Dave Mortensen, left, and Chuck Runyon saw a space in a competitive industry: smaller, low-frills clubs open 24/7. Are airport locations next?
His business partner, Dave Mortensen, says when he was a student at Minot State University in North Dakota, he knew exactly what he wanted and where he was going. When college didn’t fully support those goals, he dropped out. “I’m not saying it was right, but I was young and dumb at the time,” says Mortensen, who is president of Anytime Fitness.
“We might be the two dumbest wealthy entrepreneurs you’ll ever know,” Runyon adds. He’s joking, needless to say. It’s true, their business is more focused on the body than the brain. But the two friends were savvy enough to build Anytime Fitness into the fastest-growing fitness franchise in the world, according to the International Health, Racquet and Sportsclub Association. Last year, Anytime Fitness clubs generated revenues of more than $340 million. Today, Anytime operates nearly 2,000 clubs serving 1.5 million members in 49 states and more than 12 countries.
In so doing, the two nonacademic all-stars are living proof that entrepreneurism is alive and well in Minnesota, despite the Great Recession, nonstop whining about our significant decline in venture capital support, and other negatives ranging from high corporate tax rates to the weather.
They were first out of the gate with the 24/7, low-frills model, and they’re running strong. But they’re not running alone. Fitness clubs are, appropriately, a competitive industry. And there are other firms using the model Anytime follows—including another local company, Snap Fitness. Anytime Fitness will need both muscle and brains to stay ahead in the race.
Standing six feet two inches at 200 pounds, Runyon is the first to admit that working out is hard, and living a healthy lifestyle takes dedication. “Dave and I are athletic, meaning we like to stay active and fit,” he says. “It’s our business and we need to be role models. We want to get out there and sweat.” Last year, Runyon, published a book called Working Out Sucks, which details the demise of physical fitness and debunks the excuses the growing ranks of overweight, sedentary people advance reasons they cannot overcome their lethargy and move toward a healthier lifestyle. Mortensen, who weighs 185 pounds and stands five feet eight inches, wrestled on teams at Park High School in Cottage Grove and at Minot State. “The passion for me is very simple,” Mortensen says. “Anyone I have ever met who has a regular exercise program is also living life, and life brings joy. People who live a sedentary life quit on life.”
Runyon and Mortensen first met in the early 1990s while working for a Medalist fitness club in St. Paul. In 1995, they decided to jointly purchase and run Southview Athletic Club, which at that time had about 500 members. When they sold the club seven years later, it had 4,000 members. During those years, the two also worked for a consulting firm that helped turn around underperforming athletic clubs across the United States.
According to Mark Daly, Anytime Fitness’s national media director, Runyon and Mortensen came up with their club model after extensively surveying long-time members of big-box clubs and asking them what they wanted from a fitness facility. Responses tended to cluster around three wishes: convenience (being able to work out at any time of day or night), affordability, and a friendly, non-intimidating environment.
Runyon and Mortensen believed that the more convenient an exercise club is, the more often people will use it. While most members use Anytime facilities between 6 a.m. and 9 p.m., the average club has 11 members who use it between 9 p.m. and midnight, and about five who workout between 1 a.m. and 5 a.m.
Anytime members are allowed secure access during unstaffed hours, using computerized key fobs, and can use any club worldwide, anytime, 365 days a year. State-of-the-art surveillance systems keep these scaled-down, sometimes unstaffed gyms safe, while allowing club owners or managers to monitor security cameras remotely. Unlike full-scale clubs, which often sport swimming pools, racquetball courts, basketball courts, and even health bars and classes, Anytime clubs provide a more modest model: workout gyms with state-of-the-art aerobic exercise and weight training equipment as well as changing areas and showers.
The idea caught the interest of Eric Keller, one of their Southview Athletic employees, and the three forged the first franchise agreement. Runyon and Mortensen provided Keller support with site selection, marketing, equipment selection, and membership sales, and in 2002, the first Anytime Fitness facility opened in Cambridge, Minnesota. Today, Keller is vice president of Anytime’s international franchise support.
The team’s criteria for choosing Cambridge were similar to the parameters used today: lack of other fitness options in the immediate area and a sufficient population base to support a club. Leasing costs also played a role for Keller. Soon after Cambridge opened, two other employees opened clubs in Duluth and Albert Lea; the franchising model grew from there.
“These employees were willing to take the risk, of course, with our help,” Runyon says. “If we were to try to ramp up with hundreds of corporate-owned stores, we would need a significant level of capital and resources to make that happen. By franchising, other people are doing the lending and putting their money in play to open these stores. It is a faster way to grow that is less capital-intensive.”
In fact, unlike the vast majority of franchise businesses that typically begin with a few corporate-owned stores, Anytime started and operated for quite a while solely through franchising. “Most people in franchising will have a few units themselves and then start franchising them out,” Runyon says. “We sold 29 franchises before we opened our first [corporate-owned] club in Bemidji, Minnesota. We had a wealth of industry experience, but we did not open up our own Anytime Fitness center until store No. 30.”
Anytime Fitness does not offer details on its same-store revenues. It does say that the average number of members for Anytime clubs open at least a year rose 4.37 percent from 737 at the end of 2010 to 769 at the end of 2011.
Though it follows a simple model, Anytime Fitness does have an interior design sense. The company offers franchisees three different design plans—above is “Earth.”
Jeff Makepeace has been a member of the Anytime club on Grand Avenue in St. Paul for the past year. He considered joining a nearby YWCA or Life Time Fitness. “They were too big and too crowded,” Makepeace says. “To get to Life Time was a 15- to 20-minute commute.” He lives and works within walking distance of his Anytime club and works out mainly between 11 a.m. and 3 p.m. “I sometimes use it late after a softball game or hanging out with friends,” he adds. “It’s nice to squeeze in a workout when I can, and the clientele doesn’t check each other out in the mirror. There’s not a lot of grunting and moaning.”
Eric Garcia also a member of the Grand Avenue club, agrees. “There are not a lot of stereotypes that work out here,” says Garcia, who has been a member for six months and was previously a member of Snap Fitness and LA Fitness. The absence of a buff, spandex-clad crowd appeals to Garcia, even though he works out two hours a day to retain a body fat index of less than 9 percent.
2012: 2,050 *
The club that Makepeace and Garcia belong to is owned by Kevin Seeger, who also owns the Anytime franchise on Highway 101 and Minnetonka Boulevard in Minnetonka. Seeger also operates three other separate franchises in the Upper Midwest: Blockbuster, Palm Beach Tan, and Massage Envy. “As a franchisee, I appreciate a franchisor like Anytime Fitness that is benefiting the brand and giving me an opportunity to become more profitable,” he says. “Anytime has built an awesome business model.” Seeger says he broke even on the Grand Avenue club after 18 months.
“There is a momentum with Anytime Fitness that I don’t see with the other brands I’m involved with,” says Seeger. That momentum—a club opening every business day and a member joining every three minutes—is the direct result of brand development and marketing. Anytime has hired Brains on Fire, a South Carolina–based social media marketing firm, as well as Minneapolis ad agency Gabriel deGrood Bendt.
Anytime Fitness charges its franchisees a flat monthly fee of $499 per club rather than a percentage of revenue, and its franchise fee is also low. “It’s kind of embarrassing, but when we first started, the fee was $2,000 to purchase a franchise territory,” Runyon says. “Now it is still very cost-effective at $25,000.”
To date, Anytime Fitness has sold franchise territories in every state except Hawaii. Minnesota currently has 120 clubs, with 70 in the seven-county metro area alone. Anytime clubs are found primarily in rural and suburban markets, but clubs are also located in major metropolitan areas, including one in downtown Minneapolis.
The smaller facilities work well for Anytime franchisees, whose costs of entry are some of the lowest in the franchising world. According to Entrepreneur magazine, of the top 11 low-cost franchise businesses in the country last year, Anytime Fitness (rated 11) had the lowest actual cost of entry, between $46,300 and $322,900. By contrast, a McDonald’s franchisee would need to shell out between $1 million and $2.4 million last year, according to the magazine. Start-up costs typically cover the franchise fee, building out the space, and equipment. Franchisees are also responsible for utilities, rent, equipment leasing, and marketing.
While franchising made great sense from a financial perspective, it also helped build a loyalty that Anytime claims is its most valuable asset. Employee-based businesses can become very diluted, Mortensen says. “By bringing on entrepreneurs who have a stake in the game, we thought we would have a strong brand.”
The loyalty of franchisees can also translate to members in a distinctly personal manner. In May, Runyon wrote a guest commentary piece for Fast Company titled “4 Rules For Tattoo-Level Brand Loyalty.” In the article, he details how an Anytime Fitness franchisee was donating a kidney to a member of her fitness club, while another franchisee was helping a 71-year-old grandmother shed 110 pounds and set a Guinness World Record for “planking” (36 minutes and 58 seconds). Such personal connections have helped Anytime achieve and maintain a strong membership retention rate—and it’s even led more than 800 members to get tattooed with the Anytime Fitness logo.
“People invest emotional capital into every relationship they have, including with the brands they trust. After 10 years, Anytime Fitness has certainly achieved ROI, with nearly 1.5 million members sweating in nearly 2,000 clubs in more than a dozen countries. But how have we also achieved the kind of ROI that leads to tattoos? Through something we call the ‘4 Ps’: people, profit, play, and purpose,” Runyon wrote in his Fast Company commentary.
The fitness industry in the United States produced revenues of $20 billion last year, according to Sean Naughton, senior research analyst with Piper Jaffray in Minneapolis. While it is still a growing industry, it is fragmented, and top-line revenues for most players have grown on average only between 4 percent and 6 percent annually. “It’s a tough, competitive business,” Naughton says.
Over the past decade, he says, it’s unclear whether the low-cost entrants like Anytime Fitness, Snap Fitness, 24 Hour Fitness (headquartered in Carlsbad, California), and Planet Fitness (based in Rotterdam, New York), have taken away market share from the full-service clubs or whether they are expanding the overall market.
Joel Libava, consultant and owner of Ohio-based Franchise Selection Specialists, is surprised that a 24-hour fitness platform has lasted this long. “I thought it would be a fad,” he says, noting that the biggest challenge for low-cost clubs that offer month-to-month memberships is member retention. “For franchisees, it’s hard to predict the numbers, especially in summer when people can exercise outside,” says Libava.
According to the International Health, Racquet and Sportsclub Association, 60 percent of club members industry-wide do not renew their annual memberships at the end of a one-year term. The membership attrition rate at Anytime Fitness is 50 percent, significantly better than the industry average. The company attributes its retention rate to its relaxed atmosphere and the personalized attention members receive to help them reach their fitness goals.
2007: $98 million
2008: $135 million
2009: $221 million
2010: $284.4 million
2011: $364.7 million
2007: $19.5 million
2008: $26.9 million
2009: $28.9 million
2010: $33.7 million
2011: $40.3 million
The low-cost model is a high-turnover model in terms of membership retention, says Naughton, and the more recent in-home entrants are providing an even lower-cost option for consumers. These in-home, pay-for-programs like CrossFit give consumers the option of working out without leaving their homes by offering online streaming videos of fitness classes.
Anytime Fitness’ corporate entity employs 120 people worldwide, about 100 of them in Hastings. Seventy-five percent of the firm’s Hastings employees work directly for Anytime Fitness, while the other 25 percent work for two ancillary businesses: Provision Security, the firm that supplies the surveillance systems to the clubs, and Healthy Contributions, which offers billing and processing work with health benefits providers to fitness clubs.
Anytime Fitness also has 16 corporate-owned centers spread regionally throughout the country in California, Illinois, Wisconsin, Minnesota, Maine, Arizona, Texas, and Oregon. The corporate-owned stores are typically partnerships in which the manager also has a minority equity stake.
“We think it is important to stay engaged in the day-to-day struggles of a franchise owner. And we think it is important to use our corporate-owned stores as pilot locations so we can test products, services, and marketing ideas. And, of course, we expect them to be profitable,” says Runyon. “They are also good training grounds. Our franchisees can send some of their managers and trainers to these clubs to learn better practices.”
Anytime Fitness’s first club outside the United States was club No. 77, opened in Halifax, Nova Scotia, in February 2005. That club showed Runyon and Mortensen that Anytime’s business model could be successful outside the United States. The decision to expand to other countries followed. At the end of 2011, Anytime Fitness had 161 clubs outside of the United States and Canada, including in Australia, Canada, Grand Cayman, Japan, Mexico, the Netherlands, Poland, New Zealand, Qatar, and the United Kingdom. Territories have been sold in Belgium, Ireland, Luxembourg, Spain, and most recently India.
In comparison, Chanhassen-based Snap Fitness, which has a similar business model and is a direct competitor, had a total of 1,300 clubs, 115 of them outside of the United States and Canada at the end of 2011. Anytime Fitness’s Daly says that by and large, Anytime facilities are larger than Snap’s and are staffed more hours.
Ben Cowan owns five metro-area Snap Fitness clubs. His start-up costs have been similar to what it would cost to open an Anytime facility. He says it has taken him between two and four years to recoup starting costs, depending on the club’s location. “Every franchisee runs the business differently,” says Josh Malaske, Cowan’s general manager. “How hard you hit the marketing determines how fast you ramp up.” Cowan’s five clubs experienced a membership sign-up increase of 24 percent in the first six months of 2012 compared to the first half of 2011, resulting in a 9 percent membership increase overall.
Anytime Fitness has master franchise agreements in all of the foreign countries it operates in except for Canada, Grand Cayman, and Spain, where it works directly with franchisees. Master franchising agreements allow Anytime to partner with local experts who sell sub-franchises, provide ongoing support to the franchisees, and support and market the brand using the corporate model. “We simply receive a royalty and support the master franchisor, who becomes us in their country,” Mortensen says. “Under a direct relationship, like the one we have in Spain, we actually hire an employee to open up our own entity and direct-manage that person.”
Runyon and Mortensen plan to open 250 to 300 new clubs a year over the next five years. “We expect 25 to 35 percent of those to be international. The rest will be domestic,” says Runyon. “People get caught up in the growth, but keep in mind our primary goal every day is franchisee satisfaction from current owners.
“What we think about more often is how can we be better tomorrow than we are today,” Runyon adds. “Let’s improve. Let’s have best practices. Let’s help the system perform better. If we can get our stores to perform better, the growth will take care of itself.”
Despite the sheer amount of time and effort it requires to grow and operate Anytime Fitness, Runyon and Mortensen are committed to maintaining their own personal workout regimes in an effort to stay healthy, fit, and engaged in life, and not join the growing ranks of the more than 110 million Americans who are now obese—even when they would prefer to just grab the remote and veg out.
And vegging out isn’t something that Runyon and Mortensen would ever be accused of doing.
Watch Anytime Fitness' Chuck Runyon and Dave Mortenson pay a clandestine visit to an Oklahoma City location on ABC-TV's Secret Millionaire here.
Runyon's "Four Rules for Tattoo-Level Brand Loyalty," from Fast Company magazine, is here.