Orangetheory Fitness is a heart rate-monitored, high-intensity workout studio.
As one of the top-ranked fitness franchises, the company has surpassed the 1,000-studio milestone and $1B in systemwide revenue for 2018.
OTF plans to reach 2,500 global studios and 2.5M members by 2024. Currently, the company has 800K members across more than 1,100 studios in 49 US states and 22 countries.
- Scale | The number of locations and members increases convenience and word-of-mouth marketing.
- Science-backed | The heart rate monitors and HIIT training ensure workout effectiveness.
- Variety | Workouts are constantly changing to keep the body adapting and prevent boredom.
- Tech-enabled/Gamification | The use of leaderboards and competitive points during workouts encourage motivation.
- Brand | “Vanilla”… it’s not clear who the brand is for or what it stands for.
- Marketing | Like the branding, the marketing feels stock and corporate. Additionally, as it relates to branding and marketing, it’s not clear from OTF’s social or web presence what goes on in the studios, who it’s for, or how to access it.
- One-dimensional | The lack of a strong brand identity/marketing has resulted in OTF messaging skewing to “science-backed” or “effective.” While being results-oriented is a strength, it also leaves the studio/workouts feeling like a commodity.
- Talent | Unlike SoulCycle, Peloton, or Barry’s Bootcamp, OTF instructors aren’t positioned as cultivated talent with specific credentials, neither are they tastemakers.
- Digital | Aside from the OTF heart-rate monitor and wearables, there aren’t compelling digital offerings: social media content, streaming workouts, on-demand training, or voice-guided exercise.
- Experience | Issues related to brand, marketing, and talent make it difficult to cultivate the consumer’s desire to connect beyond the studio, be it events, playlists, merchandise, digital/social content, etc.
Brand | The company has publicly stated its pursuit of and appeal to millennials, however, it’s brand does not align with the preferences of younger generations. To correct this misstep, OTF can follow the lead of brands like Outdoor Voices, Glossier, and Sweetgreen, who have built a cult-like following based on the strength of their core values, community ties, experiential activations, and rallying around a definitive point of view.
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Talent | While other studios have turned their own trainers into stars, OTF can leverage actual stars to increase awareness and align with new audiences/causes.
- Take F45 Training, for example. Like OTF, their trainers aren’t a focal point. But, they did go out and get Mark Wahlberg as an investor to leverage his brand.
- The OTF appearances in Queer Eye were a great start, but consider a more integrated partnership with Jonathan Van Ness and team as a means of establishing a point of view, gaining exposure to a new audience, and realizing an opportunity to produce social content in partnership with celebrity/social media ambassadors.
- Another approach would be a lululemon-like community ambassador program that builds goodwill, visibility, and engagement among local audiences.
Digital | Establishing a digital/out-of-studio offering is the most challenging undertaking.
- The low-hanging fruit would be to invite all the existing OTF trainers to audition for “digital talent”. Take the most compelling instructors and produce instructional exercise videos, full-length workouts, voice-guided workouts, and other forms of content. Then, edit that content down into shorter clips to be distributed on social platforms (Instagram, Facebook, and YouTube).
- As an extension of this content, members can access it through a “gated” site or app.
- Long-term, OTF can distribute content through existing equipment and platforms like Technogym, Life Fitness, NordicTrack, FORTË, or Openfit.
- Conversely, the company could build its own streaming/on-demand platform (which is obviously the most cumbersome of the options).
Experiential | With the branding and talent elements rectified, OTF will have the opportunity to create experiential, community-based activations that extend the brand into the community.
- Each city/studio can have a local run group/happy hour run group.
- Monthly community meet-ups or outdoor workouts build camaraderie and present an opportunity to create social content.
- Exclusive, members-only merchandise links a consumer’s identity with the brand and creates additional revenue opportunities.
- Establishing partnerships with vitamin, food, apparel, music, and/or wearable companies present the opportunity to create bundled services at a discounted rate, offered exclusively to OTF members.
Additional Context: State of the Fitness Industry
Health Club & Boutique Revenues Are on The Rise
In 2018, US health club industry revenue reached $32.3B, a 7.8% increase from 2017, according to IHRSA. Over the same period, total health club membership grew to 62M, with membership to a boutique studio increasing 121% over the past five years, compared to 18% for commercial fitness facilities and 15% for all fitness facilities.
In the UK, research from LeisureDB reported a total market of 10M gym members as the industry grew to £5B ($6.3B USD) for the 12 months ending March 2019. Meanwhile, the European market—including Norway, Russia, Switzerland, Turkey, and Ukraine—reached 60M members and €26.6B ($29.4B USD) in value for 2018. And in the Asia-Pacific, 22M members across 14 regional markets accounted for $16.8B in total revenue.
In all, IHRSA reported that the global health club industry revenue totaled $94B in 2018, as more than 210K clubs served 183M members. This continued growth helps explain (and justify) the aggressive expansion plans being undertaken by budget gyms and boutique studios alike.
Xponential Fitness hopes that each of its eights concepts, including Club Pilates, CycleBar, StretchLab, Row House, AKT, YogaSix, Stride, and Pure Barre, will reach 900 locations each over the next five years. Next up, the company is eyeing international expansion across Saudi Arabia, United Arab Emirates, Qatar, Australia, the UK, Canada, Mexico, Japan, and Brazil.
After years of modest growth, Barry’s Bootcamp received a $100M growth investment from North Castle Partners—a private equity firm that specializes in the health and fitness sector—in 2015. Since then, Barry’s has grown from 17 locations to upwards of 50 locations in 17 cities across 10 states and Washington DC, plus 10 international locations. Most recently, the company opened its Asian flagship studio in Singapore, with Paris, Mexico City, Melbourne, and Doha, Qatar listed as “Coming Soon” on their website.
Of course, Barry’s 50-ish locations are dwarfed by the thousands of studios coming online at Orangetheory Fitness. After reaching the 1,000-studio milestone and $1B in system-wide revenue for 2018, OTF plans to reach 2,500 global studios and 2.5M members by 2024. Currently, the company has 800K members across 1,100 studios in 49 US states and 22 countries.
Following a similar trajectory, F45 Training is coming off an investment from Mark Wahlberg and FOD Capital that valued the company at $450M. Since launching in 2012, F45 has already amassed some 1,500 studios. According to F45 CEO Rob Deutsch, the Aussie company is eyeing 10,000 studios as they focus on global expansion. Having already opened in 40 countries, South Korea, Russia, Afghanistan, and Spain are next up.
Health Clubs & HVLP Gyms
Of course, boutique concepts aren’t the only operators on the move. In the US, budget gyms like LA Fitness (700 locations, $2B revenue in 2017), 24 Hour Fitness (430 locations, $1.44B revenue in 2017), and Planet Fitness (1,500 locations, $449.9M revenue in 2017) are doing just fine. Since opening in 2011, Equinox-owned Blink Fitness has reached 50 locations and is continuing expansion.
Meanwhile, luxury operators like Equinox and Life Time are expanding beyond fitness to become full-fledged lifestyle brands.
Connected Fitness, Streaming, & Audio
Connected equipment: To date, Peloton has benefited from first-mover advantage, raising $995M, earning a $4B valuation, and testing the IPO waters.
Their success has led to a growing list of Peloton of ‘X’ competitors:
- Tonal | By combining an interactive LED screen and electromagnetic weights with a fold-out bench and cables, Tonal has managed to pack an entire gym and an AI-powered personal trainer into a wall-mounted strength training system.
- Mirror | Similarly, Mirror is beaming boutique fitness classes into the home by way of a sleek, mirror-like (go figure) display that’s actually an interactive LED screen.
- Hydrow | Then there’s Hydrow, a connected indoor rower that recently raised $20M from L Catterton.
- Equinox | Launching later this year, Equinox will offer connected equipment and streaming content for the at-home market including a SoulCycle stationary bike, proprietary Woodway treadmills, and a yet-to-be-named digital platform.
- Echelon | There’s no question that most of these connected fitness products appeal to the relatively affluent consumer. However, bridging a formidable void, Echelon, the ‘mid-market Peloton’ of sorts, promises a connected cycling experience for the consumer who’s unwilling to shell out for a high-priced flagship. The company also released Echelon Reflect, a Mirror competitor, for two-thirds the price.
- Pivot | Pivot, a 3D-enabled, AI-driven strength training, HIIT, and cardio system, promises the most accurate form-tracking and real-time feedback among connected fitness companies, employing live trainers that are on call to virtually assist subscribers.
- FightCamp | As another up-and-comer, FightCamp by Hykso is bringing boxing into the home with punch-tracking sensors to measure the count, type, speed, and “intensity” of your jabs.
- VOLAVA | Meanwhile, VOLAVA, a Barcelona-based connected fitness company, raised €750K ($835K USD) in Series A funding. The company currently offers a Peloton-like smart bike and plans to introduce a connected boxing product, à la FightCamp.
Streaming & On-Demand
As cool as connected equipment may be, there are a few chinks in the armor. A recent survey of consumers interested in buying an at-home fitness system found them hesitant to make a purchase. Three factors stood out: they don’t have enough room, the equipment is too expensive, or they flat out prefer live classes to exercising at-home.
Given these consumer insights, streaming services that remove equipment from the equation—thus saving space and money—might be the holy grail of getting in shape.
- Daily Burn has been in the streaming game since 2017. Now, the company boasts some 150,000 monthly subscribers who access a library of over 750 streaming workouts. And recently, the company announced plans for a whole series of fitness apps, each dedicated to specific training verticals, starting with HIIT Workouts. The basic Daily Burn subscription runs $14.95/month and the HIIT app is $9.99/month.
- FORTË offers on-demand and live streaming boutique fitness classes for $99/year or $39/month. Similarly, with ClassPass Live, the popular multi-studio membership startup has entered the world of streaming. From their studio in Industry City in Brooklyn, ClassPass instructors lead workouts that can be streamed by users anywhere using Chromecast and a provided heart rate monitor to participate. In line with other services, ClassPass Live costs $10/month for ClassPass subscribers and $15/month for standalone users, with yearly pricing at $99/year.
- As tech-focused streaming startups garner all the attention (and funding), Beachbody is flying under the radar. Interestingly enough, they’re probably the closest thing to Netflix there is. The company popularized at-home VHS and DVD workouts with P90X (and a modern-day multilevel marketing machine with some 450,000 “coaches”) before transitioning to a streaming platform called Beachbody On Demand. A 2017 press release spoke to their success, claiming to be fitness’s first streaming service to reach one million subscribers (at $99/year). Combined with their supplement and DVD sales, the company pulled in some $1.3B in revenue last year.
- Aaptiv is the category leader in audio-guided fitness classes with around 200,000 paying members. And with the announcement of their $22M Series C from strategic investors like Amazon Alexa Fund, Bose Ventures, and Warner Music Group, Aaptiv has raised a total of $52M in funding and is well-positioned to continue their dominance.
- Then there’s NEO U. They’ve created a 20,000-square-foot exercise complex in Midtown Manhattan that doubles as a multimedia production studio and influencer hangout. In addition to hosting regularly-scheduled classes, celebrity trainers and fitness influencers can use the space to host workouts and produce original content. Then, all of the classes are available to be streamed or downloaded
Despite headlines to the contrary, the all-out collapse of brick-and-mortar gyms isn’t a foregone conclusion. According to Jon Canarick of North Castle Partners, over the next 15 years, the fitness market looks like more of the same.
In speaking with Health Club Management, Canarick said high-value, low-price (HVLP) options will continue to find success. The same goes for group fitness — what Canarick refers to as HVLP 2.0. As digital options like Peloton apply pressure and competition among studios grows, Canarick expects there to be closures among boutiques — especially in urban markets with expensive rents.
In the digital and connected fitness space, Canarick sees Peloton as the definitive frontrunner in the premium market. As more competitors enter the space, high-end options like Tonal and Mirror will battle it out for second place. Noting that Technogym has already entered connected hardware, Canarick speculated that SoulCycle, too, will eventually introduce an at-home option. Meanwhile, he sees cheaper options becoming available, further segmenting the market.
Still, Canarick concludes, “I believe we humans still desire ‘live’ experiences – whether it’s because we work out with friends or because we need motivation and accountability.”
If that statement proves to be true, the future of fitness will be defined by access—the option to work out at home, go to the gym, or tune into an audio class—and won’t be confined to an either-or decision between digital or in-person exercise.