Edexcel A Level Business Paper 3 (2017) - Key Points on UK Health & Fitness Market

Here are some key context points about the UK Health & Fitness Market for students preparing to take Paper 3.

Trends in the number and size of health and fitness clubs in the UK over the last 10 years, including organic business growth and takeovers

• The rapid growth in the overall number of health & fitness clubs in the UK has mainly been due to organic growth strategies pursued by the leading chains and new entrants to the market
• Budget / low-cost chains in particular have been able to invest in a rapid roll-out of new locations, taking advantage of their more flexible space requirements. Former office blocks and warehouses are just two of the kinds of space that have been converted into gyms
• There have been several large takeovers of fitness clubs in the UK in recent years. Venture capital firms have also shown their enthusiasm for investing in the sector due to its strong market growth and profits
• Overall, the average size of health & fitness clubs has fallen (both in terms of space and average membership). However this mainly reflects the increasing number of small budget gyms

Influences on the market for health and fitness clubs and gyms, such as social trends, changing costs and membership prices

• Demand for membership of private and public sector health & fitness clubs in the UK continues to grow strongly.
• The recovery in the UK economic growth in recent years, fueled by higher consumer spending, has been a positive factor in driving increased demand for health & fitness services.
• Social change is also a positive factor for demand. Increasingly obesity and awareness of the benefits of a healthier lifestyle have broadened the number of potential users of health & fitness facilities. The UK government has supported growth in demand by funding exercise memberships for adults with obesity problems who might otherwise not be able to afford membership.
• Membership prices in the market have been driven down, partly through tougher regulation of membership contracts as well as much greater choice & flexibility in gym membership options.
• Another important influence on the market is technological change. Traditional health clubs have found their business models disrupted by apps such as PayAsUGym and Class Pass which act as middlemen enabling customers to attend gyms and classes where they wish.
• Budget / low-cost fitness chains have also embraced digital channels, for example enabling memberships to be managed online as well as participation in exercise classes.
• The rapid growth of the “wearables” market might be seen as a threat to traditional gym membership, although it might also encourage much greater numbers of adults to get more involved in managing their personal fitness goals and activities by integrating tracking devices with club membership.

Facilities and services provided by private health and fitness clubs, such as swimming pools, aerobic classes, racquet courts, saunas and therapy

• The services offered by private health & fitness clubs are to a large extent determined by their market positioning.
• There are three main market segments: 

(1) low-cost/budget 

(2) mid-market 

(3) premium / luxury. 

• The widest range of services is provided in the mid-market and premium/luxury segments, where you typically find “wet” facilities such as pools and saunas as well as extensive sporting and family areas.
• Low-cost / budget operators have largely eliminated those services that members use least in order to focus on a narrow range (but extensive provision) of exercise equipment, easily accessible 24/7. 
• Low barriers to market entry and changing consumer tastes have encouraged the growth in demand for more specialist fitness & health services, such as spinning, Pilates and yoga. Many niche boutique clubs have opened to meet this increasing demand.

Range of private health and fitness clubs that operate in the market, in the UK and internationally

• As explained above the private health & fitness market in the UK has changed significantly in recent years with the emergence of low-cost/budget chains. These chains have been responsible for most of the growth in the number of clubs in the UK – a market feature that has been replicated in other mature markets such as the USA, Germany, France & Holland.
• Whilst several very large chains of private clubs have developed in the UK and internationally, the market is still relatively fragmented with no dominant market leaders. This is partly because the barriers to entering the market remain low and there is relatively low customer loyalty to any particular club brand. 50% of new gym members leave within the first year of their membership.
• A feature of the US industry that has transferred to the UK has been the emergence of specialist or “boutique” fitness clubs that adopt classic niche marketing strategies to build a customer base. Good examples in the UK include Barry’s Bootcamp and Barrecore. Many of these boutique clubs are operated on a franchise model.
• The largest private gym chains in the UK (in terms of numbers of clubs) are now Pure Gym and The Gym Group – both of which are low-cost / budget operators. However, both these two chains are relatively small in size compared with the largest groups in Europe such as McFit and Basic-Fit – both of which now have well over 1 million members.
• US-based chain Anytime Fitness is estimated to be the largest operator of clubs globally, with over 3,000 clubs operating under its franchise model.

Human resource management in the UK health and fitness industry

• The Health & Fitness Market is part of the service industry. Accordingly, the quality of customer service is an important part of being competitive. Most surveys point to the quality of personal training and other specialist services as being a key point of differentiation between competing fitness club operators.
• Whilst health & fitness clubs are service businesses, not all of them have labour-intensive business model. For example, whilst a new low-cost or budget gym will have over £1m in capital expenditure invested in equipment, it will typically have fewer than 5 employees.
• Instead, most people who “work” at health & fitness clubs are self-employed. For example, around 80% of Personal Trainers are “freelancers”, earning income from conducting training session with gym members.
• Pay in the health & fitness industry in the UK is relatively low, on average, although self-employed workers earn slightly higher than national average.
• There is relatively little use of performance-related pay in the industry. Fewer than 5% of people such as personal trainers and class exercise leaders get any kind of commission-related income or bonuses.
• Low-cost / budget gym chains have been able to use HRM to significantly reduce their operating costs in order to offer low membership prices. For example, the Gym Group has an average of less than three employees per location, with most services outsourced.
• Mid-market and luxury chains employ significantly more employees and, as a result, their staff costs are much higher and labour productivity lower.