Tell us about your journey
Back in 2009, Mark Mastrov and I were brought in by investor Angelo Gordon to evaluate the failing Crunch business.
We felt its culture and reputation were among the best in the industry – the identity, the logo, the name, the incredible New York reputation and heritage of having been founded there in 1989… it was all very powerful.
In a fitness industry that was basically a sea of sameness – the same style boxes with the same equipment, just with different logos on the outside – Crunch stood out. It went left when everybody else went right. It had an amazing reputation for its irreverence, cheekiness and sarcastic marketing. The colours in the gym, the classes on the timetable… it had a sense of fun where so many other gym brands were boring.
When I was at 24 Hour Fitness in San Francisco, Crunch was a competitor and I thought everything it did was awesome. It made me laugh and it made me interested. That’s why we wanted to bring it back from the ashes.
What changes were needed?
Back in 2009, the business lacked marketing, sales and operational processes and was losing a significant amount of money.
The infrastructure and the majority of the talent wasn’t salvageable, so we recommended Angelo Gordon put it into bankruptcy, which it did. We then came in as partners to bring it back out again, with me leading the enterprise.
The question we asked ourselves back then: did we believe the brand was big enough that, if we systematised and operationalised it, it could succeed? The answer was unequivocally ‘yes’. What we needed to do was insert business processes into the company without removing its sense of fun. We achieved that, turning it into the electric brand it is today.
I’ve been either CEO or chair of Crunch since that time, and when we sold to private equity firm TPG in 2019, I committed to being CEO of Crunch going forward. Mark Mastrov is the chair.
Tell us more about how you brought about these changes
Crunch only had 36 gyms when we bought it, dropping to 28 during the bankruptcy process. Yet even with this small presence, there was such power in the brand.
We knew that if we brought in our operating structure, really focused on sales and marketing and brought in some of our own personnel, the business was salvageable. That was our first inclination. Our second was that, given the power of the brand, we could probably franchise it.
The first step was to create a belief among the team that we could turn things around. There was a bit of resistance at the beginning and it took us a couple of years, but I’d been in the industry 17 years already and knew it would work.
We brought in Derek Gallup as head of fitness, Keith Worts as COO and Mike Neff as VP of IT and member services; Mike is still with us now as executive VP.
We also trained the team in our systems and practices. My approach to leadership is to first set expectations; then train team members to meet those standards and expectations; then have them train it back to me to ensure there’s a level of critical understanding; then hold them accountable.
There was a real ‘aha’ moment then, because it was clear they were craving coaching, learning and leadership. From there, things started to get better as they really bought into it.
You mentioned franchising…
We franchised Crunch in 2010, bringing in Ben Midgley, who’d worked for us at 24 Hour Fitness.
It was a challenge at first, because the brand was only really known in New York City and San Francisco. We had to build it up one franchisee at a time, but as soon as we had one – our first franchise was in New Jersey – we were confident we could grow.
We’ve accelerated since. Today we have 470 clubs – including 36 owned facilities – across 41 US states, as well as Australia, Canada, Costa Rica, Puerto Rico, Portugal and Spain. We have franchisees that include football star Christiano Ronaldo (who’s put his name to a custom ‘CR7’ Crunch offering (www.cr7fitnesscrunch.com), basketball star James Harden and Dak Prescott from the Dallas Cowboys. We also have franchisees who each have hundreds of units. And we’re opening more than one club a week.
We’ve continued to strengthen our team, too, including John Kersh – formerly of Anytime Fitness and Xponential – whose resumé spoke for itself. Then there’s Molly Long and Chequan Lewis, who came to us from franchising giants 7-Eleven and Pizza Hut to help us grow the brand beyond even my own vision. They’re smart and adaptable, they fit the business culturally and really understand our vision.
This business has come up from the ashes. We’ve spent 15 years rebuilding it and are now celebrating 35 years with three million members, 470 locations and system-wide revenues in excess of US$1 billion.
You’re opening a club a week?
Growth has been strong since we sold the business to TPG. During these last five years – compared to our first 10 – growth has been a multiple of five in terms of what we’ve been able to achieve.
Our franchise owners are doing a tremendous job with openings, revenues and profits. Some with 20-40 gyms have been able to sell stakes to private equity. That’s one of the things that’s been acting as a catalyst for growth. We’ve also done transactions with high multiples, creating wealthy franchise owners.
We’ve currently got 76 franchisees and have sold 1,500 units, the majority in batches of 10 that franchisees typically have 10 years to open at a rate of one a year. However, some franchisees operate in multiple markets, meaning one owner might open 12–15 clubs a year.
Our real estate team does site assessments and provides data on potential locations, but the franchise owner makes the final decision. It’s their capital.
What role has TPG played?
TPG Growth deserves much credit. We’d been acquainted with them for some time, but you never really know who you’re partnering with until after the transaction.
We’ve had a lot of private equity in our lives and have at times been burned by their behaviour and notions of partnership, but TPG restored our faith. Lockdown hit just nine months after they’d written a big cheque, yet the team remained patient, professional and courteous, trusting us and our emergency action plan and committing to rescue capital if we needed it during the pandemic.
They didn’t overreact, they didn’t try to get out of the business, they didn’t plummet us into a worst case scenario. They stepped up and partnered and it’s something I will appreciate my entire life that they were absolutely there for us at that time when the world was turned upside down. They are best-in-class.
They’re also an incredible resource. If I want to do a pricing study, learn more about integrating AI into my business or learn more about real estate, for example, they’ll either help me internally or find a third party. Within days of my request, I’ll be on the phone with an expert in the field, whether it be pricing, marketing, real estate, debt… whatever I need.
What comes next?
We’ll get to 500 gyms open by the end of this year and expect to average 100 openings a year for the next five or so years. We’ll also enter several new international markets in the next two years. We only really launched internationally this year, but once that gets up to speed, we’ll accelerate to 150–200 openings a year.
I think two new gyms a week is realistic organic growth without putting too much pressure on our franchisees. We can’t compare ourselves to McDonalds, Subway or Pizza Hut, or even to Xponential’s boutique studios. We’re not a 3,500sq ft pizza place. These are 30,000sq ft gyms with hundreds of employees and millions of dollars in fixtures and equipment.
Fitness is far too competitive a sector for me to share details of our ideas and strategies, but I will say that our three-year plan includes lots of initiatives that will benefit not only us as the franchisor, but also our franchisees, team members and members. We always consider all four angles; when everyone wins, the reward is exponentially better and lasts much longer.
That work will include really focusing on people and culture. What do we want to be as a business and how can we continue to reinforce that? How do we continue to meet member needs and expectations? After 32 years, I’ve got a pretty good track record of being able to see what’s around the corner and we can adapt because we build our gyms to be modular and kinetic.
When is TPG likely to exit?
Our 2019 sale to TPG was a miracle given the business was on life support 10 years previously. When we come to the next transaction, I expect it to be monumental [TPG is reportedly considering the sale of Crunch in 2025 for US$1.5billion, including debt].
People always see these things as an overnight success story, but what they sometimes fail to see is the decades of tireless effort, strategy, tactics, planning, personnel. You can’t overstate how much effort it really takes to make a business work and, once you get it working operationally, make it appeal to the consumer in a highly competitive market.
What’s the long-term goal?
The big, hairy, audacious goal is for Crunch to become a household name worldwide, as it is in the US.
I’m only 57 and remain highly motivated. However, if one day I can sit in my rocking chair and see Crunch as a global brand – and know I’ve done it with a pure heart, a strong mind, holding myself accountable as a leader, never being compromised and never resting on my laurels – that would be very satisfying.
For now, I believe in acceleration. My favourite word is ‘more’. That doesn’t necessarily mean more clubs or ‘give me more’. It means, what more can we do? Can each club open a little bit better? Can we add more members? Can we create more awareness for the brand? Can we grow a little faster? Can we give a little more so the business can do a little bit more?
What are you most proud of?
The affinity our members have for our brand and the loyalty they have to it. They want to protect the brand. They’re proud to be a member of Crunch.
That’s one of the things that gives me the greatest level of gratitude and it comes from the fact that we stand for something people want to be associated with.
That goes for our franchisees, too. We held a four-day event in the desert this summer to celebrate 35 years and we had 600 people attending, including 100 children. People brought their families, they brought their parents. We’re a team and we invite all members of that team to show up.
