Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over or 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now, welcome Inside the Ice House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Okay. Anyone have holiday gift giving experience anything like mine? The family's exchanging presents, all stuff drawn from the well-established lists of wants and cravings. My sister-in-law and her boys from Rye, New Hampshire Make my dreams come true, a number 12, Tom Brady goat hoodie. Tom may be out this year, but he's coming back. You heard it here first. Then it's my turn for that little something from the missus. I eyeball the box, but it's five feet long and wicked thin, and there's other stuff that goes with it. What did I get? A pair of Alpine touring boots, skis, and bindings, a package from the looks of it that might have broken my wife's bank. This is one department in which I thought I was well stocked. I already have a quiver of skis, an old pair for rocks, a newer pair for hard pack corduroy, and another pair for powder. Did I need this? It turns out I did.
Josh King:
Let's face facts. Alpine skiing can be pretty passive exercise. Most of the time is spent standing in line or sitting on a lift, not Alpine touring. The skins go on, you walk up a hill, you sweat a lot. Half an hour later, your hat's, soaked you're at the summit. Then, and only then, can you enjoy the downhill glide. Alpine touring, or AT, really turns out to be an exhilarating experience and a great way to find new fun and health in the great outdoors. But if you're nowhere near a mountain, one of your new year's resolutions might be to spend more time in the gym. Almost three quarters of Americans agree that they're making some sort of a new goal to get healthier in 2020. With an estimated global value of nearly a hundred billion and a growth rate of just under 10%, the health and fitness industry is one of the world's largest and fastest growing today. For many, Planet Fitness, NYSE ticker symbol PLNT, is the club of choice.
Josh King:
If you bought stock in the company just three years ago, you'd have tripled your investment by now. Try raising your cardio output by the same rate in the same amount of time, and you've got a clean bill, both of financial and physical health. Named one of Fortune's 2019 fastest growing company's, Planet Fitness now has more than 1,800 locations in North and South America, but it started in the small town of Dover, New Hampshire, just north of where the in-laws live, the kind of place that needed an inexpensive, welcoming place to shed the winter layers. The company continues to spread its unique commission of enhancing people lives by providing an affordable, high quality fitness experience in a welcoming, non-intimidating environment. Our guest today is Chris Rondo, CEO of Planet Fitness, who began his tenure at the company at the front desk in Dover back in 1993. Since then, he's held nearly every position from club manager, to regional manager, to COO, and eventually, CEO. Our conversation with Chris Rondeau, chief executive officer of Planet Fitness, right after this.
Speaker 3:
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Speaker 4:
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Josh King:
Our guest today, Chris Rondeau, is the chief executive officer of Planet Fitness. Prior to taking that role in 2013, he was the company's chief operating officer, but you'd have to turn the clock back 20 more years to when Chris first walked through the door in Dover. That was 1993, just one year after New Hampshire made Bill Clinton the comeback kid. The founders of Planet Fitness, Michael and Mark Randall had started the company a year earlier, when I was living in nearby Manchester. Throughout the years, Chris has played a critical role working side by side with Michael and Mark to develop and refine the unique, low cost and high value business model that revolutionized both the fitness and franchising industries. An innovative entrepreneur, Chris was honored as an EY Entrepreneur of the Year in New England in 2016. Welcome Chris Rondeau Inside the ICE House.
Chris Rondeau:
Yeah, thanks for having me. This is a pleasure.
Josh King:
So you were here this morning to ring the bell, celebrating the opening of the company's 2,000th location. How'd it go?
Chris Rondeau:
Oh, it was great. What a celebration. It opened up on December 31st, right in the nick of time before the new year in Colorado Springs.
Josh King:
Why Colorado Springs?
Chris Rondeau:
It's just the way the chips fell. We opened a lot of stores in fourth quarter and they were just the lucky ones.
Josh King:
Do you go to every opening?
Chris Rondeau:
No, there's not enough hours in the day, but I go to some big ones. I do. Yeah.
Josh King:
So congratulations on the three year run that I was talking about. What's it felt like for you and all the senior employees in the company in Hampton, right?
Chris Rondeau:
Yeah. Hampton, New Hampshire.
Josh King:
What's this last couple years been like?
Chris Rondeau:
Yeah. It's a world where you're so close to it, sometimes you don't really realize it. You're up your neck and keeping even the wheels on the bus, keep this machine running, but once in a while you'll step back and you look and you're like, "Wow, this is really something where we've been the last three or four years, and let alone the last 20 plus years."
Josh King:
Let's think about that, 20 plus years, Chris, because let's go way back. Let's even go back before Planet Fitness even started. It's 1977. You might be four years old. An iconic documentary sweeps across the nation introducing an Austrian super star to the American masses. Let's take a listen.
Speaker 6:
Mr. Universes from the past five years or so, come get together in one canvas to find out who's the best of all the Mr. Universes. So they created the Mr. Olympia canvas, which is then the top canvas. Whoever wins that is the top body builder.
Speaker 7:
And you are the top body builder.
Speaker 6:
Right. Yeah.
Speaker 7:
How long have you been with top body builder?
Speaker 6:
Well, I've not been beaten for the last seven years. And I won the Mr. Olympia contest five years now. This is now the sixth year.
Josh King:
Chris, what did pumping iron mean to American fitness?
Chris Rondeau:
That was the gym industry. If you think about, Joe Gold met Arnold Schwarzenegger in Austria, brought him to open Joe Gold's gym, and that was when the industry started.
Josh King:
And when did you tune into it?
Chris Rondeau:
Yeah, so I was... I turned 16, got my license, and the very next day I joined a gym for the first time, and never stopped working out.
Josh King:
What kind of a kid were you before you were 16? I remember growing up in new England as well in the '70s and '80s, there were these wrestling magazines and ads of the muscle bound guy kicking sand in the weaklings face of the beach. Were you a person at 16 getting your license who said, "I'm not going to be that kid getting sand kicked in his face?"
Chris Rondeau:
Yeah, I was a normal kid. I was small and only 5'7", but 140 pounds back in those days. And I like to work out, and before that, I was playing soccer and being active in the front yard and all. But yeah, you saw those guys and it was different,. It was definitely different.
Josh King:
Back in those days, not only were you playing soccer and doing your first workouts, you were also getting an at home lesson every day in entrepreneurship from your father.
Chris Rondeau:
Yes. Yeah, absolutely.
Josh King:
Tell me about that.
Chris Rondeau:
Yeah. So he dropped out of high school and went on to open 14 pharmacies, just like a CVS or a Walgreens you see today. And he was always just a really hard worker and he was never going to fail. He was always... I saw him get him up early in the morning, and I was like, "I could never beat him out of the house."
Josh King:
Beginning in the Sea Coast, where were the 14 locations?
Chris Rondeau:
Yeah, they started... The first one was in Kennebunkport, Maine, and then Seabrook, New Hampshire, and in Hampton, and in Portsmouth, and in all those areas all through Massachusetts, Fitchburg, Leominster. And long story short, he ended up selling them many years later to CVS, and so on, and became a franchisee of Planet.
Josh King:
So those same 14 store fronts, what was it called? Rondeau-
Chris Rondeau:
Freedom Drug.
Josh King:
Freedom Drug. Oh, yeah. I remember Freedom Drug. They became CVSs.
Chris Rondeau:
Yeah. Most of them.
Josh King:
And your dad's routines rubbed off, I guess, in the next generation because you wake up every day by 4:30 and hit the gym by five after your three cups of coffee. I'd assume working out is not one of your new year's resolutions.
Chris Rondeau:
No. Well, actually, this one here is going to be running the Boston Marathon.
Josh King:
First time?
Chris Rondeau:
First time ever. I'm running for the Boys & Girls Club of America and I'm looking forward to that. First time ever.
Josh King:
How's your training going there?
Chris Rondeau:
It's good. It's something.
Josh King:
Where's home for you? Are you in-
Chris Rondeau:
Hampton Falls. Yeah.
Josh King:
So you got a lot of nice flats to work in there.
Chris Rondeau:
Yeah, by the oceans, but as soon as you go in a little bit, you get some hills, which is good to practice for Heartbreak Hill.
Josh King:
Well, my house is in Newton at mile 17, so I'll tell my parents to go down and cheer you on.
Chris Rondeau:
Okay. Sounds good. We need it.
Josh King:
You learned a lot about business and entrepreneurship from your father. As you said, he dropped out of high school and eventually operated Freedom Drug. Can you share some memorable advice that you received from him over the years?
Chris Rondeau:
Yeah. He always told me that no matter whatever happens, you can do anything you set your mind to and you just got to put your head down running and just keep going forward. And regardless of how much you might stumble along the way, you just pick yourself back up and keep heading to that goal you want to get to. And that's what I did. And I worked for him for many years before, many years through high school, until I started working at the gym.
Josh King:
In some of my research, I saw that you were making a very plentiful $6 an hour from your dad, but you got a raise by going over to Planet Fitness.
Chris Rondeau:
Yeah. That was a difficult conversation. And actually, the gym businesses were destined to fail and be a blackeye forever. So having that conversation with my dad was not a good one, that I was leaving the family business to go, but I made 40 cents more. So I made the move, and he always shakes his head now and he laughs that it turned into this.
Josh King:
In those days when Planet Fitness was just getting started, kids like me were playing soccer in the fall, lacrosse in the spring, but I have other friends, you might know him, Teddy Bernson, who found a home in the gym and eventually went on into the club business. What's the difference between kids like Schwartzenegger who worked out in an individual sport, and kids who played on the teams, and the people who eventually found their way into the gym?
Chris Rondeau:
I think working out by yourself or an individual sport without a team, the team atmosphere is a great component, but when you're really doing something for yourself and you're the only one that is responsible for the success, whether it's working out or an individual sport, I think it's a different pressure, but in a good way.
Josh King:
So at age 19, you drop out of college, I think you're at University of New Hampshire, to work full time at Planet. You earn your associate degree rather than a bachelor's degree. Can you walk us through what was going through your mind as you made that decision? Was your dad looking at you and saying, "Chris, what are you doing?"
Chris Rondeau:
Oh, he definitely was saying that. Yeah, actually, I started working at the gym at 19, and then about a year later, I got my associate's degree, and then decided... We started making some changes to the business model because the early days in '92 when I first joined the gym as a member, believe it or not, the first year when I was in college, but we were $35 a month. We had the 120 pound dumbbells, the Olympic benches, the squat, chalk was thrown around, and people dropping weights, and swearing, and spitting on the floor. And then I started working there, and then we started just fine tune the model, dropping prices and trying to figure out... We were in Dover, New Hampshire. The population was only 28,000 people. And we were catering to the 15% of the US that had a gym membership. And there wasn't enough people in Dover, so we had to get people off the couch. So as I started to see that, I started to see more potential in the brand. And honestly, I wasn't much for school. I never was, even in high school.
Josh King:
I think you said maybe you've read one book in your life.
Chris Rondeau:
One book. Yeah. Still to this day. Yep. And I read that 42 years old. And so I dropped out. I said, I, and I believe that we are we're onto something here. You know, I had two stores. Why I believe that? I don't know, but I did. And we started to finally really fine tune the business for almost a decade before franchising it.
Josh King:
You said you were onto something here. I want to play a clip from a movie that I think resonates with you.
Speaker 8:
This might be the best hamburger I've ever had in my life.
Speaker 9:
Oh, we aim to please.
Speaker 8:
Mac McDonald.
Speaker 9:
Oh, hello. Great crop. The multimixer fellow. They spoke with my brother, Dick.
Speaker 8:
I did. Yeah. Yeah.
Speaker 9:
What are you doing way out here?
Speaker 8:
I'm in Los Angeles. Business meetings. I thought, I'm in the neighborhood. I should just swing by and say hello.
Speaker 9:
Well, I'm sure glad you did.
Speaker 8:
This whole thing, this is some operation. Care for a little tour?
Speaker 9:
Of the...
Speaker 8:
Mm-hmm (affirmative).
Speaker 9:
Yeah, I would.
Speaker 8:
Well, finish up. I'll come back for you.
Speaker 9:
Alrighty. Thanks.
Josh King:
That's Michael Keaton as Ray Kroc and John Caroll Lynch's Mac McDonald. The franchise concept has worked as well for your company as it did for Kroc's. Take me on a tour inside Planet Fitness. What do you find today versus what you found back in '93 or '94 as you were just getting started?
Chris Rondeau:
Sure, sure. I could probably recite that whole movie because I've watched it like 10 times. It's so dead on of our story. Yeah. So our early days, we were high priced, heavy dumbbells. We had the aerobic classes, and the jacuzzis, and saunas, and juice bars, and protein drinks, and we were struggling. We weren't making any money. And we opened store number two and still didn't make any money. In '98, we opened our third location. It was Concord, New Hampshire. All these towns are very small, 28,000 people, basically, in all of them. And that was the first year that we introduced the judgment free zone and the purple, yellow, the logo.
Josh King:
Was purple yellow about?
Chris Rondeau:
It was, actually, we had an ad company, Brown & Company out of Portsmouth, New Hampshire that helped us design the logo and put purple and yellow together. We said, "Well, that works. Let's try it." And then in '98, we opened that store with 2,200 members on day one, the very first day. And there was a line out that door for three months trying to join. And it was just like that part of that clip of that Ray Kroc-
Josh King:
People getting their shakes and burgers.
Chris Rondeau:
... when he pulls up and there's a line out the street and he's shaking his head. It was just like that. And I remember calling Mike and Mark, my partners, and I was like, "You got to see this." It was crazy because we went from selling a museum tour, "Well, these are our dumbbell area. We have 30 treadmills. We've got aerobic classes galore," to saying, "Our atmosphere's comfortable. We're judgment free. You can come in as a first timer and not feel intimidated," and we just started selling atmospheres. If you think about it, every gym has treadmills, and five miles an hour is five miles an hour. I don't care what gym you go to. So what can differentiate ourselves was out atmosphere. And we had competition in every market and we said, "Let them go fight over the 15% that's already a member, and we're going to go after the 85% that's not and get them off the couch," and we just started selling atmosphere. And that's what happened in '98, and we said, "Wow, we're really on something."
Josh King:
Selling atmosphere. I looked at some video of what Planet Fitnesses look like today with all the purple and yellow aerobic equipment. It's all branded for you. It all looks the same. At what point did you go from buying treadmills off the rack or from the treadmill supplier and saying, "We need to make it designed, branded to look the same in Dover, and Rochester, and Concord as it does in the other thousand locations."
Chris Rondeau:
Yeah, it wasn't until about 2004 and we had franchising started in 2003. And what we quickly realized from the very first step is that the first 50 stores, I say, that opened, we had hard time controlling what people were buying and putting in. And we know you couldn't have dumbbells over 75 pounds. You can't have Olympic benches, and so on, squat racks. And because you were buying direct from manufacturer, we said, "We got to control this or we're going to lose the brand and the concept is going to go out the window and brand integrity." So we said, "Let us control that." We started our equipment company, so then while the franchisees buy the equipment through us, we can control what they purchase. We quickly realized by the buying pull of power we had, we could require the manufacturers and demand that they basically shut down their plan and put purple paint in, and then that was how that all started. And now, we're the largest equipment buyer in the world by three or four times the next largest anywhere.
Josh King:
Did you get a lot of pushback from some of the franchisees saying, "Look, my people want Olympic benches,"?
Chris Rondeau:
In the early days. The early days, we're a gym that charges 10 bucks a month and gives free pizza out once week to once a month to the members, so it's very unorthodox. In a lot of our early days, a lot of the franchisees were gym owners or love to workout, which they love the squat racks and the Olympic benches. So a lot of times you had to teach an old dog new tricks, but you fast forward to today and the concept is so proven out and the comps are just continuing to get better over years that there's no more fight now. Now it's like, how can we get it better?
Josh King:
Where do you do all your manufacturing your equipment?
Chris Rondeau:
We use Life Fitness, Matrix, and Precor, the three big ones today. We were Life Fitness exclusively a few years back, but now we use three manufacturers.
Josh King:
I've seen some of your new marketing pitches. What do you mean by stop the bullfit?
Chris Rondeau:
Yeah. So I've been saying this for years is, if you look at the industry, and in society, and the advertising is they really have the world snowball to think you've got to work out six, seven days a week for two hours, you've got to lift truck tires, and you've got to you work out until you throw up. And we really feel that alone makes the first timer not even give a shot. If you can and commit five, six days a week, I'm not even going to bother trying. And there's so many studies that come out that even once a week for 30 minutes is a heck of a lot healthier than not doing anything. And we want to just get the reality of fitness out there. And it's like crash dieting. You can't eat that way the rest of your life. Now, eat a little better every day, you can do that forever. And we look like, workout out once a week. At 10 bucks a month, you're getting plenty of value. Start there.
Josh King:
We mentioned that you started in '93, you started for $6.40 an hour working the front desk. You've held nearly every position in the company from club manager, to regional manager, to COO, now CEO, and you still work in the club once a month. What does this trajectory mean to you, when you're getting in front of a thousand franchise owners or where when you gather them together, this perspective that you have of really being in their shoes and working every angle of the club?
Chris Rondeau:
Yeah. I think what it comes down to is at the end of the day, we have two members. We have our members members and we have our team members, which run our clubs, and we need to keep both of them happy, so that our members' experience is great. And I look at working in the club, I get to get a real hands on view of what our team members deal with every day. Our clubs are busy. We do a lot of volume and we service a lot of members. We keep our clubs impeccably clean. And what are the struggles they have, so that we can make their days more enjoyable that will eventually bleed to the members being more happy at the clubs? And you learn a lot from them in the clubs. I learn more ideas from them, the front line staff, of ways, and then meeting the members and what they're going through.
Josh King:
I've heard you talk about how experienced your franchise owners are. How do they get their training to realize that a clean club is a happy club?
Chris Rondeau:
Yeah, sure. So, we are really lucky in the fact that we grow with all our existing franchisees today. So in the early days, we had to get to the point where, how do you clean a treadmill? And now you fast forward to today where we opened 261 stores last year, almost a hundred percent by the existing franchisees opening their 20th or 100th location, so they're seasoned operators. They're veterans in our system. They know how to run the playbook, so which has also helped us accelerate our growth, so we're not having to teach them how to clean a treadmill anymore. So they're opening five stores a year now, where you used to open one store a year. So we're lucky in that sense that we're not having to teach them the nuts and bolts of the business anymore. Now it's just really strategy and how to get better at what we do.
Josh King:
You learned a lot on the idea of watching what Ray Kroc did with Mac McDonald, what you did with Michael and Mark. If people are aspiring to have create a franchise model or be an entrepreneur, not necessarily in your space, what are the first couple lessons that you give them?
Chris Rondeau:
I think the culture is the big piece, especially in franchising because you've got to be able to control and be sure that the franchisees, regardless if they're financially qualified, do they believe really that much in your brand, and in your culture, and your model, so that you're not arguing day in and day out about this part of what you believe in the business, or the 120 pound dumbbells, and you need to go back in? So even our franchise process, regardless if you're financially qualified, if you're not bleeding purple and yellow or drinking the Kool-Aid, we don't let you in the system. You really... And especially because we're so on Orthodox. We had Tootsie Rolls the front desk as a free treat on the way out at a gym. Who does that? And we go through hundreds of thousands of Tootsie Rolls a week. It's crazy, but if you don't buy into that, you're not going to be a good fit for our system.
Josh King:
So this decision to franchise in 2003, I don't know if it's 2001, 2002, you're talking with Michael and Mark, you're thinking that... I don't know how many stores you had at that point that you owned, but how did you take these first steps into saying, "We can franchise this and create this model,"?
Chris Rondeau:
Yeah. So it was by accident, but as we streamlined the business model throughout the '90s, and we got rid of the GroupEx classes, and the jacuzzis, and the juice bars, and all these moving parts and pieces, and focused on the nuts and bolts, what a first timer really needs for equipment. That's cardiovascular and circuitry equipment and great locker rooms. And then what happened was, is we streamlined the business. So instead of finding a franchisee, we've got to teach them how to run a daycare business, how to run pools, how to run a basketball league, we find a franchise, you keep it judgment free, keep it clean as heck, and market the way we tell you, and you can scale as fast as we can scale. And allows them to just... Our clubs have about 15 employees per club period, where the average gyms at about 50. So it allows us to scale business very quickly and our margins at the clubs are extraordinary.
Josh King:
So more than 95% of these clubs are owned and operated by independent businessmen and women. The average franchisee, I think, has between 15 and 20 stores today. Can you explain how the model helped the company grow and what you saw in its trajectory, 2003 to 2008? Was it moving up quickly? Did it take hold fast? How did you get critical scale?
Chris Rondeau:
Yeah, good question. So in 2003, we were opening our fifth location. It was in Manchester, New Hampshire, and that was the year I'd been there 10 years at that point. And the partners, Michael and Mark rondeau, forever grateful, granted me 30% equity in the company, and we launched our franchise company. And from 2003, the first 100 stores were actually conversions from Gold's Gyms, World Gyms, private name clubs. The guys were just not making any money. They getting ready to go out of business and they had nothing to lose, and these crazy people from New Hampshire are charging 10 bucks a month, let's give it a shot with purple and yellow, so they called us up. And even though the guys here in New York City, they had three stores, White Plains, Bronx, and Yonkers, and they, today, have about, I think, 60 locations throughout New York, Hawaii, and California, but that started the ball rolling.
Chris Rondeau:
And then people started seeing people leave these iconic brands, like Gold's Gyms for Planet. And all of a sudden, they were in Gold's Gym for 20 years with three stores, and now, three years later, I've got 15 stores with Planet. They're like, "Whoa. This is what just happened." And then after that, then the ball started really rolling fast. And then in 2012, we brought in private equity. At that point, we had 500 locations. And me, and Mike, and Mark, we looked at each other like, we don't want to screw this up and be working the front desk again at this point. we were three gym guys that had 500 locations all of a sudden. And so we brought in private equity and they really helped us build a team of infrastructure, and use a lot of analytics and data to refine our thinking and our intuitions, luckily, most were right, and then the growth just really exploded.
Josh King:
You were telling Jim Cramer that one of the big parts of your play is the value that you bring to a real estate development, to a strip shopping center, where some places can come and go, but Planet Fitness is an anchor.
Chris Rondeau:
Yeah, absolutely. And if you go back, pre-2009, in the recession where we were competing with Barnes and Noble, Best Buy, you'd go down the list, and if we even got a site, it was either an elbow or it was the C-shop shopping center down the street. We weren't the anchor. We were pushed out. So we fast forward to today, we are the anchor. We drive about 5,000 workouts per week per store. We're slightly over 50% female in our locations. Most of our visits, so of 5,000 workouts, are Monday, Tuesday, Wednesday, which is when the grocery stores aren't busy and the retails aren't busy. We're driving traffic to the centers when they're not busy. So it's great, and we can't be Amazon,
Josh King:
So you have 1,800 units now. You think you have a pathway to 4,000. You mentioned one of your franchisers here in New York, dotted with more expensive offerings like Equinox, Barry's Bootcamp, SoulCycle, and Peloton. How do you compete with your offering in a metropolis like this?
Chris Rondeau:
Yeah, so our model works. It's very fixed cost. And you think about our business, whether you're in Manhattan or you're in New Hampshire, the only really different part that moves expense wise is rent, but in a place like Manhattan, there's more population than New Hampshire. So you have a lot more members in those clubs, so the incremental members pays the incremental rent. So we charge the same $10 a month in Manhattan as we do in middle of Arkansas, believe it or not. So it allows us to go on national television and have one price point without seven asterisks across the board, but that's really what makes our model work.
Josh King:
Let's talk about that price point, whether it's in Manhattan or Arkansas, take a different type of community, upstate New York. I have a weekend place in a town called Windham. It's smaller than Dover was when you started, but there isn't a gym for 20 miles around. And yet, it's got a weekend skiing community where people might want to get a good sweat in after a leisurely day on the slopes. For its overall health, a town like Windham needs a Planet Fitness. If you're an entrepreneur, you think, I could really make this work on the weekends, but I also have to get these rural people off the couch. Is that a model that works for some of these really small towns?
Chris Rondeau:
Yeah. We've started going to small towns probably about two years ago now. We've got about 100 locations in those small towns. Corporately, we opened one in Berlin, Vermont.
Josh King:
Right. Berlin is a perfect example.
Chris Rondeau:
Yeah. Perfect example. And what's different in those communities, where typically, we pull about a 12 minute drive time, but in those communities, they're driving 25 minutes to buy milk and they just used to driving. So that store we opened in Berlin, slightly smaller, it's about 15,000 square feet. Our typical stores about 20, 22,000 square feet, but same of everything. It's just a little bit less. So instead of a hundred pieces of cardio, we've got 90, that type of thing. Instead of four showers, we get two, but same offerings. And that store today has over 5,000 members in the community that you have to go a 25 minute drive to even get 40,000 people. And 20 minutes in Dover is about 70, but these people are used to driving. And the thing is, you getting cheaper rent. So even though our average clubs get 7,500 members, at 5,000 members, that store makes as much EBITDA profit as a club that's 7,000 members in a place that's more rent.
Josh King:
So if you're a budding entrepreneur in a town like Berlin or a town like Windham, how do you start to, "Maybe I could do a Planet Fitness,"?
Chris Rondeau:
Yeah. So we have franchise sales, we look at the market. And what's beauty of what we have is because we're a member based company, unlike if you're selling coffee or burgers, for example. We know where every single one of our customers lives, exactly their house, their address, and everything. So we know exactly market plan where the holes are, where the market density is, and how close we can put the next club without cannabalization. If I sold a cup of coffee, I don't know if this person's from Arkansas, or New Hampshire, or if they live down the street. So our market planning is really, really dialed in, which allows us to continue to get better at what we do every day. We approve every location, so we have data on all 2,000 sites we now have open, where they're coming from, their drive time, the ethnicity, their incomes, you name it.
Josh King:
What's the basic economics to get in as a member?
Chris Rondeau:
It's about two million bucks to build a store. 600,000 of that is the equipment, the treadmills, the cardio, the strength equipment. 2 million all in. Average AUV is about 1,000,080 year. And margins are about 38%.
Josh King:
Pretty good deal. Yeah.
Chris Rondeau:
Really good.
Josh King:
After the break, Chris Rondeau and I turn our attention to the international expansion of the judgment free zone. We'll be right back right after this.
Speaker 3:
And now a word from Calvin Choi, CEO of AMTD, NYSE ticker HKIB.
Calvin Choi:
We are the first Hong Kong independent investment bank to list here. It's so unique coming here to list because we want to embrace internationalization. We want to go global. This is a global change. We want to embrace global connectivity. A is a venture. M is actually mission. T is actually a teamwork. D is a destination, NYC as our destination. AMTD now lists on the New York Stock Exchange.
Josh King:
Welcome back Inside the ICE House. Before the break, Planet Fitness CEO Chris Rondeau and I were discussing the company's explosive growth since its public debut. Chris, Planet Fitness became a publicly traded company on the NYSE in 2015, under this ticker symbol, PLNT. Since then, shares have surged by more than 300%, 350% I think. What factors do you attribute to that success?
Chris Rondeau:
Yeah, it's really the model, and who we're catering to, and our great franchisees that are dedicated to building the stores. And we went public in August of '15. We had just broken a thousand. And here we are, four years later, now 2,000, double the locations. And you couple that with the real estate trend, the beacon boxes are just falling in our lap. Now we can really pick and choose the A site. And if it's not, we can just sit back and wait because eventually, next month, it'll be available anyway. And what's even happening now too, is it's not even what's available for lease now. Today, they're actually the REITs and landlords are driving to New Hampshire, believe it or not, meeting in our office and saying, "Well, this is what's going to come up in two years and we are not going to renew that lease. We'd rather have you in place." So even building our pipeline of future, otherwise you're driving around looking for a lease sign on the building, so you really have a perfect storm going on right now.
Josh King:
We have a perfect storm, but talk about your workout members. Talk about the average American millennial, middle aged person, or senior person, and what you see in terms of people's willingness, and ambition, and drive to get themselves off the couch and get into a club.
Chris Rondeau:
Sure. I really look at, even when it goes back to the Pelotons of the world, all the exposure that the world has to the idea of fitness, whether it's wearable devices and advertisement from Fitbit, or all the fitness apps that are out there, and advertising like Peloton. I love the advertise because it gets people to think, maybe I should get off the couch. The question is, do I want to spend 2,500 bucks on a bike or $10 a month for a membership. So I look at that as all exposure to the idea of fitness, so that's a great trend. And then when I look at the generational mix today, out of the 14 million members we have today, almost half are millennial. And you think in the '90s, we developed this business, they were infants. Now, they're half our members, so look at the trend.
Chris Rondeau:
Gen Z population, which is the largest generation in history, 86 million of them. Big in the boomer generation. They're just turning 21 today. And they're reporting to be more active than the millennials. Today, we have 7% of every millennial in the country as a member of our store. 7%. So if you think 7% of gen Z population is that of next decade, they come of age, huge tailwind this industry has as they all come of age. We did a teen summer challenge last summer. You might have seen that where summer long, we opened our doors for free for all high school aged teens. And in 90 days, we had almost a million teens off the couch, log almost 6 million workouts. We had 5% of every high school teenager in the country join our club in 90 days. And it took us 28 years now to get 5% of the gen Xs, my generation, off the couch.
Josh King:
Wow.
Chris Rondeau:
And we did that 90 days.
Josh King:
You're a dad. You've talked in the past about things beyond working out that get people in the right mindset, the way your father was, the way you were, waking up early, I think you own a farm, you have animals, you make them do chores out in the barn. When you see these kids in your clubs today, are you optimistic about the future of American youth? Or where do you see things going?
Chris Rondeau:
Yeah, I went to some events launching this thing and it was really great. And the other fact is that the one thing we were nervous of is we're just going to have the high school football team varsity in there benching all day long on the cement machine. And it wasn't that. We have 50% females signed up for this, so it wasn't that. It was. And they worked out just like our member base, just like their parents were. Same times, and same times of day, same days. Humans are humans regardless of age. Their habits were all the same. And it was great to see because it was all walks of life, even from that age group coming in and giving it a shot. And we had so much great feedback from parents. And 75% of those kids came from homes that parents weren't members, so think about that. Their parents had came in and they exposed them to the brand as well. And it's the right thing to do and it doesn't cause us anything. Our lights are on, ACs running, and the gyms are typically quieter in the summertime, so let the kids in.
Josh King:
Let the kids in. Planet Fitness, again, sponsored this year's New Year's Eve celebration in Times Square, filling the square with yellow and purple hats and balloons. Let's hear from Rob Riggle during Dick Clark's New Year's Rockin' Eve special.
Speaker 11:
My friend Rob is still outside. Rob, how's it going out there?
Speaker 12:
Hey, thanks Liz. It's going great. It's going very, very well out here because I'm with my friend Shannon and we are about to witness a huge moment for Shannon. Planet Fitness is helping Shannon commemorate her first steps into the new year. You ready to do this, Shannon?
Speaker 13:
Ready.
Speaker 12:
All right. Let's do it. Oh, yeah. There it is. There it is. For Shannon, this is just the beginning. And you can take your first steps of 2020 right now. You can join Planet Fitness for 20 cents down and... Oh, sorry. 20 cents down, your first month free, so step on it. All right? Just all you got to do is text 2020 to 33415 to score this very, very special New Year's Eve offer. It's worth it.
Josh King:
Chris, fill our listeners in on how Shannon stepped into the new year and how Planet Fitness helped.
Chris Rondeau:
Yeah, so we did a big text to join promotion on New Year's Eve. The first time during that integration with Dick Clark's in Times Square productions here to do a text to join promotion. It was really great to get that launched and get people to... To make it easy. And you can join online. Almost 30% of our members join online, so we want to make it just easy to come and actually easy to go. We always offer a no commitment membership every day of the week, so no long term contract.
Josh King:
And really nothing to get in, 20 cents.
Chris Rondeau:
Yeah. Right, so give it a shot.
Josh King:
Where did the idea come from? Was it a lot of planning getting toward that moment?
Chris Rondeau:
So New Year's Eve, this is our fifth year doing it. We just renewed for two more years. It's a great way for us to launch our big January promotion in the busiest time of year for us. But the text to join, we never really had a call to action that night. We really wanted to bring that to life because otherwise, it's a great branding event, but how do you bring that capture, that exposure to actually get a join out of it?
Josh King:
The New Year's Eve celebration was part of inviting people worldwide to be judgment free in the new year and beyond. Where did the idea to brand Planet Fitness as a judgment-free zone come from, that very first start?
Chris Rondeau:
Yeah. Well, way back in the day, it was really about, how do we get people to realize, back to that atmosphere component, how do we get people to realize this is a safe haven. It comes back to your statement earlier about the people that get your sand kicked in your face. This is a place you can come in and be yourself. You don't need the $100 workout outfit. Throw a hat on, roll out of bed, put a sweatshirt on, and come to workout. And we wanted to break that down because it's like, you don't realize if you've never done something before. And it's funny. I talked to, just yesterday... At 46, I've never been on a subway. I would have no idea and I'm horrified. I would never walk down those stairs because I have no idea what to do, but that's real. And if you never worked out before, you don't even know, do I bring a water? Should I bring headphones? Will they sell water? Maybe I can't bring water. I can't bring beer to a bar. It's things like that we take for granted because you've never done something. And it's breaking that barrier down. Just come in and feel comfortable and we're not going to judge you. If you haven't been in three months, we're not going to call you out for it either.
Josh King:
Getting called out for it. Shannon's experience with Rob on New Year's Eve in Times Square is very different story. From another holiday story involving fitness, let's take listen to a little slice of the gift that gives back.
Speaker 13:
Okay. You ready?
Speaker 14:
Yes.
Speaker 13:
Now.
Speaker 14:
A Peloton?
Speaker 15:
Give it up for our first time rider.
Speaker 14:
All right. First ride. I'm a little nervous, but excited. Let's do this. Five days in a row. You surprised? I am. 6:00 AM. Yay.
Speaker 16:
Rising with the sun.
Speaker 14:
That was totally worth it.
Speaker 15:
Let's go, Grace in Boston, 50 rides.
Speaker 14:
She just said my name.
Josh King:
Is Peloton good for Planet Fitness?
Chris Rondeau:
I like the fact they advertise a lot, back to I said earlier, just exposure, but it's going after a very different customer than Planet is. Just think about, I love when our ad comes on right after that because people think I should be doing something, and then you see us for 10 bucks a month. I think it's, who has the space in their house? Who has the money to spend on it? And it's a bike today. It's a bike in a year. It's a bike in two years. So I think workout at home is a great supplement. I don't think it's the end all be all. I think if you can't get to the gym today, it's a good supplement to that. But I think at the end of the day, the variety of equipment and for the price you're having with us, convenience of 2,000 stores, there's one in everybody's backyard, so you get rid of that excuse.
Josh King:
Is there a model in which some of your stores would have a Peloton if people were doing that too, so they could use their account? Y
Chris Rondeau:
Yeah. We don't have Peloton. We do have some spinning bikes in some stores now we're testing out, which are with screens and interactive, same type of things a Peloton would, but more of a commercial version because to the test of time and we're in tear.
Josh King:
So we're recording this episode just a week after New Year's. A 2019 study found most people will have broken their resolutions by now. Do you have any strategies, whether you've taken the Planet Fitness plunge or any other resolution for helping members make their resolutions last?
Chris Rondeau:
Yeah, we definitely... So we always offer fitness to running free, no charge, to get people acclimated to the equipment, put them on a routine, they come back every month, learn something new. We also guest privileges with black card, so if you're a black card member, you can bring a free guest to workout with you every day.
Josh King:
What does the black card give you?
Chris Rondeau:
It gives you reciprocity to use any club in the country for free. Black card guest, you can bring a guest with you, so you can bring a guest, like I mentioned, which bring a friend, you're more up to drag each other in and be more dedicated to working out because if somebody's going to call you out, if you don't go with you, your buddy is, so that kind of helps you with that as well. It also gives you access to massage beds in the clubs and massage chairs and so on, but that's one benefit there. But a lot of it with us is we want to make sure that it's affordable, inexpensive, also the atmosphere is right, and it's convenient. We're 24 hours a day, seven days a week.
Chris Rondeau:
And our average member's not a five, six day a week person. Our average member's working out five, six times a month, very episodic. So they might take two weeks off, they're busy with the kids. They put working out as their second, third priority in life. Not a first priority, like some of these other... Boutiques, for example, you're paying 150 bucks a month, or a high price club where the kids will stay at daycare an extra hour. I'm getting my workout in. That's a different customer than our customer. Kids got soccer, they get busy, and they take a couple weeks off, they come back, so our members are just very different in that sense.
Josh King:
What are the economics of black card versus regular membership?
Chris Rondeau:
Well, the black card membership is $22.99, and the white card is 10 bucks a month. So a little bit more than double, but you've got all the perks. And honestly, with all the value baked it, the value is actually better than the $10 membership.
Josh King:
You recently announced the company's international expansion to Australia. An area development agreement with Bravo Fit Holdings will bring a minimum of 35 Planet Fitness locations to Australia over the next several years. What's next in terms of development for what you guys are planning?
Chris Rondeau:
Yeah. Right now, so we went to Mexico a year and a half ago, Panama as well, and Canada a few years ago. We look at, domestically, we have a potential 4,000. We're in the fourth inning here in the states. So I think if we had 3000 stores, it'd probably be a much different conversation international. We're really focused get Australia off the ground, get Mexico off the ground and running. In two or three years, probably much different focus internationally. And South America is really interesting too. Those clubs have a lot of volume. Basically, here in the states where 20% of the population has a gym membership, in South America, it's like 2%. There's basically zero option unless you're wealthy. So their uptake, their clubs perform really, really well. And Australia, 85% don't have a gym membership, so it's almost like it was here in the '90s.
Josh King:
Why do you think, even in the United States, it's 80% of the US population don't have a gym membership? Why do you think that's the case?
Chris Rondeau:
We really feel it's the atmosphere. It's intimidation. It's I've never done it before. Where do I even start? And getting off the couch. Working out, the difference of our member is working out is not a hobby. It's not, I can't wait to go to the gym. It's like, they go because they know they should. And you walk out and you always feel better. And that's what we want to do is we want to let them know that just come in once, twice a week, and you're fine. Back to that BoFIT stuff is like, you don't got to commit five, six days a week for an hour and a half. You're not going to stick with it. Very few ever will. But if you can commit a day a week or two days a week, you're a heck of a lot healthier. You add that up over next 10, 20 years, you can be heck about healthier and you didn't do anything at all.
Josh King:
How is Planet Fitness hoping to grow the number of these members over the coming years?
Chris Rondeau:
Yeah. If you look at our marketing, our marketing, we call it a marketing machine. It's just flywheel. So we went public, this August, this year will be five years. We went public with 7 million members. Today, we've got 14 million members. 9% of every monthly membership due goes back into marketing. So every incremental member today that joins is more money to fuel tomorrow's join. So they're actually seeding the market for their fellow member to join tomorrow. So our marketing budget grows every day, so even the same store sales... So we've had over 12 years of positive comps, averaging 12% in old stores, new stores. So when you look at that, the original store in Dover, New Hampshire is spending more marketing today than they did last year, year before, year before, year before. And that store today has more members than it ever has, and the population doesn't grow. New Hampshire's been 1.3 million people for 10 years, but we keep getting more and more members because there's people saying, "Huh." They've seen some commercials, they've seen a Fitbit ad. I've got to do something. More gen Zs are growing up and we just keep getting more people off the couch.
Josh King:
I consider myself an early adopter of tech and other things that are out there. We talked a little bit about Peloton. We've seen the initial efforts of MIRROR. I talked in the introduction about being handed an Alpine touring kit and taking that on. And I know that you've always said that for Planet Fitness, stay good at what you're good at, stay focused on the model that you've developed, but you talk to all these people in the industry, you go to a lot of these shows. What things are on the horizon, beyond the club, just in terms of people's fitness that you're really getting excited about?
Chris Rondeau:
Yeah. Technology's the big one, honestly. And this industry's been really our cake when it comes to technology. If you think about our industry, besides checking in the front door, we have no idea what our customer does. If you were thinking, if you were a QSR and you introduce a new cheeseburger, well, either the seller doesn't sell because you don't sell any. We don't know when somebody joins, when they go on the gym floor, what do they like and not like?Because you don't have any data that shows you what people are using, unless you sit there and follow them around with a check board. So technology, for me, is what are people using? What do they like?
Chris Rondeau:
What drives longer duration workouts? Does this treadmill and this class pushing people to go five minutes longer? Because if that's the case, let's get people doing that more. So collecting that data now, we have it in 17 stores, we're doing just that is watching human behavior based on age and demographic. What things do they like? What's driving longer workouts, so they can get better results, which then will drive longer retention ,and get them to healthier, and stay longer? So technology, to me, is a big piece that we put a lot of resources behind that. And how do we help the next join? Put them on the right journey based on what we learned because the last million people that were 35 male, what they did and get stuck with it.
Josh King:
Well, December 31st, one of your latest stores opens in Colorado Springs. I don't know how many stories you opened since then in the two weeks since, but I'm sure that we'll have you back in a couple years for your next New York Stock Exchange opening bell, and we'll be celebrating 4,000 stores.
Chris Rondeau:
I hope so. I look forward to it.
Josh King:
Thanks so much for joining us.
Chris Rondeau:
Thanks for having us.
Josh King:
Appreciate it. Thank you. That's our conversation for this week. Our guest was Chris Rondeau, CEO of Planet Fitness, NYSE ticker symbol PLNT. If you like what you heard, please rate us on iTunes, so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Kearney Ferguson and Pete Asch with production assistance from Ken Abel and Ian Wolf. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE, nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell. A solicitation of an offer to buy any security, or a recommendation of any security, or trading practices. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
