FDD Talk 2017: What You Need to Know About the Crunch Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

In this FDD Talk 2017 post, you’ll learn the following:

• Section I – Background information on the Crunch franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Crunch franchise, based on Item 7 of the company’s 2017 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Crunch franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of Crunch’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2016 average annual revenue for the bottom third, middle third, and upper third of franchised and corporate Crunch clubs (separately stated and combined), grouped according to size (less than 20,000 square feet and greater than 20,000 square feet)

• 2016 average annual revenue, monthly revenue, number of members, and number of months open for the highest performing Crunch club, Crunch clubs open 13-24 months, and Crunch clubs open greater than 24 months, grouped according to size (less than 20,000 square feet and greater than 20,000 square feet)

• 2016 average membership revenue, other revenue, total revenue, total cost of goods sold, payroll and benefits, sales and marketing, club expense, rent and occupancy, total operating expense, and cash operating profit for the highest performing Crunch club, the median performing Crunch club open less than 12 months, the median performing Crunch club open 12 to 24 months, and the median performing Crunch club open greater than 24 months, grouped according to size (less than 20,000 square feet and greater than 20,000 square feet)

Section I – Background Information

13 Things You Need to Know About the Crunch Franchise

Reaches 1 Million Members

1.  In early September, Crunch announced that it had hit the one-million member mark. This brand milestone is a result of Crunch’s aggressive national and international growth plans, which include having over 500 locations in operation within the next few years.

2.  Keith Worts, CEO of Crunch Fitness, said, “We have been pushing toward our million-member mark and couldn’t be happier that we are eclipsing this important milestone. And we have set our sights higher – expanding organically, via acquisition and through franchising in the U.S., Canada and several key markets abroad.”

3.  Since Crunch began franchising in 2010, it has experienced a 77 percent compound annual growth rate in clubs and a 42 percent compound annual growth rate in members. Crunch Franchise CEO Ben Midgley added, “Over the last 7 years, we have established Crunch Fitness as the number one ‘High Value/Low Price’ brand in the country.”

Testing New Real-Time Marketing Program

4.  Over the summer of 2017, Crunch began testing a new program called #CrunchTV that will take gym members’ Instagram and Twitter content and stream them to its gyms’ TVs in real-time. Members who share a photo or video of themselves working out and add the hashtag #CrunchTV will see themselves appear on their gym’s TV in 10 to 20 seconds.

5.  By the middle of September, the 12 clubs in West Florida testing #CrunchTV had received over 2,000 posts. According to Geoff Dyer, president of Crunch West Florida, the company is considering expanding the program to its 200 clubs across the U.S.

6.  Dyer added, “If you go to a gym, you constantly see people looking into the mirror. In these posts, you see images of beautiful people who have accomplished tremendous results, and they’re very proud of it. That’s exactly what we want.” He added that the program was a quick and inexpensive way to crowdsource content that the brand can use in its own marketing.

Announces Plans to Open Seven New Locations in Idaho

7.  In February, Crunch announced plans to open seven new locations in Treasure Valley, Idaho. Crunch franchise owners Curtis and David Harman have taken over the existing Idaho Athletic Club chain in the following locations – Boise Black Eagle, Boise State Street, Caldwell, Eagle, Meridian, Silverstone, and Nampa.

8.  The company will renovate these existing facilities and update them with new cardio and strength training equipment, tanning and HydroMassage® water massage beds, full-service locker rooms complete with showers and changing rooms, and a functional training area.

9.  The Harmans already own and operate more than 30 Crunch franchises and at the time, David said that he plans to have almost 60 facilities open by the end of 2017.

Company History

10.  Crunch Fitness was founded in 1989 by Doug Levine in New York City’s East Village. The first location started out as a small gym in a basement studio where Levine created a welcoming environment where anyone could get fit.

11.  Levine’s original message of inclusion and no judgment has become Crunch’s official manifesto – and the gym franchise’s goal is to make everyone feel good while they reach their fitness goals. One of Crunch’s most popular features is its group fitness classes, which were developed by Levine and a group of fitness instructors.

12.  Crunch started franchising in 2010 with most of its growth occurring over the last few years. Today, there are over 225 locations in the U.S., Canada, Puerto Rico, Australia, and Spain.

Entrepreneur’s Franchise 500

13.  Crunch Fitness has appeared on Entrepreneur’s annual Franchise 500 list three times since it began franchising in 2010. The company’s highest rank was No. 88 in 2017, while its lowest rank was No. 459 in 2015.

Section II – Estimated Costs

• Please click here for detailed estimates of Crunch franchise costs, based on Item 7 of the company’s 2017 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Crunch’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

• As of December 31, 2016, 154 Crunch locations were open or engaged in presale activities. Of those locations, 142 locations were located in the United States, and 12 locations were located internationally.

• Of the 142 locations, 124 had completed their first workout and had initiated member billing activities. Of these 124 locations, 21 locations were affiliate-related and operated within the holding structure of the Company. Affiliate locations have been excluded from the earnings summary but are included in all revenue analysis.

Part 1 – Gross Revenue

• The following chart shows Average Annual Gross Revenue, for units greater than and less than 20,000 square feet, for Crunch’s franchised and affiliate locations opened for first workout as of December 31, 2016.

• The clubs have been segregated into three groups based upon total gross revenue (Bottom Third, Middle Third, and Upper Third).

• Performance of all clubs is impacted by actual months open.

• The first set of charts show the Average Annual Gross Revenue for franchisor-owned (“Corporate”) and franchisee-owned clubs combined. The next set of charts show the Average Annual Gross Revenue for Corporate clubs only. The last set of charts show the Average Annual Gross Revenue for franchised clubs only.

Corporate and Franchised – Greater Than 20,000 Square Feet

Bottom Third