Aggregators in fitness: helping operators stay in shape or causing injury?

Tuesday, 6 August 2019


From the rise of low-cost gyms to the growth of new fitness concepts such as hip-hop spin and yogalates, the fitness industry has evolved at an impressive pace in recent decades.

And now it seems the landscape is shifting once again. Online aggregators like Gympass and Zeamo are entering the sector across all major markets – causing much debate in the process. For the extent to which these intermediaries pose a benefit or threat to the industry depends largely on the local market structure, the aggregator’s business model (B2C or B2B2C) and the type of provider (independent or chain) affected.

In this article we outline the benefits and challenges that aggregators pose to fitness operators, and offer several guide points for those providers considering partnering with these new entrants.

The consumer benefit

Before we go any further, it’s important to understand the consumer benefit driving the growth of these new platform businesses. Whether a B2B or B2B2C aggregator, the offering to consumers is more or less the same: aggregate available inventory from a fragmented set of providers to present greater choice, while making it easier for the consumer to see what’s available where and when, before taking payment for the chosen service. The consumer benefits are evident: greater choice, flexibility and transparency and, often, cheaper access to chosen services.

The benefit to fitness operators

The benefits to fitness operators are more complex. Customer churn is notoriously high across the fitness industry. Customers relocate, grow bored, experience an injury or simply give up on achieving their goals – all of which can raise the headline churn rate to 100% for some formats. As a result, gyms and fitness clubs have an on-going marketing challenge to find new subscribers.

Aggregators offer clubs a solution to this challenge via a new marketing channel. Consumers are attracted to the aggregator proposition – which can offer access to multiple gyms and fitness concepts under one monthly subscription – and thanks to this variety available to them, are less likely to drop out than if tied to a single gym.

By tapping into a broader base of potential gym users than an individual gym can reach, the aggregator delivers customers at a lower marginal cost than the gym can find itself – giving gyms access to stickier (more active) users. Less churn, more revenue.

Access to a network of fitness centres means aggregators can strike lucrative deals with employers too, and several aggregators now offer membership through company health or employee benefits scheme on a company-subsidised basis. In some instances, this activates previous non-gym users into becoming active members, delivering all-important incremental users to the industry.

By providing customers who would not have previously been fitness industry users, and who are less likely to churn, aggregators claim to add value to the industry while extracting an appropriate fee for doing so. 

The challenges posed by aggregators

Lying at the heart of the gym/fitness club model is a reliance on subscription, which provides important economic benefits to the fitness operator. The member pays a monthly or annual fee to the club, giving a predictable income to the provider, regardless of how frequently they use the service – thereby protecting the provider’s income until the end of the contract and enabling a steady income from which to fund capital re-investment in the offer.   

When an aggregator enters the picture, this model is broken. By agreeing deals with gyms and negotiating access for users (typically at a lower price than the gym offer), aggregators place themselves between the customer and the operator, paying the operator on a per usage basis that is usually capped at a maximum amount per user, per month.

Under this arrangement, the benefit of non-use falls to the aggregator and not to the gym. This has severe consequences for the operator. In a business system where the provider experienced no near-term revenue impact from non-use, the provider now receives no revenue at all if the aggregator’s users don’t turn up. And for businesses with fixed cost bases and frequent equipment refresh cycles, this loss of revenue can be critical to profitability and business health.

As for incremental users, it can be argued that it’s extremely hard to show whether users coming from the aggregator channel are truly incremental, particularly in the medium term and particularly in markets where fitness club membership is already well established.

Incremental vs. substitutional users

At the heart of the dilemma for fitness club operators is this question of incremental vs. substitutional users. If an operator is confident that the aggregator is providing new, incremental users rather than substitutional users it might make sense to strike a deal with the aggregator. But if the users are simply substitutional, then the gym is turning steady high quality revenue into occasional lower quality receipts for usage.

In many markets, this equation differs depending on the relative balance of large chained gym groups vs smaller chains and independents. The more fragmented the industry, the greater the likelihood of individual gyms signing up to aggregator platforms – and thereby strengthening the aggregator offering in doing so. Those markets with a mix of large chains and smaller independent gyms provide fertile ground for aggregators to develop a core offer before buying their way into a few key gym chains.

As aggregators take profit out of the operators’ pockets, gyms and fitness clubs dependent on subscriptions should be extremely cautious about seeking new business via aggregators. The long-term price of a short-term uplift in users may be too great.

4 key points for operators considering working with an aggregator today:

Understand and choose actively

Make sure you understand the long-term risks to your business that allowing an intermediary may bring. Based on this, decide if you need to engage at all. Aggregators can’t develop power in the value chain if gym operators don’t engage with them.               

Choose carefully and keep control

Engage with the aggregator which best suits your needs, ensuring their interests are aligned with yours rather than in long run competition. Keep control of your customers, in particular by retaining power over pricing and by controlling your own inventory.

Test, learn and track

If you engage, sign short-term/flexible contracts only and track the impact of incremental users, cannibalization, retention, and ARPU. Based on the data, amend the contract with the aggregator.

Re-think the customer need

Intermediaries are only successful because they serve an unmet need. Think about how to address that need yourself and adapt your offering to consumers.

Find out more about Alex Birch, Partner

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