Planet Fitness CEO reflects on successful business model

Planet Fitness CEO reflects on successful business model

NEWINGTON – When Planet Fitness founders Mike and Mark Grondahl purchased a failing gold’s Gym in Dover in the summer of 1992, they were just looking to get into the gym business, not revolutionize the industry. The next year, they hired Chris Rondeau, a recent University of New Hampshire graduate who rose through the ranks to become a partner in 2003.

In January, after a majority stake in the franchising company was purchased by a private equity firm, the Grondahl brothers stepped down from day-to-day operations, and Rondeau was named CEO.
Along with the Grondahls, he was a driving force behind the 20-year evolution of one of the best-known national brands to originate in New Hampshire, now with 670 locations nationwide.

Construction is under way on expanded corporate headquarters in Newington, and a new Planet Fitness in Manchester opens on Monday at the former Coca-Cola building at 99 Eddy Road, replacing an existing location on McGregor Street.

How did the Planet Fitness business model emerge in those early years?
When we started in the early 1990s, the average gym fees were $39 to $49 a month, with about 12 percent of the U.S. population belonging to a health club. With the small population in Dover and Rochester at that point, we felt if we were competing for that 12 percent with the other clubs in town; there just weren’t enough people. So we decided to let the competitors fight over the 12 percent, and we’d go after the 88 percent no one was catering to.

We did that, starting first with just low price, and we saw the member volumes increasing, but we were still trying to cater to everyone. We still had all the heavy weights, the aerobics classes, the day care, the juice bar – we had all those things.

When we got rid of all that, and walked away from the body builders and power lifters who had defined the industry up to that point, that’s when the volumes really started going through the roof and we started getting the average Joe or the average Jane giving fitness a chance for the first time.

When was the first big turning point?
In 1998, we opened our third location in Concord and introduced the yellow and purple colors you see today. The mission statement had evolved by then, and the logo you see today was introduced. That’s also when we rolled out the no-lunks dumbbell alarm and implemented the same colors and mission statement at the existing two stores.

It was scary because the industry was telling us the opposite. A lot of people compare us to Southwest in a lot of ways. They do everything so much different than the rest of their industry, but it works for them.

How did the franchising begin?
In 2003, when we opened our fifth store in Manchester, we began our franchising operation. By then, we had refined the model so it was much more bullet-proof.
Our first franchise was in Altamonte Springs, Fla., in 2003. It was an equipment salesman who sold us treadmills. He saw our financials and said our numbers were far better than our peers. So he partnered with his brother, an orthopedic surgeon in Orlando, and we opened the first store down there. That guy now has about 18 stores in that group.

Around that time we also launched our national advertising fund, which requires all franchisees to pitch in 2 percent of monthly membership revenue to produce things like our partnership with “The Biggest Loser” and the “lift things up” commercials. That really plays into the fact that we have a true turnkey franchise. You can go to 10 Gold’s Gyms and get 10 different experiences. We decided we wanted to be a true franchise, like a McDonalds. A Big Mac tastes the same no matter where you are.

If you walk into any Planet Fitness, you are going to get the exact same treadmillls, the same amenities, the same colors, the same experience. On top of that, whether you are joining on Wall Street or in Alaska, the price is $10 a month. No other company in this industry has been able to accomplish that consistency in the pricing.

Why did the owners decide to sell a majority stake to TSG Consumer Partners?
With our growth over the years, we have been courted by probably 50 private equity companies. You name it, they’ve knocked on our door. We’ve been close a few times, but the partners were just not the right partners. TSG got our model. They get what we do and just want to give us some more reinforcement to grow this thing.

It allows us to grow more strategically, with better brain power and more depth in the senior organization. They’ve done this before. They’ve grown much larger companies than ours. We’ve done well to get to more than 600 units, but what do we have to put in place to get to 1,000 or 2,000? I’d rather know now, than figure it out along the way.

How much growth do you think is possible?
Well, we have 20 stores in California, and we have 16 in New Hampshire. Look at the population difference. We could probably have 200 to 300 just in California alone.

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