FDD Talk 2018: Crunch Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk 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 2018 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 2018 FDD

• Section IV – Number of franchised and company-owned Crunch outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Crunch’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average annual revenue for the bottom third, middle third, and upper third of franchised Crunch clubs, grouped according to size (greater than 20,000 square feet and less than 20,000 square feet)

• 2017 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 median performing Crunch club open 6 to 12 months, median performing Crunch club open 13 to 24 months, and median performing Crunch club open greater than 24 months, grouped according to size (greater than 20,000 square feet and less than 20,000 square feet)

• 2017 average annual revenue, monthly revenue, number of members, and number of months open for the highest performing Crunch club, Crunch clubs open 6-12 months, Crunch clubs open 13-24 months, and Crunch clubs open greater than 24 months, grouped according to size (greater than 20,000 square feet and less than 20,000 square feet)

Section I – Background Information

14 Things You Need to Know About the Crunch Fitness Franchise

Opening First Franchise in British Columbia in 2019

1.  In early November 2018, Crunch Fitness announced that it was opening British Columbia, Canada’s first Crunch Fitness franchise in the spring of 2019. The first Crunch Fitness location will be on Kingsway in Burnaby, British Columbia with an additional four locations opening in the province within the first year. The launch of British Columbia’s first-ever Crunch Fitness is in response to the ever-increasing demand for fitness accessibility among British Columbians.

2.  Crunch Fitness locations across British Columbia will include an array of strength and cardio equipment, a dedicated fitness room for group classes that will offer Crunch Live online video workouts, a functional training area with small group training, and world class trainers. Additional amenities will include tanning beds and hydro massage stations.

3.  Emre Ozgur, vice president of Crunch Fitness Canada, said, “We’re thrilled to be bringing the globally-renowned Crunch Fitness to British Columbians for the first time. Burnaby has seen such incredible growth over the past few years and with that, we’ve seen an increased demand for accessible fitness facilities. We’re excited to be able to meet these demands by launching Crunch in this market before expanding Crunch’s presence across BC.”

Signs Multi-State Franchise Deal

4.  At the end of July 2018, Crunch Fitness announced a new 10-unit franchise agreement to build clubs in several Southeastern states. The agreement is with Jorge Roldan, CEO of Team Roldan, LLC. Roldan is a fitness-industry franchising expert who most recently launched, owned, and operated five Planet Fitness locations, which he sold in 2016.

5.  Roldan said, “I am very excited to join the Crunch family. Crunch’s unparalleled business model delivers tremendous value to both its customers and its owners, so it is no surprise that it is taking the fitness and franchise industries by storm. I can’t wait until we open our doors so more people can discover why Crunch is the best gym out there.”

Acquires Boost Fitness to Expand Presence in Massachusetts

6.  In early January 2018, Crunch Fitness announced today that its Connecticut-based franchisee, Fitness Holdings LLC, had acquired Boost Fitness, the largest independent fitness chain in Central Massachusetts. The acquisition increases the number of Crunch locations in Massachusetts five-fold, growing the club base from two clubs to ten in the Boston area.

7.  The eight Boost fitness centers, located in Auburn, Oxford, Fitchburg, Franklin, Hudson, Tewksbury, Westford, and Worcester, were converted to Crunch Fitness clubs and began operating under the Crunch brand on January 1, 2018. The acquisition fast tracks Crunch’s aggressive growth for the Eastern U.S., as Fitness Holdings plans to open more than 50 Crunch gyms from Boston to Philadelphia over the next four years.

8.  The deal nearly doubles the number of Fitness Holdings clubs, bringing the total club count to 18, with 80,000 members across Massachusetts and the Tri-State area. As part of the acquisition, Mark Federico, who founded Boost Fitness in 2005, will join Fitness Holdings as a partner.

9.  According to Steve Viscardi, a Fitness Holdings, LLC partner, “The Boost acquisition represents a unique opportunity to provide our existing and new members with the high quality, affordable fitness experience Crunch is known for. We look forward to working with Mark, and his 15 plus years of experience, as we move into new markets and further accelerate our growth.”

Company History

10.  Crunch Fitness was founded in 1989 by Doug Levine, a former stockbroker. The first few Crunch clubs were a success because they appealed to a young, upscale clientele through the brand’s marketing, which used humor and sexual connotation. Crunch also increased its profitability with the sales of its branded merchandise within Crunch Fitness centers.

11.  Many of the early Crunch locations offered unique classes such as pole dancing, bicycle yoga, co-ed wrestling, an “Abs, Thighs and Gossip” class run by a drag queen, and Capoeira. The classes were later standardized as Crunch Fitness continued to expand, but some popular classes like dodgeball and karaoke cycling stayed for a time.

12.  In 2001, Crunch Fitness was acquired by Bally Total Fitness for $90 million. Bally only retained ownership for a few years because it found that Crunch was unprofitable. Crunch Fitness was then sold to Angelo, Gordon & Co., a private equity firm, for $45 million in 2005. A few years later, Crunch Fitness filed for bankruptcy.

13.  This was part of the company’s reorganization under its new owner New Evolution Fitness Company, which was founded by Mark Mastrov (co-founder of 24 Hour Fitness), Jim Rowley, and some of the Angelo, Gordon principals. Since then, Crunch Fitness has stabilized and has locations around the world. Today, Crunch Fitness promotes a “No Judgments” philosophy, which promotes positivity, inclusivity, and fun.

Entrepreneur’s Franchise 500

14.  Crunch Fitness ranked No. 216 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Crunch franchise costs, based on Item 7 of the company’s 2018 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 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  54
• Outlets at the End of the Year:  87
• Net Change:  +33

2016

• Outlets at the Start of the Year:  87
• Outlets at the End of the Year:  121
• Net Change:  +34

2017

• Outlets at the Start of the Year:  121
• Outlets at the End of the Year:  148
• Net Change:  +27

Company-Owned

2015

• Outlets at the Start of the Year:  17
• Outlets at the End of the Year:  20
• Net Change:  +3

2016

• Outlets at the Start of the Year:  20
• Outlets at the End of the Year:  21
• Net Change:  +1

2017

• Outlets at the Start of the Year:  21
• Outlets at the End of the Year:  26
• Net Change:  +5

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• As of December 31, 2017, 203 Crunch franchised locations were open or engaged in presale activities. Of those locations, 174 locations were located domestically in the United States, and 29 locations were located internationally.

• Of the 174 locations, 157 had completed their first workout and had initiated member billing activities. Of these 157 locations, 26 locations were affiliate-related and operated within the holding structure of the Company. Affiliate locations have been excluded from this analysis, as well as 23 locations that were open less than 6 months or did not submit financials. 108 franchise locations are represented in the tables of operating activity below.

Part 1 – Gross Revenue of Franchised Units

• The following chart shows Average Annual Gross Revenue, for units greater than and less than 20,000 square feet, for Crunch’s franchised locations opened for first workout as of December 31, 2017, for the 2017 calendar year.

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

• “Gross Revenue” means all revenues you receive from the performance of all services and the sale of all products from or related to the Franchised Business, including membership revenue, both recurring dues and cash sales, personal training sales and retail sales, less any sales taxes, refunds to customers, and discounts.

A.  Greater Than 20,000 Square Feet

Bottom Third