#22: Jon Canarick, Managing Director, North Castle Partners

In today’s episode, Joe Vennare sits down with Jon Canarick, Managing Director of North Castle Partners to discuss the evolving fitness landscape, why Jon doesn’t buy into the gympocalypse, and North Castle’s investments in Barry’s, Echelon, Crunch Fitness, and more.

Check out an overview of the conversation below or listen to the entire episode for more.

What is North Castle’s investment thesis?

JC: North Castle has been exclusively focused on health and wellness since we started. The definition has evolved over time, but we spend about 40% of our time in nutrition, 40% in active living, which includes the fitness market, and 20% in a handful of other categories including beauty, personal care, and products that support a healthy and active life and premium or upgraded living.

How has the sector evolved?

JC: The most significant change I’ve seen is the types of businesses that need capital and the uses of that capital. 

Today, companies need to raise significantly more capital than they did a decade or two ago due to the cost of technology and the cost to acquire customers, which is generally more complex and harder than it used to be. 

It’s much easier to start a business as far as just getting up and running, but conversely, the costs of doing that and finding growth are quite high.

Another significant difference is the competition. There’s a ton of investment firms, both in venture and private equity, looking for health and wellness brands and exciting growth brands, and the sheer amount of capital available is extraordinarily high.

Are the concepts we see today innovative or iterative?

JC: For the most part, businesses evolve from existing concepts. For example, SoulCycle certainly wasn’t the first company to take a spin class out of a gym and put it into a stand-alone environment, but they evolved an existing concept in different ways.

So, it’s more evolution rather than revolution and the same could be said in the nutrition market. Atkins was incredibly new with low carb eating when it came out, and now Keto is completely new and different.

What factors justify a private equity investment?

JC: You have to understand market size, and furthermore, the potential of something that may be small today but is playing in a very big market.

We’re big proponents of understanding the science behind a trend. If the science is there, then, generally speaking, we can get comfortable with something that may be a small concept today, but has the capacity to grow quite a lot.

Ultimately, picking the winners out there is probably one of the hardest things about what we do.

Is there a boutique fitness bubble?

JC: It depends on the type and size of the environment you’re looking at. The total number of boutique fitness studios in a big city like New York is at a high and I don’t see that number increasing tremendously. 

But across the nation, just based on the sheer number of new franchise locations that are sold but have yet to open, there’s still a lot more coming. 

I don’t know where that ends or what their economics look like, but I do know there’s a lot more locations that, at least, in theory, will be opening over the next two to three years.

Will there be a Gympocalypse?

JC: I’m not a big believer in the Gympocalypse theory. In general, home fitness users are also frequenting brick and mortar concepts. People crave community and want to work out in a different environment. They want to be surrounded by people, or have a personal training session, or use the amenities.

Home fitness equipment and content aren’t new, they’re evolving just like other categories evolve for the consumer. I just don’t subscribe to the idea that we’re all going to work out at home. The trends toward the desire to work out and be healthier are so strong, the number of workouts people are doing are increasing, and they’re doing some at home and some in a physical location.

Another reason I believe we’re not anywhere close to a Gympocalypse is mental health and the need for breaks from our devices. A real benefit of guided fitness is leaving the phone in the locker and being immersed in that experience, listening to the instructor. 

What led to your investment in Echelon?

JC: I have tremendous respect for what Peloton has accomplished, and while neither home content nor home hardware in fitness is a new concept, bringing those two things together into a connected experience has evolved.

With Echelon, our founder and CEO saw an opportunity to create a product that had a lower price point but still very high quality, and a content strategy designed to appeal perhaps a bit differently than the other companies in the market to ultimately reach a different audience than a Hydro or Peloton or even a Tonal is reaching today.

What’s next for Barry’s?

JC: We’ve started to play with some new ideas. Barry’s is about this amazing combination of high-intensity interval cardio and strength training. 

On the cardio side, we’ve been known for running but we’re excited to launch Barry’s Ride where people can experience the same great dual workout and get cardio on a bike instead of a tread.

Strength training is one of the most under-penetrated parts of the fitness market and will continue to grow. That said, another concept that has been really successful for us is Lift, which is a strength training class which we run in a handful of our locations.

How will fitness and wellness evolve? 

JC: We’ll continue to see people offering high quality experiences backed by great brands with loyal, passionate followings.

We continue to love the idea of experiential retail or experiences away from our devices and let us be present in an experience, whether it’s fitness or something different. 

That’s what we’re looking for, but we’ll continue to follow all the trends in nutrition and fitness — staying true to our primary investment areas for years to come.

**Note: Jon’s answers have been edited for brevity and cohesion.

About Jon Canarick: 

Jonathan (“Jon”) Canarick is a Managing Director with 18 years of consumer private equity investment experience. Since joining North Castle in 2001, Jon has actively managed North Castle’s investments across a variety of Healthy, Active, and Sustainable Living sectors and across all job functions at North Castle.

Having started his career at NCP as an Associate out of investment banking, Jon has played a crucial role in the development of North Castle and many of its portfolio companies. Jon currently sits on the Board of Directors of Echelon Fit, CR Fitness, Encore Vet Group, Kettlebell Kitchen, The Escape Game, Barry’s Bootcamp, Brooklyn Boulders, Curves, Jenny Craig, Palladio, and SLT. Previously, Jon served on the Board of Directors of Mineral Fusion, gloProfessional, Flatout, International Fitness, Enzymatic Therapy, Performance Bicycle, Avalon and DDF and was actively involved in the Firm’s investment in Grand Expeditions.

Prior to joining North Castle, Jon worked in the Financial Sponsors Coverage and Leveraged Finance groups of Bear, Stearns & Co., where he executed leveraged buyout transactions and provided advisory services for financial sponsors. Jon earned a B.B.A. from the University of Michigan and an M.B.A. from Columbia Business School.


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