Ganan Kanagathurai tells Mel Flaherty how he hopes to lead Itsu to fulfil its potential.
Richard Darwin explains how The Gym Group is going from strength to strength. Mel Flaherty reports.
“More and more people are interested in health and fitness and we think that will only grow with the pandemic behind us,” he says.
“We did our own research which showed that 30% of people anticipate exercising more than they did before the pandemic and 50% say they will exercise the same amount as they did before.”
Other people’s New Year’s fitness resolutions can make for very dull conversation. Richard Darwin, however, would disagree – especially as we begin 2022.
As CEO of The Gym Group, which with 203 outlets is the UK’s second largest operator of low-cost gyms and the only health and fitness group listed on the London Stock Exchange, every new gym-goer validates his unwavering belief in the potential of his company. January and February are key months for his industry at the best of times, but never more so than this year after 21 months of business seriously disrupted by the global pandemic.
Despite gyms being closed for 45% of the trading days in the 12 months to the end of March 2021 and then only reopening on 12 April last year, Darwin is bullish. He feels the company has successfully navigated this storm, which at the time of writing was far from over but was showing promising signs of abating.
“The pandemic has undoubtedly been the hardest thing I have dealt with in my career because there was no playbook for it – you couldn’t draw on other experiences because of the level of uncertainty,” Darwin says. “But I am proud of the way we, as a business, have handled this and come out in a stronger position than when we went into it.”
As a listed company (Darwin joined the business as CFO in 2015 to help lead the Initial Public Offering, which raised £125m), The Gym Group was able to raise £40m from shareholders early during the Covid crisis as part of a package of measures to help the business cover costs when membership fees were frozen. This included topping up Furlough Scheme payments so the circa 2,000 staff still received 100% of their salaries. Darwin says the benefits of this are now very clear: “Our engagement scores with staff and members are now stronger than before [the pandemic]”.
The group went back to investors last July to raise a further £31.2m to fund the opening of 40 new sites over an 18-month period. 15 of these have already opened (including 5 on the same day in late December). Not bad going in a year when not much was going on for most. The company is on track to get the remaining 25 up and running this year and its ambitions go way beyond too. The past almost two years have obviously put a big dent in the company’s balance sheet but Darwin is clearly far from alone in his conviction that the group will not only get back to but exceed its pre-pandemic profitability (the firm reported EBITDA of £49m in 2019).
Longer-term trends have long been in its favour and some of these have been boosted by the Covid-19 experience. When Darwin joined the group, it had 63 clubs, a figure that has more than trebled since, reflecting the growth in the low-cost gym sector as a whole.
The segment. and indeed the company’s growth potential, still has plenty of headroom – a 2019 report by management consultant PWC showed the then 700-strong UK low-cost gym market had the potential to double. The model provides high-tech gyms that are cheaper to build than their mid-market and premium counterparts as they do away with the higher cost extras like spas and saunas. There is no reception – all staff are qualified gym instructors – and a key difference is there is no contract so members pay a monthly subscription (on average £19 a month in The Gym Group’s case), which they can stop and start as they please.
“That is one of the keys to our success,” Darwin comments, “as it means we are totally centred on the member experience – if they are not having a good experience, they will just leave.”
Darwin says the property market is also favourable towards The Gym Group’s ambitions, with increased availability on retail parks, which with their plentiful parking and edge-of-town locations are easily accessible and highly visible. Since 2019, the group has adapted its model so that in addition to its original 15,000 to 20,000 square foot gyms, it can also set up in units of 7,000 to 10,000 square feet.
And as for the public’s growing appetite for and recognition of the benefits of regular exercise, Darwin believes these have been accelerated by the pandemic.
“More and more people are interested in health and fitness and we think that will only grow with the pandemic behind us,” he says. “We did our own research which showed that 30% of people anticipate exercising more than they did before the pandemic and 50% say they will exercise the same amount as they did before.”
Growing the business is not just about adding new sites, Darwin stresses. About four years ago, the group introduced a premium level of membership, Live It, which, for an extra £5 a month allows members to use any of the gyms within the chain, to bring a friend and to access the FitQuest fitness and body composition tracking machines that are available in the majority of its sites. Darwin says 27% of the group’s membership base has currently upgraded to this level. Another revenue stream is access to an unlimited supply of Yanga Sports Water in the clubs for £4 a month.
Darwin acknowledges there are undoubtedly further opportunities to develop branded low-cost gyms in Europe and the US, potentially via a franchising route, but insists the focus for The Gym Group is presently 100% on the UK and on its existing model: “We are extremely well-placed to be able to continue to grow very rapidly in our part of the market. There is no need to diversify.”
The other significant area for development within the business is online.
“Yes, we are a gym group but we are also, just as importantly, a tech business,” he says. “We are finalising a new tech platform over the next two to three months. Our website and app are fundamental to everything we do and to our future.”
Darwin explains that members can only join online so the group has been investing in improvements in Search Engine Optimisation, in website content and its app, which is now used by 50% of its members.
The Gym Group is his first gig as a CEO and he is loving it. Having started out as an accountant with Coopers & Lybrand, Darwin’s first move into the private sector, with The Rank Group as was, took him into strategic development and into the multi-site leisure industry. Apart from a spell with Diageo, the brewing and distilling giant, he has spent almost all of his career in various areas of that industry. This has included three years in Orlando with Hard Rock Café International and spells as CFO with Paramount Restaurants (which owned the Caffe Uno and Chez Gerard chains) and Essenden, now Ten Entertainment Group, another plc which operates tenpin centres under the Tenpin brand.
Darwin joined The Gym Group as CFO and when its former CEO and founder John Treharne announced his intention to take a step back (he remains as Founder Director), he was the obvious choice for the job. Darwin says he felt absolutely ready to take it on: “When I was CFO here, and elsewhere before, I never confined myself to financial things. I have worked in some businesses that were small enough for me to get a real understanding of other disciplines.”
He is so excited about the potential in his current role that it is hard to steer him onto his previous experiences. But he does admit to a pride in the turnaround of Essenden. When he joined, it was still suffering in the aftermath of the smoking ban but by the time he left it had not only also survived the financial crisis but was flourishing.
He insists, however, that nothing has been as exciting career-wise as the past three and a half years with The Gym Group.
“So far there have been two distinct phases. Up to February 2020 we were absolutely flying; we had opened 20 sites the previous year, had achieved record profits and the results were good for January and February – everything was set fair. Then we had to slam the brakes on because of Covid and go into a completely different mindset, thinking how we could preserve staff and members.”
Reflecting on his first experience so far of leading a company as CEO, Darwin says: “I really enjoy the sheer breadth of the role. I think the key thing is to set the strategic direction but to then be flexible enough to alter it if you need to.”
He has certainly put that theory into practice. And the company’s ambitions for 2022, and the likelihood of it achieving them, look way more realistic than the average gym member’s New Year good intentions.
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