Survival of the fittest

According to the latest survey by Eurobarometer of Poles taking part in sport, 9 pct are now working out in fitness clubs compared to just 3 pct in 2008. Meanwhile, the EU average has hit 15 pct, up 4 pct on 2008. In Romania and Hungary the rate is 6 pct and Lithuania only manages 2 pct, whereas in the Czech Republic and Slovakia the proportion attending amounts to 17 and 13 pct respectively. Poland, however, falls considerably behind Spain (19 pct), the UK (21 pct) and record-breaking Sweden, where 40 pct of its citizens make use of their local gyms. However, Poland is only behind Turkey when it comes to the fastest growing fitness markets in Europe (based on the number of memberships). Poland is also the second largest market (after Sweden) in terms of the largest number of operators with the most promising revenue growth. And everything points to the fact that these findings, published at the end of 2013 by Deloitte and the European Fitness and Health Association, are not just the sign of another national, media-hyped, flash in the pan. Instead they show that the fitness market in Poland is slowly starting to mature – and this has already been keenly noted by a number of investors. And by real estate agents.

Who wants a slice of the pie?

Without any doubt, the market fragmentation accompanying the fitness boom and the increased specialisation of fitness chains has meant there has been a huge success in attracting the attention of investors. Based on their experience of gym chains abroad, they are now confident that the Polish market has an excellent chance of catching up with Western Europe – or even Scandinavia, if the favourable economic and demographic conditions continue. Many say that this is the best time to start aggressively carving out their presence on the market – and there is a great deal to fight over. The fitness market penetration index in Poland currently stands at just over 6 pct, which according to the Polish Association of Fitness Employers (PSPF) translates into a total of app. 2,200 clubs operating across the country. The number is set to reach 3,000–3,500 within the next 3–5 years. The PSPF values the entire fitness club sector in Poland at PLN 1.3–1.5 bln. However, the data does not reveal the most important thing about the fitness market’s investment potential: it is experiencing double-track growth. In smaller towns the market is mostly expanding in terms of the numbers of premises and gym-goers; but in the bigger cities, which have become much more competitive environments over the last few years, the market is also growing qualitatively. This poses a real challenge for the new operators on the market, which, in order to find their place and succeed in the long term, must now think both about their geographical expansion and about providing a more diversified offer, either in terms of price or the interests of consumers.

The power of rational thinking

Consumer demand itself is also evolving. Consumer awareness in Poland has recently soared – just a few years ago spending had more to do with status and aspiration rather than the actual shopping experience itself. These days, however, Polish gym-goers are increasingly opting not to pay for fitness club memberships, while they are also becoming more educated when it comes to factors such as diet and exercising on their own. This has led them to work out with a greater level of consciousness, assess their personal needs and capacities more accurately, and ultimately to make smarter choices about their sports activity needs, and thus, about gym memberships. They are more confident in expecting value for money from gym operators. This in turn translates into the development of new club formats, designed to compete with the existing, large-scale membership chains that dominate the fitness club landscape in big cities. However, those located in the most popular shopping centres are continuing to do well. For example, Pure Jatomi, the largest chain in the country with 35 gyms located in 20 cities (all in shopping centres), estimates that the number of its members has doubled over the last three years. When leasing space in the malls, the largest operators mostly take into consideration the number and the average age of their visitors. “The tenant mix is also very important to us because it gives us a picture of the type of consumer we should expect to visit the centre. We also look at such factors as the access to parking spaces and public transportation. The last piece of the puzzle includes technical specifications. Since we sign our contracts for 10–15 years, we also pay close attention to the development dynamics of the city and carefully check the demographic conditions,” says Joanna Gajewska, Pure Jatomi’s European expansion director. She says that, as for now, in Poland the chain is exclusively interested in cities with over 250,000 residents. The company is owned by Michael Balfour, the founder of international fitness club giant Fitness First. In 2005 he sold his GBP 415 mln business to involve himself in a new project: a fitness chain set up for the emerging markets of Europe and Asia. Poland is not the only tasty morsel on the menu for Pure Jatomi. The company wants to apply its tried-and-tested ideas in Turkey, Malaysia and Indonesia, where fitness clubs are also now mushrooming. “As the six countries we operate in become more prosperous, where more and more labour saving devices are commonplace coupled with a new liking for fast food and a growth in obesity due to more sedentary lifestyles, then the need for health clubs can only escalate,” explains Michael Balfour, who has already poured over EUR 600 mln into Jatomi.

Large city malls short of breath

But shopping centres don’t always get along well with large fitness chains, as having a gym as a tenant is not always a win-win situation. “Until very recently the rents offered to fitness clubs were so high that they often impacted the club’s liquidity or even resulted in the business closing down. I think that some of the mall-located clubs still generate losses and rather function as a ‘flagship showpiece’. But malls are starting to appreciate fitness as a magnet for their customers. A large and well-managed fitness club has a footfall of several thousand people per month,” says Robert Kamiński, the president of the board of the Polish Association of Fitness Employers. A slightly different strategy has been adopted by another large Polish city brand, Fitness Club S4. The exclusively Warsaw-based chain of twelve gyms, which is now starting to spill over into smaller Polish cities by opening a new gym in Legnica, generally looks to open in large premises in the focal points of Warsaw’s main districts. These are attractively located, but not as over-crowded as those in shopping centres or prime office buildings. Clubs of the chain have opened in a tenement building on ul. Nowogrodzka, in a mixed-use building on ul. Puławska (the only S4 club open 24/7) and in a retail building on ul. Grzybowska. Such a location policy allows the company to enjoy high customer turnover, as they in large part serve the local residents who appreciate the comfort of exercising five minutes away from home, while being offered cheaper memberships compared to mall-located gyms. It is estimated that a Pole spends on average PLN 120 (EUR 30) per month on fitness, a little less than a few years ago when the gym market in larger cities was not as competitive as it is today – but this is still a considerable sum. Especially given that high-end fitness clubs such as, for example, Holmes Place in the Warsaw Hilton hotel, still barely account for a marginal share of the market and are mostly dominated by corporate rather than individual memberships. In addition to this, the monthly fee for a mid-range club membership in undoubtedly much more expensive in European capital cities, such as London or Paris, tend to be in the range of around EUR 40–70. “Over the last few months there has been a considerable drop in fitness pass prices and the trend might continue as low-cost clubs establish themselves on the Polish market,” explains Robert Kamiński. In fact, they are already starting to emerge, while at the same time often filling another niche by offering around-the-clock availability. This is the case with German operator McFit, the largest European chain in terms of the number of members and the fourth largest player when it comes to turnover generated. This year, the company entered the Warsaw market and now occupies an app. 2,000 sqm studio in a tenement building at the junction of ul. Świętokrzyska and ul. Nowy Świat, the most expensive Polish high street. Another McFit studio should have opened by the time you are reading the article, this time on the other side of the Vistula river, alongside the Atrium Panorama shopping centre. According to Deloitte, low-cost gym chains are currently enjoying increased interest from investors across Europe. “We expect that the popularity of chains such as McFit will only grow around Europe, as will the competition in this segment. This also includes Poland,” says Marcin Diakonowicz, a partner in the audit department and the leader of the sports business group at Deloitte Poland.

Small town, great form

Although today the Polish fitness market is still mostly split between the six largest Polish cites, the small town market has not escaped investors’ attention. Local markets, dominated by estate gyms and not profitable enough for the large-format chains, in the future could be fertile ground for fitness chains. At least this is what Richard Keen of Keen Property Partners, the owner of Plaza Rzeszów in Rzeszów and Galeria Victoria in Wałbrzych, told me while talking about his new fitness tenant. The two malls were the first locations (each with an area of 1,500 sqm) for the newly-launched CityFit gym chain, designed specifically for Polish customers. Financed by an anonymous London-based private equity fund, the low-cost, open-all-hours, no-membership gym will be targeting cities of more than 100,000 people. “We believe CityFit will change the landscape of the Polish fitness market. We want to change how Polish people work out: when, how often, and how much they work out. We have seen this model prove successful in other countries and now want to bring the best practice to Poland,” says CityFit’s CEO, Nicholas Moses, who plans on opening a total of 50 clubs over the next three years for PLN 100 mln. He gained his professional experience carrying out real estate investment projects, including those for fitness businesses, across Australia and the UK. Now he has declared a price war on Polish gyms, offering prices on average 50 pct lower than the local players. The sites CityFit will be looking to lease vary by size and location, but should also have several things in common. They will need to measure 1,200–2,000 sqm, be easily accessible by car, and have to be monitored 24/7. The operator will also search for areas with a specific consumer base, with a large share of first-time members. “If we see that the gym format works for us, we will probably also think about other formats as the market scales up,” adds Richard Keen. Another idea for winning promising, smaller markets could be to modernise and extend existing, locally popular gyms, but shopping centres offer much safer starts, particularly for those chains that are not yet recognised. “Fitness is a low-margin business, the return on investment normally takes place within three to five years, but the fixed costs are usually quite high. This is why small clubs in weaker locations, without car parks or good transport links, will face the toughest challenges,” remarks Robert Kamiński.

Specialisation in great demand

Apart from the price, a high degree of specialisation in particular fitness disciplines is gradually becoming a competitive advantage in the industry. Following the latest trends that are all the rage in Western Europe, single-yet-spacious dedicated clubs (or chains of smaller clubs) exclusively offering yoga or bike spinning classes, are gradually being opened in Poland. This offer is addressed to the narrow and demanding group of fitness enthusiasts with specific tastes in exercising and who don’t mind travelling half the length of the city and paying considerably more than for an average work-out just for the sake of avant-garde exercising or their favourite professionally-led training. Such clubs usually hunt for unique buildings, which they often intend to buy to later profit from partial subleasing. Warsaw yoga school Astanga, which is located in a centrally located residential and service building, after working hours transforms into leasable space for art exhibitions, or theatrical workshops. Recently, Reebok opened a flagship cross-fit gym, leasing an area of 500 sqm in Warsaw’s Służewiec district. The gym has been specifically adjusted to the needs of cross-fit training aficionados, including the installation of pull-ups, ropes and bars at different heights.

Real fitness games

Even though Polish clients will certainly have to wait a little for a real fitness bonanza to begin in the country, particularly in smaller towns, the future shape of the fitness sector seems to be clear. “Looking at Western Europe, one can assume that in the next few years the market will be clearly split into a number of definite segments: low-cost, premium, mid-range and niche gyms offering a special scope of services. I doubt that ‘fitness factories’ will work for Poland as they do in the US, even though a few investors might be successful with such projects,” believes Robert Kamiński. The question that remains is, which players will make the most out of these ideal market conditions? ν