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Talking point: The middle man

Many industries have aggregators so it makes sense for the health and fitness industry to have them too. Are they a force for the good, or could it become a case of the tail wagging the dog? Kath Hudson reports

Published in Health Club Management 2019 issue 7

The aggregator issue led to a spirited debate at the Active Uprising conference, indicating that there are grievances and mistrust on both sides. There are a few different types of aggregator, and any operator looking to engage should do their research to find the right fit. Companies like Rig and ClassPass mainly give studio/boutique customers the option of accessing multiple studios, while Hussle (formerly Payasugym) sells consumers monthly memberships and pays gyms per visit. Gympass has a similar model, but sells to corporates. MoveGB lists services for free and encourages people to become members.

As well as offering consumer choice, aggregators give operators wider reach, data and the opportunity to sell unsold slots. It should be possible to achieve a win-win, but some operators say they have been bullied by aggregators, who promise one thing when onboarding them and further down the line demand exclusivity and/or higher commissions, otherwise they will withdraw their support. This is a massive deal for an independent boutique and could lead them to going out of business, which doesn’t benefit anyone.

PureGym’s CEO, Humphrey Cobbold, believes that aggregators disrupt, and endanger, the traditional gym model, which has been built on monthly memberships. He says that if they are allowed to gain a position of power, they can demand more commission and set pricing, which ultimately will be to the cost of consumers, resulting either in higher memberships or inferior facilities.

Hussle’s Neil Harmsworth argues aggregators are great for consumers and it is only the budget gyms that are resistant to them, as they “have built market-leading positions by cannibalising full-service operators and putting downward pressure on industry price points and margins.”

Many other industries do have aggregators – which we can learn from – but they are different. The travel and property industries aren’t trying to build customer loyalty or inspire behaviour change in the way the health and fitness sector is. Our industry has the lofty ambition to get people active and moving, which is different to booking a flight – this makes it less cut throat and instead calls for co-operation.

The middle man/woman is definitely present in the industry, so what is the best way forward to ensure that everyone wins? We ask the experts…

Humphrey Cobbold
PureGym: CEO
Humphrey Cobbold

As an industry, we need to ensure we do not sleep walk into a situation where we become over reliant on aggregators, because if they are allowed to get too powerful they will control pricing. This is exactly what has happened with Booking.com, for hotels, and Rightmove, for estate agents. In the Polish health and fitness market this has already happened with Benefit Systems, which provides operators with 50 per cent of their members and has forged a position where it controls the market.

If we allow aggregators to become this dominant in the UK health and fitness market, they will inevitably increase their margins at the expense of the operators’ margins, and the operator will struggle to say no to accepting a lower price per visit.

Aggregators claim they are good for consumers, since they are driving incremental joiners/members and help the industry to increase access and reduce marketing costs. In less penetrated markets this may be true, such as Brazil or Spain, but independent, fact-based analysis in the UK and other markets suggests the modest benefits aggregators may bring are much lower than the cost to the operator.

"If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the present, never sign long term or exclusive deals and monitor the situation very, very carefully"

Two of the major aggregators have each raised around US$500m. I have worked with some of the Silicon Valley providers of that capital and I know they will be asking these aggregator platforms to try to get positions of strength and pricing power in this market. The only viable way they can make a return on the huge investment is by trying to extract profits currently earned by the hard graft and capital investment of operators.

If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the present, never sign long term or exclusive deals and monitor the situation very, very carefully. Operators must learn how to use aggregators to drive reach and trial, but to avoid being so reliant on them that they can dictate terms.

This means retaining control of the inventory released to aggregators – for example, only one place in peak classes, and using aggregators to fill off-peak classes. Direct customers should be rewarded.

When approaching an agreement with an aggregator, my recommendation would be to only trial a small number of gyms, not the whole business. Do not accept incentive payments or guarantees to sign up for long periods of time – make sure you can exit on three months’ notice. Measure the true underlying incremental performance very carefully. Above all, never let an aggregator control a material chunk of your members.

If the right decisions are taken, we will have a situation whereby the aggregators work for and service the industry, not the other way round. Going forward, I would not rule out a situation in which an industry-owned “cooperative” aggregator is created which provides benefits to consumers but ensures the industry business model can be sustained for the good of all in the long run.

Operators must not become reliant on aggregators, says Puregym’s CEO
Eamon Lloyd
Gympass: director of partnerships
Eamon Lloyd

The increasing number of operators partnering with third parties to grow shows how these types of business models can expand the industry in terms of both members and revenue. Gympass is an exclusively B2B model: companies investing in the health of their employees are turning to us to make introductions to the right facility partners.

Our deeper relationship with a niche group of employers means we can match their needs nicely to local operator partners’ facilities, driving a significant penetration far beyond the traditional corporate wellness model. On average, 80 per cent of the members we send to our partners are new and we are helping to defeat inactivity by offering our corporate clients a variety of activities and facilities.

"In order to achieve a win-win situation, it must be recognised that one size doesn’t fit all and operators shouldn’t believe an intermediary that suggests otherwise "

To avoid any pitfalls, we ensure operators approach the partnership carefully by answering the hard questions early on, taking time to get the deal right and knowing what success looks like for both parties. We urge operators to do their numbers and understand we are part of their growth strategy, not the whole solution. In order to achieve a win-win situation, it must be recognised that one size doesn’t fit all and operators shouldn’t believe an intermediary that suggests otherwise.

The industry is experiencing a rapid period of growth and change, operators willing to take the time to understand how a variety of innovative partnerships could benefit their business will do well. Through informed decisions, with respect to their business situation, they can capitalise on the opportunity to grow and, ultimately, ensure more people in the UK become and remain active.

Lloyd says aggregators are helping to defeat inactivity
Neil Harms-worth
Hussle: COO
Neil Harmsworth

The world is digital, so aggregation is here. Outside the budget gym sector, almost all the leading operators now use at least one of the main commercial aggregator services because there are huge advantages for collaborating with third parties that offer a proven route to customers.

At Hussle, we are experts at engaging with the Gen-Z and millennial ‘pre-member’ market and helping them to fit fitness into their lives on a basis that works for them. These are customers who are happy to pay a premium price through Hussle to access full-service clubs in a way that works for them, during a phase of their life that makes them unable to commit to a full membership.

Our main operator partners are full-service clubs whose primary revenue stream comes from contracted members, which makes our pre-member focus highly complementary to their business, as we provide them with incremental revenue and interaction with future members – a true win-win. Ultimately it will be the customers who determine what happens in the future. I always find it interesting to ask the operators I meet to look at their own behaviour. If you use aggregator services in other sectors, then you know how useful they can be.

I encourage all operators to simply have a conversation with companies like Hussle, Gympass or ClassPass to understand how each company can support your goals, and then meet with the operators who have fully embraced these services to learn from their experiences.

Chris Heron
The Engine Room: founder
Chris Heron

My experience with aggregators is that they are experts at on-boarding you, but further down the line they threaten you to become exclusive to them in a very aggressive manner. I have had negative experiences with two large aggregators concerning exclusivity. They over-rode verbal agreements we had by pointing out the small print. I found their way of doing business very underhand. They only provide an app – they don’t have any of the overheads – but they want to keep taking an increasing amount of the margin.

"My advice is to tread very, very carefully. Read and understand the small print, reach out to other studio owners to get their experience. Be strong and tough in your dealings with them and don’t let them push you around"

Unfortunately, in the London boutique market, aggregators are a necessary evil and, going forward, there is definitely a market for the high-end sites to create an industry-grown aggregator. In the meantime, operators need to be careful about how they deal with aggregators and make sure they do not become dependent on them. My advice is to tread very, very carefully. Read and understand the small print, reach out to other studio owners to get their experience. Be strong and tough in your dealings with them and don’t let them push you around.

On their part, aggregators need to provide greater transparency. They need to be more than just a platform, but work in partnership with operators to grow their business. This requires a human element, greater engagement and regular meetings. We’re in this industry to get people fitter and healthier, so there should be an element of working together, not this feeling that they’re working against you. Also we need less of the aggressive sales tactics – the hotel industry might be ready for it, but the health and fitness industry is not.

Heron says aggregators are a “necessary evil” in the boutique market
Fact check

In collaboration with other industry players, PureGym sponsored a piece of independent, fact-based research into aggregators and what they mean for our industry. Completed by the international consulting firm OC&C, this has been widely shared with operators, industry associations and the aggregators themselves. Copies are available from: [email protected]

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features

Talking point: The middle man

Many industries have aggregators so it makes sense for the health and fitness industry to have them too. Are they a force for the good, or could it become a case of the tail wagging the dog? Kath Hudson reports

Published in Health Club Management 2019 issue 7

The aggregator issue led to a spirited debate at the Active Uprising conference, indicating that there are grievances and mistrust on both sides. There are a few different types of aggregator, and any operator looking to engage should do their research to find the right fit. Companies like Rig and ClassPass mainly give studio/boutique customers the option of accessing multiple studios, while Hussle (formerly Payasugym) sells consumers monthly memberships and pays gyms per visit. Gympass has a similar model, but sells to corporates. MoveGB lists services for free and encourages people to become members.

As well as offering consumer choice, aggregators give operators wider reach, data and the opportunity to sell unsold slots. It should be possible to achieve a win-win, but some operators say they have been bullied by aggregators, who promise one thing when onboarding them and further down the line demand exclusivity and/or higher commissions, otherwise they will withdraw their support. This is a massive deal for an independent boutique and could lead them to going out of business, which doesn’t benefit anyone.

PureGym’s CEO, Humphrey Cobbold, believes that aggregators disrupt, and endanger, the traditional gym model, which has been built on monthly memberships. He says that if they are allowed to gain a position of power, they can demand more commission and set pricing, which ultimately will be to the cost of consumers, resulting either in higher memberships or inferior facilities.

Hussle’s Neil Harmsworth argues aggregators are great for consumers and it is only the budget gyms that are resistant to them, as they “have built market-leading positions by cannibalising full-service operators and putting downward pressure on industry price points and margins.”

Many other industries do have aggregators – which we can learn from – but they are different. The travel and property industries aren’t trying to build customer loyalty or inspire behaviour change in the way the health and fitness sector is. Our industry has the lofty ambition to get people active and moving, which is different to booking a flight – this makes it less cut throat and instead calls for co-operation.

The middle man/woman is definitely present in the industry, so what is the best way forward to ensure that everyone wins? We ask the experts…

Humphrey Cobbold
PureGym: CEO
Humphrey Cobbold

As an industry, we need to ensure we do not sleep walk into a situation where we become over reliant on aggregators, because if they are allowed to get too powerful they will control pricing. This is exactly what has happened with Booking.com, for hotels, and Rightmove, for estate agents. In the Polish health and fitness market this has already happened with Benefit Systems, which provides operators with 50 per cent of their members and has forged a position where it controls the market.

If we allow aggregators to become this dominant in the UK health and fitness market, they will inevitably increase their margins at the expense of the operators’ margins, and the operator will struggle to say no to accepting a lower price per visit.

Aggregators claim they are good for consumers, since they are driving incremental joiners/members and help the industry to increase access and reduce marketing costs. In less penetrated markets this may be true, such as Brazil or Spain, but independent, fact-based analysis in the UK and other markets suggests the modest benefits aggregators may bring are much lower than the cost to the operator.

"If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the present, never sign long term or exclusive deals and monitor the situation very, very carefully"

Two of the major aggregators have each raised around US$500m. I have worked with some of the Silicon Valley providers of that capital and I know they will be asking these aggregator platforms to try to get positions of strength and pricing power in this market. The only viable way they can make a return on the huge investment is by trying to extract profits currently earned by the hard graft and capital investment of operators.

If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the present, never sign long term or exclusive deals and monitor the situation very, very carefully. Operators must learn how to use aggregators to drive reach and trial, but to avoid being so reliant on them that they can dictate terms.

This means retaining control of the inventory released to aggregators – for example, only one place in peak classes, and using aggregators to fill off-peak classes. Direct customers should be rewarded.

When approaching an agreement with an aggregator, my recommendation would be to only trial a small number of gyms, not the whole business. Do not accept incentive payments or guarantees to sign up for long periods of time – make sure you can exit on three months’ notice. Measure the true underlying incremental performance very carefully. Above all, never let an aggregator control a material chunk of your members.

If the right decisions are taken, we will have a situation whereby the aggregators work for and service the industry, not the other way round. Going forward, I would not rule out a situation in which an industry-owned “cooperative” aggregator is created which provides benefits to consumers but ensures the industry business model can be sustained for the good of all in the long run.

Operators must not become reliant on aggregators, says Puregym’s CEO
Eamon Lloyd
Gympass: director of partnerships
Eamon Lloyd

The increasing number of operators partnering with third parties to grow shows how these types of business models can expand the industry in terms of both members and revenue. Gympass is an exclusively B2B model: companies investing in the health of their employees are turning to us to make introductions to the right facility partners.

Our deeper relationship with a niche group of employers means we can match their needs nicely to local operator partners’ facilities, driving a significant penetration far beyond the traditional corporate wellness model. On average, 80 per cent of the members we send to our partners are new and we are helping to defeat inactivity by offering our corporate clients a variety of activities and facilities.

"In order to achieve a win-win situation, it must be recognised that one size doesn’t fit all and operators shouldn’t believe an intermediary that suggests otherwise "

To avoid any pitfalls, we ensure operators approach the partnership carefully by answering the hard questions early on, taking time to get the deal right and knowing what success looks like for both parties. We urge operators to do their numbers and understand we are part of their growth strategy, not the whole solution. In order to achieve a win-win situation, it must be recognised that one size doesn’t fit all and operators shouldn’t believe an intermediary that suggests otherwise.

The industry is experiencing a rapid period of growth and change, operators willing to take the time to understand how a variety of innovative partnerships could benefit their business will do well. Through informed decisions, with respect to their business situation, they can capitalise on the opportunity to grow and, ultimately, ensure more people in the UK become and remain active.

Lloyd says aggregators are helping to defeat inactivity
Neil Harms-worth
Hussle: COO
Neil Harmsworth

The world is digital, so aggregation is here. Outside the budget gym sector, almost all the leading operators now use at least one of the main commercial aggregator services because there are huge advantages for collaborating with third parties that offer a proven route to customers.

At Hussle, we are experts at engaging with the Gen-Z and millennial ‘pre-member’ market and helping them to fit fitness into their lives on a basis that works for them. These are customers who are happy to pay a premium price through Hussle to access full-service clubs in a way that works for them, during a phase of their life that makes them unable to commit to a full membership.

Our main operator partners are full-service clubs whose primary revenue stream comes from contracted members, which makes our pre-member focus highly complementary to their business, as we provide them with incremental revenue and interaction with future members – a true win-win. Ultimately it will be the customers who determine what happens in the future. I always find it interesting to ask the operators I meet to look at their own behaviour. If you use aggregator services in other sectors, then you know how useful they can be.

I encourage all operators to simply have a conversation with companies like Hussle, Gympass or ClassPass to understand how each company can support your goals, and then meet with the operators who have fully embraced these services to learn from their experiences.

Chris Heron
The Engine Room: founder
Chris Heron

My experience with aggregators is that they are experts at on-boarding you, but further down the line they threaten you to become exclusive to them in a very aggressive manner. I have had negative experiences with two large aggregators concerning exclusivity. They over-rode verbal agreements we had by pointing out the small print. I found their way of doing business very underhand. They only provide an app – they don’t have any of the overheads – but they want to keep taking an increasing amount of the margin.

"My advice is to tread very, very carefully. Read and understand the small print, reach out to other studio owners to get their experience. Be strong and tough in your dealings with them and don’t let them push you around"

Unfortunately, in the London boutique market, aggregators are a necessary evil and, going forward, there is definitely a market for the high-end sites to create an industry-grown aggregator. In the meantime, operators need to be careful about how they deal with aggregators and make sure they do not become dependent on them. My advice is to tread very, very carefully. Read and understand the small print, reach out to other studio owners to get their experience. Be strong and tough in your dealings with them and don’t let them push you around.

On their part, aggregators need to provide greater transparency. They need to be more than just a platform, but work in partnership with operators to grow their business. This requires a human element, greater engagement and regular meetings. We’re in this industry to get people fitter and healthier, so there should be an element of working together, not this feeling that they’re working against you. Also we need less of the aggressive sales tactics – the hotel industry might be ready for it, but the health and fitness industry is not.

Heron says aggregators are a “necessary evil” in the boutique market
Fact check

In collaboration with other industry players, PureGym sponsored a piece of independent, fact-based research into aggregators and what they mean for our industry. Completed by the international consulting firm OC&C, this has been widely shared with operators, industry associations and the aggregators themselves. Copies are available from: [email protected]

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