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AMA RESEARCH Market Report : UK Health and Fitness Clubs : April 2004

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Introduction and Overview

AMA Research have recently published the first edition of 'The Health and Fitness Market - UK 2004' report. This 105 page report covers both the private and public sectors for health and fitness service provision. Giving an up to date and comprehensive review of the market, the report should be of interest to manufacturers of fitness equipment, health and fitness clubs, local authorities, leisure management contractors and hotel groups.

Areas covered in the report include:-

THE OVERALL MARKET - market size, key trends and influencing factors for health and fitness provision.

THE PRIVATE SECTOR - Market size and key trends, mix by in-hotel and stand-alone, mix by Value, Mid and Premium sector, assessment by volume of members, volume of clubs and revenue estimates.

THE PUBLIC SECTOR - Market size and key trends, finance and capital investment alternatives, assessment of private leisure management contractors, in-house managed and trust managed facilities. Analysis by number of members, sites and revenue estimates.

SUPPLIERS - key suppliers in the private and public sectors, hotel companies, leisure management companies, etc, market shares, company profiles.

OPPORTUNITIES AND THREATS - growth sectors, health and fitness trends, niche sector growth etc.

The health and fitness equipment industry has continued to enjoy high growth rates over the past few years, reaching a market value of over £2.9 billion in 2003. However, the rate of market growth is slowing down, reflecting the increased maturity of the market, the difficult economic environment in the early 2000's and the increased level of competition in the market.

Specific points of interest:-

Consolidation within the private health & fitness club market.

Continuing growth in the corporate health & fitness market.

Investment in refurbishment and upgrading of local authority leisure facilities.

Increasing competition and price pressures within the market.

Growth in niche market segments.

Further development of value-added services and increased levels of active promotion of fitness.

Key areas covered in the report include:-

THE MARKET

Total Market Size - analysis by value 1997-2003 with forecasts for 2003-2007, key factors influencing market development e.g. increased public awareness of health & fitness, industry consolidation and economic uncertainty. Commentary on recent, current and likely future performance.

Assessment of the market by private and public sector revenue, comparative comments and trends.

Analysis of the number of facilities in overall terms, by public and private sectors and analysis of membership numbers.

Comparative analysis of the 4 key market sectors - Private Stand-alone Health Clubs, Hotel Based Health Clubs, Privately Managed Local Authority and Publicly Managed Local Authority facilities.

Assessment of the key influences leading the market, including consumer spending & confidence, increased consumer awareness of health and fitness issues, participation rates in sports, games & physical activities, the organizations and campaigns set up to encourage sports & fitness and other factors.

PRIVATE SECTOR

Market Size - analysis by value 1997-2002 with forecasts for 2004-2007. Continued strong growth, though growth rates slowing down. Analysis of revenue source, joining fees, membership fees, ancillary incomes etc. Commentary on recent, current and likely future performance.

Market Trends & Influencing Factors - slowdown in development of private fitness facilities; development of niche markets; increasing levels of competition in the market; growth in corporate and local authority sectors; new exercise trends; new product development.

Assessment of the market by the development of new club outlets, by membership numbers, and by key market sector - in-hotel and stand-alone development, independent versus chains, alongside, Premium, Mid-market and Value market analysis.

Key suppliers and market shares; leading providers and brands, private sector 'chains', hotel chains, company profiles with financial information where available. Market consolidation.

Future prospects and opportunities for the private sector.

PUBLIC SECTOR

Market Size - analysis by value 1997-2002 with forecasts for 2004-2007. Some growth, in the market. Commentary on recent, current and likely future performance.

Market Trends & Influencing Factors - growing influence of local authority health and fitness sectors, development of niche markets; new exercise trends; new product development.

Assessment of the market by development of new facilities, growth of these facilities, services offered in these facilities. Analysis by finance and management, growing influence of leisure management contractors, influence of PFI/PPP in capital expenditure. Membership numbers.

Key suppliers; leading providers and brands, local authority leisure management contractors, not for profit leisure management contractors, company profiles with financial information where available.

Future prospects and opportunities for the public sector.

Executive Summary

The overall UK Health and Fitness market has been experiencing significant growth in recent years.

Our definition of the health and fitness market includes all private sector health & fitness clubs including both stand-alone health & fitness centres or gyms and in-hotel fitness clubs. The report also includes public sector facilities incorporating all local authority sports and leisure centres and swimming pools, whether or not they have a health and fitness facility, such as a health club, gym or weights room. These local authority centres may be managed in-house, by a trust or other non-profit making organisation, or by a private leisure management company.

There has been a rapid growth in the provision of health and fitness service, particularly in the late 1990's and early 2000's, though more recently growth rates have been slowing. The growth in the private sector has been the main motivating factor in the positive development, though the early 2000's have seen a shift in emphasis to the public sector. This reflects a slowdown in growth in the private sector, driven by a more cautious economic situation and the impact of the terrorist attacks. In addition, this shift also reflects an increased level of investment in public sector facilities including new building and upgrading of many existing facilities.

Key factors stimulating underlying growth have included increased public awareness of health and fitness issues, expansion in the private club sector, investment in Local Authority facilities, increased emphasis on niche market segments (such as females, the older generation, disabled users and the youth market), government schemes to encourage a health lifestyle and health service referrals.

However, there are a number of factors constraining growth in the overall market including increased competition, both in the private sector and between the public and private sector, a decline in lottery funding and a perception of poor value amongst the health and fitness facilities users leading to high loss rates.

Nevertheless, future prospects remain optimistic, as many of the above positive factors are likely to stimulate increases in use of health and fitness facilities, though the nature of the market is likely to change towards a more targeted approach, with niche sectors officering the opportunity to add value, but also requiring a more considered approach in terms of specialist equipment, certain exercise classes etc.

In addition, the level of competition in the market is likely to continue to be intense and as the improvements in public sector facilities continue there is likely to be further competition, particularly in the value sector of the market. As a result, growth is likely to be more modest in the future, and the rapid growth witnessed in the late 1990's is unlikely to be repeated.

The private sector accounts for around 63% of the total market in terms of value, with the public sector accounting for the balance. The number of health and fitness facilities, including leisure centres, in the public sector is higher than in the private sector, however the nature of private clubs in that you generally pay higher prices, payment is in advance for membership (rather than paying for what you use), and the private facilities attract a larger number of paying members per establishment.

In terms of membership, local authority health facilities are significantly smaller than the private sector, partly because local authority centres offer open access and do not necessarily limit usage to members only. It is nevertheless estimated that public sector facilities have a combined membership base of around 2 million, compared to private sector membership of almost 4 million.

In the private sector one key recent trend has been the reduction in the share of revenue accounted for by joining fees, with clubs discounting on joining fees to attract new members, but attempting to balance this with increased membership charges. Some clubs do not charge joining fees. Ancillary revenue accounts for some 15% of all revenue, compared to around 40% in the US, suggesting that the UK health clubs will be seeking to generate additional ancillary revenue over the next few years.

The private sector can be assessed by multiple and independent, with the independent sector accounting for 58% of outlets, but only 48% of revenue. The independent sector share has been eroded in recent years by the growth of the multiples, with many independents either acquired by the multiples, or going out of business.

In addition, the sector can be analysed by in-hotel and stand-alone clubs. This comparison is a little unfair as revenue from hotel health clubs is artificially low on the basis that residents are not generally charged for health club usage. As a result the share taken by the hotel sector includes external memberships and admissions fees, and accounts for only 7% of the private sector.

The private sector can also be assessed by sector, with 3 key sectors of Value market, Mid-market and Premium market. The mid-market clubs account for the majority at 46% by value, with the premium sector representing 28% and the balance taken by the value sector.

In the Public Sector, there has been significant change in recent years. The governments commitments to improved health and fitness services and their greater commitment to improving awareness of health and fitness issues has supported the market, but in addition, investment in new facilities and upgraded facilities and operation by private leisure management contractors has stimulated the sector to become a more credible alternative to the private health and fitness clubs.

Of those leisure centres managed under contract, around 51% are managed by leisure management contractors, whereas 21% are managed by trusts or other non-profit making organisations. An estimated 28% of all facilities under contract are still managed by in-house teams. This illustrates the significant shift away from in-house management in recent years.

The provision of lottery funding has given the sector additional investment monies, but this is expected to deteriorate over the short term future. The industry expects the PPP and PFI routes to generate greater levels of funding in the medium term future, though interest in leisure PFI's within the private sector has not been as high as the government had hoped, as many companies consider it too risky.

The market leaders in the private sector include the following, David Lloyd Leisure, Esporta Group, Fitness First, Cannons Group, Holmes Place, LA Fitness and LivingWell. The leading companies are increasing their share of the market, with the leading 10 operators accounting for around 44% of the total market in 2003, compared to the previous year when they accounted for 41%. Other companies include Next Generation, LA Fitness, Crown Sports, Bannatyne Fitness, Virgin Active, Total Fitness, Peak Fitness and JJB Sports.

Leading hotel chains include De Vere Group, Six Continents Group, Thistle Hotels, Jarvis Hotels, Queens Moat House Hotels and Macdonald Hotels.

Major leisure management companies include Leisure Connection, Dc Leisure Management, CCL Leisure, Serco Leisure, Sports and Leisure Management, Parkwood Leisure, Community Leisure Services, Avalaon, Cannons and 3D.

Key opportunities and threats in the sector will include the corporate health and fitness sector, which has been one of the key growth areas in recent years, exemplified by the number of new specialist management companies entering the market and their increasing contract portfolios. Nevertheless it remains a key growth opportunity for future market growth, particularly as both the government and companies themselves see general well being and fitness as likely to reduce the amount of sick days taken over the year.

In more recent years, there has been a growing interest among UK health club operators to expand their networks abroad. This has been driven by the relative maturity of the UK health club market, which is the most mature in Europe. In particular, the Continental European market has been receiving attention, although Australia and the Far East have also provided attractive prospects. However, there is no proof yet that these markets are financially viable and sufficiently profitable.

Key health and fitness trends will also drive the market, including issues such as personal training, group exercising, low-impact training, more holistic approaches to exercise and in addition, the greater level of market segmentation required in the market, will also facilitate some added value propositions, perhaps stimulating some growth in revenue in the future.

List of Contents

1	INTRODUCTION	5
2	SUMMARY	7
3	ECONOMIC ENVIRONMENT	11
3.1	GDP	11
3.2	INFLATION & INTEREST RATES	12
3.3	UNEMPLOYMENT	13
3.4	HOUSEHOLD CONSUMPTION	14
3.5	HOUSING & CONSTRUCTION	15
3.6	STERLING	15
3.7	POPULATION PROFILE	16
3.7	CONCLUSIONS	18
4	THE HEALTH & FITNESS INDUSTRY	19
4.1	MARKET DEFINITION	19
4.2	PERFORMANCE	19
4.2.1	Recent Performance	19
4.2.2	Future Performance	21
4.2.3	Mix of Private and Public Sector Revenue	22
4.3	NUMBER OF FACILITIES & MEMBERSHIP	23
4.4	MARKET SECTORS	25
4.5	KEY INFLUENCES	26
4.5.1	Consumer Spending & Confidence	26
4.5.2	Increased Awareness of Health and Fitness Issues	27
4.5.3	Participation Rates in Sports, Games & Physical Activities	28
4.5.4	Organisations/Campaigns Encouraging Sports & Fitness	29
5	PRIVATE SECTOR HEALTH & FITNESS	31
5.1	MARKET DEFINITION	31
5.2	MARKET PERFORMANCE	31
5.2.1	Recent Performance	31
5.2.2	Forecast Performance	37
5.3	REVENUE SOURCE	37
5.4	NEW CLUB DEVELOPMENT	39
5.5	MEMBERSHIP	42
5.6	MARKET SECTORS	44
5.6.1	Private Stand-alone Health Clubs	45
5.6.2	Hotel Based Health Clubs	52
5.7	FUTURE PROSPECTS	56
6	LOCAL AUTHORITY SECTOR HEALTH & FITNESS	60
6.1	MARKET DEFINITION	60
6.2	RECENT PERFORMANCE	60
6.3	NUMBER OF FACILITIES/ NEW DEVELOPMENT	64
6.4	FINANCE AND MANAGEMENT	66
6.5	LEISURE MANAGEMENT CONTRACTORS	68
6.6	FUTURE PROSPECTS	70
7	MARKET SHARES AND COMPANY PROFILES	72
7.1	MARKET SHARES	72
7.2	COMPANY PROFILES	74
7.2.1	Major Private Sector Providers	74
7.2.2	Hotel Chains	84
7.2.3	Leisure Management Contractors	86
7.2.4	New Entrants and Niche Operators	88
8	KEY OPPORTUNITIES & THREATS	91
8.1	CORPORATE HEALTH AND FITNESS SECTOR	91
8.2	INTERNATIONAL EXPANSION	93
8.3	SUPPLIERS TO THE HEALTH CLUB MARKET	95
8.4	HEALTH & FITNESS TRENDS	97
8.4.1	Personal Training	97
8.4.2	Impact of Exercise Trends	98
8.4.3	Classes	99
8.5	CUSTOMER SEGMENTS	100
8.6	MEMBER RETENTION STRATEGIES	101
9	FUTURE PROSPECTS	102

Tables and Charts

Text © 2004 AMA Research

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Last updated by Amanda Porteous 2004