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NEWSWIRE
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Planet Fitness and franchisees make a deal |
By John Craig, Editor - 04.03.2008
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NEW YORK - The holding company for Planet Fitness has acquired a stake in two of its key franchise operators - in New York and Pennsylvania - in a move that gives headquarters a larger cut of the profits and furnishes the franchisees with the cash to open more clubs.
In signing over a portion of their businesses, the franchisees are gaining exclusive development rights in potentially lucrative markets.
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The founders of Planet Fitness, meanwhile, are getting a bigger piece of the action and pumping up their bottom line.
"This is a strategic partnership that strengthens their balance sheet and our balance sheet," Mike Grondahl, the Planet Fitness founder and chief executive, said of the agreements reached last week.
Planet Fitness now owns a one-third stake in 15 metropolitan New York clubs owned by brothers James and Jeff Innocenti and a third partner, and a 50-percent interest in three Pennsylvania clubs operated by Dan Haran.
Jeff Innocenti said last week the arrangement will allow his group to tap into the borrowing power of the Planet Fitness corporate office to build 10 to 12 additional clubs a year.
"They'll secure the financing and help cover shortfalls, if there are any," Innocenti said. "And we'll grow the brand and increase the revenues of the whole corporation.
"With the slowdown" in the economy "it's been tougher to get deals done with the banks. We've been talking to Mike about this for a couple of years, and now seemed like the right time," Innocenti said.
The development agreement gives the Innocentis exclusive rights to a market that includes 15 million residents and covers the five boroughs of New York, Putnam, Rockland and Westchester counties in the north, and parts of New Jersey and Long Island.
In Pennsylvania, Haran gets dibs on a sprawling market that includes the Scranton-Wilkes Barre area and Western Pennsylvania.
"Pennsylvania will be our next big state," Grondahl said.
The heavily working-class territories are the type of areas where the no-frills Planet Fitness model - with $10-$20-a-month memberships - excels.
The Innocentis owned three Gold's Gym clubs - in the Bronx, White Plains and Yonkers - for nearly a decade before converting them to Planet Fitness locations in 2004.
Those clubs and several that followed now rank among the biggest moneymakers in the Planet Fitness chain, which includes more than 200 clubs in 28 states.
"As a Gold's we were fighting to keep our heads above water," Jeff Innocenti said. "Really, the change has been unbelievable."
Innocenti said that the three clubs tripled their monthly billings, and that the numbers have been even stronger at his other clubs. A gym in Nanuet sold 9,000 memberships before it opened in 2003 and now takes in more than $200,000 a month in dues. A Harlem location that opened in February bills $60,000 a month, he said.
One potential downside to the deal could be the reaction of other Planet Fitness franchisees, who might wonder whether resources are being deployed equally among operators, or whether the company-owned clubs receive preferential treatment. Unlike many other chains, however, Planet Fitness operators do not contribute to a national advertising fund.
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