cancer in December 2016. With the continued growth of Freddy’s, Simon said maintaining the consistency of fast, friendly service and quality food in each restaurant is a key focus and can be challenging because Freddy’s restaurants are spread across the country. “Our digital training platform, Freducation, facilitates frequent communication to all our team members and helps to create the consistency that guests expect,” said Simon, as he added having an easily accessible training program “is essential to keep us all moving in the same direction.” Social media is playing an increasingly important role in Freddy’s expansion, said Simon, as the team looks to provide “a timely response and personal touch” to any feedback received. Online engagement comes through a mix of news and community events, along with food photos and videos, all with the goal of increasing brand awareness, said Simon. Freddy’s has grown by nearly 75 percent since 2014, from 135 units to 236 at the end of 2016.
Nothing Bundt Cake’s Kyle Smith boasts 71% unit growth.
6. Nothing Bundt Cakes
A wise franchisee once told Kyle Smith “not to outrun your headlights—meaning rational, high-quality growth that can be properly supported and sustained is what really matters,” says Smith. It’s the philosophy the president of Nothing Bundt Cakes has put into practice since coming to the bakery chain in 2012 and it’s a driving force behind the brand’s 71 percent unit growth since 2014, going from 113 locations to 194 to finish 2016. That expansion, coupled with consistent sales increases, attracted the interest of Levine Leichtman Capital Partners, the Los Angeles-based private equity firm that acquired Nothing Bundt Cakes in October 2016. As the brand matures and it continues to put consistency above rapid acceleration, Smith says Nothing Bundt Cakes is now focusing on internal opportunities with existing bakery owners. Multi-unit ownership will account for about 30 percent of total openings this year, he says. That strategy also helps mitigate what Smith calls “the greatest challenge for any growing brand,” operational consistency, and Nothing Bundt Cakes invests heavily in support and training.
Jersey Mike’s President Hoyt Jones looks for a cultural fit.
7. Jersey Mike’s
Jersey Mike’s has “always been fanatical about who’s coming into the system,” said President Hoyt Jones, and the growth the sandwich franchise continues to experience is a direct result of the success of its franchisees. About 70 percent of new store openings are by existing franchisees, people who have “not just the experience and financials, but that are a cultural fit,” noted Jones as he emphasized the importance of community involvement and franchisees having an active presence in their locations. Jersey Mike’s finished 2016 with 1,187 locations, or 38 percent unit growth since 2014, coupled with 57 percent sales growth to $825 million in that same three-year period. With so many one- and two-unit franchisees adding to their unit count, Hoyt said it can be challenging to maintain consistency across locations and franchisees need, in essence, to duplicate themselves at each store. “The franchisee needs to be ready to put in time at both locations, and if they get to four or five, they have to have strong managers in place,” he said. “That’s why the whole training piece is super important and that we maintain that continuity in stores with management. People want to see a familiar face when they go into their store and we don’t take that lightly.”
“People come to Sky Zone to play,” says CEO Jeff Platt.
8. Sky Zone
Though down from its No. 2 position last year, Sky Zone has continued its steady growth, finishing 2016 with 171 locations of the large-format family-friendly trampoline parks, a 74 percent increase from 2014. CEO Jeff Platt said his motto of putting guests “front and center in every decision you make” is what drives Sky Zone’s expansion. “Make sure you are constantly designing and innovating your experience around what it is that they want or tell you that you need to do better to deliver a great experience to them,” he said. New attractions and offerings are what keep people coming back, continued Platt, such as GLOW, the brand’s after dark jumping dance club, or Skyfit workout classes. Platt said one challenge facing Sky Zone is the lack of knowledge regarding the benefits of play and it’s something he’s working to remedy. “People come to Sky Zone to play, and while people know that play is important and beneficial in so many ways, they are not making enough time or prioritizing it in their lives,” he said. “We are working on ways to better communicate the benefits of play and to make the experience more frictionless so that it is easier to play at Sky Zone.”
One limit on The Joint’s growth has been convincing owners they don’t need to be a doctor of chiropractic to buy a franchise; rather, they can employ one to provide services.
9. The Joint Chiropractic
Peter Holt put strong unit economics and careful selection of franchisees at the top of his list as keys to driving smart growth. The CEO of The Joint said a concept will “never be stronger than the franchisees that are brought into your network, so an effective franchise recruitment program is key. In your sales process, you need to assure that you are providing the key information that a franchise prospect must know about you, and that you have a process in place to capture key information about the potential franchisee as well,” continued Holt as he noted transparency is the essential ingredient. Up seven slots from its No. 16 ranking last year, The Joint has seen 50 percent unit growth since 2014, finishing 2016 with 370 locations. Helping to accelerate that growth, The Joint reinstated a regional developer model in which it sells the rights to open a minimum number of clinics in a defined territory and the regional developer in turn helps identify and qualify potential new franchisees in that territory and assists with providing field training, clinic opening and ongoing support. “In return, we share a portion of the initial franchise fee and the ongoing royalties for the clinics opened in that territory,” said Holt. This past year The Joint expanded to include eight regional developer territories, with a combined commitment to open a minimum of 211 units in their geographic areas over the next 10 years. Holt said a focus for the brand is continuing to use its storefronts to educate potential franchisees that they don’t need to be a doctor of chiropractic to own a clinic. “We are trying to overcome this challenge in our franchise recruitment messaging,” said Holt. “We have also added complete P&L information to our Item 19 in our FDD and have created a stand-alone franchise website to educate potential franchisees so they understand that this model has strong unit economics and is right for entrepreneurs and doctors of chiropractic alike.”
Chicken wing chain
Wingstop is in a category of one, said Charlie Morrison, able to continue its growth trajectory because of the brand’s “simple menu, operational efficiency, compelling unit economics and highly transferable model.” Morrison is president and CEO of the Dallas, Texas-based chicken wing chain that’s added 286 units over three years, finishing 2016 with 998 restaurant locations. Sales during this period increased 43 percent, something Morrison attributes not only to Wingstop’s made-to-order, hand-sauced wings, but also its commitment to being a digitally driven brand. “As an industry leading innovator in the digital space, Wingstop was the first to offer full menu customization through voice-activated ordering” on Amazon Echo, “and first to enable social ordering on Facebook Messenger and Twitter, before launching our most recent Wingbot text ordering capabilities and becoming among the first brands integrated into Facebook’s native Order Food page,” said Morrison. Today, he continued, digital ordering accounts for 21 percent of total sales and that percentage is growing. As Wingstop continues to expand its reach, especially in international markets, Morrison said a key challenge is keeping the authenticity of a local brand and flavor intact. Wingstop does this through a flexible menu mix. “Internationally, our menus offer an assortment of our most popular flavors, as well as items that have been specifically created for local tastes and palates and cultural needs,” said Morrison, as he noted in Asian markets such as the Philippines, Indonesia and Singapore menus include Flavored Rice Bowls with boneless wings, while Chicken Gliders (Wingstop’s version of a slider) are popular in Mexico, the United Arab Emirates and Asia.