FDD Talk 2019: SPENGA 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 SPENGA franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a SPENGA franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a SPENGA franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned SPENGA outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of SPENGA’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• average recurring members and average revenue for the franchised SPENGA studios through their first 30 days of operation

• total net cash in (NCI); payroll and payroll-related costs; cost of goods sold; estimated royalty; advertising; rent and occupancy costs, utilities, and other certain operating expenses; and total NCI less total of disclosed costs and expenses for the one affiliate-owned SPENGA studio, which opened in 2015, throughout 2018 (the “Measurement Period”)

• average total revenue generated by the affiliate-owned and franchised SPENGA studios during their first, second, and third year of operations

Section I – Background Information

17 Things You Need to Know About the SPENGA Franchise

Plans to Open 300 Locations Over the Next Five Years

1.  In March 2018, SPENGA announced its plans to open 300 locations over the next five years. While the fitness franchise segment is crowded, SPENGA believes that it offers a unique concept that helps the brand stand out from its competitors, while also providing a return on investment for its franchise owners.

2.  According to Roger McGreal, co-founder of SPENGA, “Fitness has historically been a very desirable market and boutique fitness is the fastest-growing segment in the industry. With that being said, fitness has always been a competitive market as well. We believe that SPENGA’s growth can be attributed to having a strong vision and brand identity. SPENGA fills a void in the market by being the first studio of its kind, delivering cardiovascular, strength and flexibility training in one 60-minute workout.”

3.  At the time of announcement, SPENGA had 14 locations open in eight states, with agreements with franchise owners to open 47 more locations. With a recurring revenue membership model, as well as a simple operational structure, SPENGA is catching the attention of multi-unit owners.

4.  One of those multi-unit owners is Sara Bender, who opened a SPENGA franchise in Oak Park, Illinois in 2016, with plans to open four more. For more than a decade, Bender worked at Johnson & Johnson as a senior manager in marketing for diabetes care, working with major retailers across the United States. Her passion for fitness led her to pursue teaching fitness on the side, which then led her to look for a franchise opportunity.

5.  Bender said, “We looked into Orangetheory but I personally did not like the workout and wondered how I could sell something I didn’t personally enjoy. When I found SPENGA, I did one session and was hooked. It combines my three favorite exercise routines!”

6.  In addition to the workout itself, Bender points to the brand’s position in the marketplace as a reason she bought into the brand with a five-unit deal. Bender added, “SPENGA is a one-stop shop for fitness and is perfect for people with busy schedules, which is everyone! I love that it’s an adaptable business in that we can offer sessions with just spin or strength or yoga. It gives us room to grow with the business and our customers can grow with us as their fitness levels change.”

7.  To reach its target of 300 SPENGA studios in the next five years, McGreal is seeking franchisees that are highly motivated, align with the brand’s culture and vision, possess strong leadership and business acumen, and understand the importance of delivering the “SPENGA Experience.”

8.  As a final note, McGreal said, “We embrace this challenge on a daily basis and are constantly evaluating ways to enhance our operations, service offerings, and overall franchisee and member experience.”

New Locations

9.  In 2018, SPENGA set a goal to open 300 locations over the next five years and the brand has consistently opened new locations to reach this target. Two of the brand’s newest locations for 2019 opened in Albuquerque, New Mexico and Houston, Texas. Each studio has experienced instructors that guide members through a 60-minute workout unlike anything else. While most studios focus on one type of workout, SPENGA combines spin, HIIT strength training, and yoga.

10.  The Houston SPENGA opened on April 1 and is owned and operated by James Hall. To celebrate the grand opening month, members who signed up in the studio during April received 30% off their first month of unlimited sessions.

11.  Hall said, “SPENGA is Houston’s hottest new fitness concept! The studio is complete with luxurious appointments, top-notch equipment and an amazing host of instructors. The workouts provide members with all three essential elements of fitness: aerobic, strength and flexibility, all while rocking out to DJ-inspired beats. We can’t wait to give the Montrose community the Best. Workout. Ever.”

12.  SPENGA Albuquerque is offering sessions daily starting at 4:45 a.m. to 7:00 p.m. and prices will range from $69 per month for 4x per month, to $149 per month for unlimited sessions.

13.  Roger McGreal, co-founder of SPENGA, said, “Albuquerque is our first New Mexico SPENGA studio and it is off to an incredible start. This active community has already welcomed us with open arms and we’re looking forward to giving Albuquerque residents the Best. Workout. Ever.”

Company History

14.  SPENGA was founded in 2015 by Amy Nielsen, Heather Ruff, and Roger McGreal in Mokena, Illinois. The company’s name is a portmanteau of “spin,” “strength,” and “yoga,” which are all featured in the brand’s hybrid 60-minute workout classes. Each segment (spin, strength, and yoga) of SPENGA’s classes is 20 minutes long and taught by a single instructor. The classes are designed to help improve endurance, strength, and flexibility.

15.  Not long after opening the first SPENGA location, Nielsen and Ruff began franchising the concept. Within a year, the company had signed about 40 franchise deals in Chicago and the surrounding suburbs as well as in Denver, Colorado; Virginia Beach, Virginia; Tampa, Florida; and Cleveland and Columbus, Ohio.

16.  The first franchised location opened in July 2016 in Downers Grove, Illinois. After franchising started, SPENGA’s goal was to sign 35 to 40 franchises by the end of 2016 and 100 within three years.

Entrepreneur’s Franchise 500

17.  SPENGA did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of SPENGA franchise costs, based on Item 7 of the company’s 2019 FDD.

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

• Please click here for detailed information on SPENGA’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  1
• Net Change:  +1

2017

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  5
• Net Change:  +4

2018

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  10
• Net Change:  +5

Company-Owned

2016

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2017

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2018

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

• This Item sets forth certain historical income and expense information for one affiliate-owned Studio that opened in 2015 (the “Affiliate Studio”), as well as the 7 franchised Studios (the “Franchised Studios”) that were opened and actively operating or participating in SPENGA’s pre-sales plan as of December 31, 2018.

• The Affiliate Studio and Franchised Studios are substantially similar to the franchise being offered under the 2019 Disclosure Document.

• Part 1 of this Item discloses: (i) the average recurring members for the Franchised Studios through their first 30 days of operation; and (ii) the average revenue for the Franchised Studios through their first 30 days of operation.

• Part 1 excludes (i) 3 Franchised Studios, and (ii) the Affiliate Studio that operate under a previous form of FDD that were not required to comply with the mandated pre-sales plan.

• Part 2 of this Item discloses the total Net Cash In (“NCI”) generated, as well as certain costs and operating expenses incurred, by the Affiliate Studio throughout 2018 (the “Measurement Period”).

• SPENGA excluded the Franchised Studios from Part 2 because it did not receive operating costs and expense data from its franchise owners for the Measurement Period in the required form and format in time to disclose this information in the Disclosure Document.

• Part 3 of this Item discloses the average revenue generated by (i) the Franchised Studios, and (ii) the Affiliate Studio through their first three years of operations. The Franchised Studios have not operated for 3 full calendar years as of December 31, 2018 so there is no data to disclose for the Franchised Studios in Part 3 at this time.

• Part 3 excluded 4 Franchised Studios referenced in Part 1 that have not operated for a full year as of December 31, 2018.

• SPENGA has not independently audited or verified the data below that was reported by the owners of the Affiliate Studio and Franchised Studios.

• Some outlets have sold or earned this amount. Your individual results may differ. There is no assurance you will sell or earn as much.

Part 1 – Average Recurring Members and Revenue for Franchised Studios During Their First 30 Days of Operation

Franchised Studios