Insider Briefing: Tech-Enabled Fitness

Food.

Like the boom of boutique fitness studios, fast-casual salad spots are becoming ubiquitous in cities across the country. Thanks to a growing demand for convenience and a cultural shift toward fresh, healthier meals, fancy salad bars are having a moment.

Modeling their efforts after the success of Chipotle’s model, fast-casual restaurants like Sweetgreen, Tender Greens, and honeygrow are scaling their respective take on the build-your-own salad bars throughout the US.

To date, the formula has included three main components. One: massive rounds of funding — Sweetgreen has raised nearly $130 million to date, with honeygrow racking in about $70 million. Two: hyper-local ingredients — fresh isn’t nearly enough; the standouts of the salad world need to be more connected to local farmers than the competition. Three: marketing — leveraging social media, chef collaborations, and in-person event marketing, these salad spots have turned a bowl of veggies into an essential part of an Instagrammable lifestyle.

Looking ahead, logistics (local food at scale is hard), differentiation, and market size are the obvious hurdles these fast-casual restaurants need to clear. Although the US fast-casual market is expected to reach $67 billion by 2020, fast food will reach $223 billion in the same year. For now, healthy food is still no match for its unhealthy foe.

M&A.

It’s official. Consumer preferences and upstart brands are forcing Big Food to move away from sugary snacks and toward a healthier future.

In 2017, large conglomerates made big moves to acquire healthy snack-food companies. Nestlé—the maker of Butterfinger, Baby Ruth, and Raisinets—sold its US candy brands and, in an about-face, acquired Atrium Innovations, maker of Garden of Life supplements, for $2.3 billion. That move came on the heels of Kellogg’s $600 million acquisition of RXBAR. Around the same time, Hershey picked up Amplify Snack Brands, the maker of SkinnyPop Popcorn, for $1.6 billion.

Now, partway through the year, 2018 has seen its fair share of M&A. In January, French dairy giant Lactalis agreed to acquire siggi’s, a maker of Icelandic-style skyr yogurts. PepsiCo announced it was acquiring Bare Foods, a maker of baked fruit and vegetable snacks. And Molson Coors has acquired Clearly Kombucha, a California maker of the fermented tea beverage. Although the terms of these deals weren’t disclosed, the moves speak for themselves — Big Food is setting itself up to cash in on a healthier future.

Tech-enabled Fitness.

A few years ago, wearables seemed poised to transform health and fitness. Since then, major players like Fitbit and Apple have struggled to make an impact. At the same time, Jawbone folded and Under Armour’s HealthBox bombed. So much for that wearables revolution, huh?

But now, a new breed of fitness technology is trying to transform the space. Recent developments point toward growth in at-home, digitally-enabled products and voice-lead workouts.

Earlier this year, Mirror—an at-home workout device that looks like a mirror but allows you to stream fitness classes—raised $13 million in funding. Mirror’s product and pricing hasn’t been released, but expect them to follow in Peloton’s footsteps — emphasizing original content and charging a premium price. Update: Mirror released its product and it will run you  $1,495, plus a $39 monthly subscription fee for content.

Speaking of Peloton, the company best known for their high-tech stationary bikes recently rolled out Peloton Digital — a new app featuring live and recorded video and audio workouts that include walking, yoga, strength training, and cycling. The play here seems obvious: at about $20 per month, the app is an opportunity to engage consumers who are priced out of Peloton’s core products. Their bikes sell for $1,995, treadmills cost $4,000, and on top of that, there’s the $39 subscription for monthly classes.

While most classes in Peloton’s app are slated to include video to help guide the workout, Aaptiv CEO Ethan Agarwal seems to have found a little bit of whitespace in audio. If you’re not familiar, Aaptiv is the category leader in audio-guided fitness classes with some 200,000 paying members. And with the announcement of their $22 million Series C—bringing their total funding to $52 million—Aaptiv seems well-positioned to continue their dominance.

Lastly, we’ll round out our discussion of at-home and voice-led workouts with a bit of a dark horse. Superstar fitness instructor Kayla Itsines’s Sweat app is on track to do $77 million in revenue this year. This is all without venture capital or a Silicon Valley office — just a fanatical following on Instagram that has made Itsines the epitome of fitness instructor stardom.

Fitness IPOs.

Both Aaptiv and Peloton have floated the idea of going public in the near future, the former as early as 2020 and the latter later this year. But as these tech-enabled companies speed toward a public offering, SoulCycle is backpedaling from the public market.

As more boutique studios flood the fitness space and competition in the cycling sphere heats up, SoulCycle has opted to pull their SEC registration form citing “market conditions.” While this move doesn’t preclude them from going public in the future, it does raise some questions. For example, on numbers alone, SoulCycle is falling behind other boutique studios. As I pointed out in last week’s insider briefing, Orangetheory and F45 are closing in on 1,500 studios, respectively. Meanwhile, SoulCycle currently operates 87 locations across 15 markets in the US and Canada.

Though, this could be the sign of a pivot. The IPO didn’t play out, but SoulCycle is pressing forward in new avenues. Last week, the company announced they have tapped talent from Vox Media, Glamour, and Mashable to launch their own digital media division. With a focus on “creating programming and experiences using a variety of mediums, including music, video, audio and experiential events,” SoulCycle is hoping to advance the brand outside the four walls of the studio.

Still, a couple questions remain: Is this move intended to help them recruit more riders willing to pay $35 per class or is this the first indication that they plan to follow in the footsteps of Peloton or Aaptiv who are proving at-home workouts and original content have much better economics than opening more boutique studios.

Athleisure.

When it comes to workout wear, Outdoor Voices is #DoingThings. In March, the company announced a $34 million Series C, bringing their fundraising total to more than $54 million. As for what they’re spending on, early indications point to new styles (exercise dresses) and activity-specific lines (tennis). While these money moves have earned OV’s CEO, Ty Haney, the Queen of Athleisure title, she’d rather redefine the space altogether — “rec wear” is more appropriate, she says.

Appealing to the recreationalist is a point that’s easy to overlook, but one worth noting. Especially since Outdoor Voices is finding success by “freeing fitness from performance” while Under Armour—who’s focused on being louder in 2018—pushes performance and misses the mark on women’s wear, leading analysts to believe the brand has run out of steam.

As Outdoor Voices is being heralded as the next lululemon, lulu isn’t going down without a fight — they recently reported a 25% jump in quarterly sales to the tune of $649.7 million. Still, neither brand—Outdoor Voices nor lululemon—is upending athleisure enough to unseat Nike, whose 2017 revenue ($34.4 billion) was more than 10x that of lululemon.

The Future of Healthcare.

The healthcare industry is broken — there’s no denying that. Unfortunately, when it comes to solutions, we’re still coming up short. Of course, that doesn’t mean no one’s trying to solve this problem. From relative newcomers like Oscar Health, One Medical, Parsley Health, and Forward to tech companies turned healthcare reformers like Apple, Uber, Alphabet, and the Amazon-Berkshire Hathaway-JP Morgan venture, it’s clear there’s a wave of disruption bearing down on the healthcare industry.

And it’s no wonder why. According to the Centers for Medicare and Medicaid Services, healthcare spending in the US has already surpassed $3 trillion annually — a figure expected to grow another 5% this year.

With an eye on capturing even the slightest portion of this massive market, while also attempting to lower costs, increase access, and correct inefficiencies, more money than ever is and will be flowing into the space. According to Forbes, venture capitalists poured $15 billion into healthcare startups during the first half of 2018, 70% more than the $8.9 billion from the first half of last year. And in the most recent funding news, Oscar Health landed a $375 million investment from Alphabet.

In an interview with Wired, Oscar co-founder and CEO Mario Schlosser said the company will use the funds to ramp up hiring as they reinvent and rebuild health insurance from a technology perspective, launching new product lines like launching Medicare Advantage for 2020.

Whether it’s Oscar, Apple, or a startup that’s not even on the radar yet, change is coming to the healthcare industry. While nothing is going to happen quickly, I’ll be keeping tabs on all the relevant updates. And—in the weeks ahead—expect a full briefing dedicated to the future of healthcare.

Want to get in touch? Email anthony@fitt.co with tips, questions, or to continue the conversation