FDD Talk 2020: Crunch Fitness 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 Fitness franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Crunch Fitness franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Crunch Fitness franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Crunch Fitness outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Crunch Fitness’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average gross revenue for the 180 franchised Crunch Fitness clubs with a first work-out at least 6 months before December 31, 2019, grouped according to size (greater than 20,000 square feet and less than/equal to 20,000 square feet) and then further segregated into three groups based upon total gross revenue (upper third, middle third, and bottom third)

• 2019 membership revenue, other revenue, total revenue, total cost of goods sold, payroll and benefits, sales and marketing, club expense, rent, total operating expense, and cash operating profit for 6 median performing clubs operating between 12 and 48 months of operation, grouped according to size (greater than 20,000 square feet and less than/equal to 20,000 square feet) and then further segregated into three groups based upon number of months in operation (open 12-24 months, 25-36 months, and 37-48 months)

• 2019 average annual gross revenue, monthly gross revenue, number of members, and number of months open for the 102 franchised Crunch Fitness clubs operating between 12 and 48 months of operation, grouped according to size (greater than 20,000 square feet and less than/equal to 20,000 square feet) and then further segregated into three groups based upon number of months in operation (open 12-24 months, 25-36 months, and 37-48 months)

Section I – Background Information

19 Things You Need to Know About the Crunch Fitness Franchise

Launches New Rewards Program for Apple Watch

1.  In mid-December 2019, Crunch Fitness announced a new initiative that relies on the power of Apple Watch to help members stay healthy. Through the use of Apple Watch, the custom-built CrunchTime Active Rewards app provides new members with weekly fitness goals and rewards them for taking these actions to improve their well-being.

2.  Initially available at the brand’s New York-area Crunch Signature locations, new members purchasing an All Crunch membership are eligible to participate in this 24-month program. CrunchTime Active Rewards participants can earn up to $3.00 in weekly credits to membership dues, for potential savings of over $300 over 24 months, by meeting personalized fitness goals.

3.  At Crunch, the mission is to make fitness fun, to empower members to reach their goals while doing so in a no judgments environment. The CrunchTime Active Rewards app builds off a program developed by Vitality Group, a global health and wellness company committed to making people healthier. The Vitality model has demonstrated that incentives linked to Apple Watch are associated with increased, sustained activity.

4.  A recent study from RAND Corporation found an average 34% increase in activity levels among 400K participants who used this rewards model, compared to those without these incentives – leading to an additional 4.8 days of activity per month. In working with Vitality, Crunch is able to leverage both the power of Apple Watch and the knowledge and insights Vitality has gained in incentivizing positive lifestyle habits.

5.  Crunch is passionate about making people healthier. In conjunction with Apple Watch, CrunchTime Active Rewards is designed to help people improve their health by creating tailored and personalized fitness goals for Crunch members. It is an engaging data-driven approach that makes it easy and fun for individuals to make healthy choices and track their progress against weekly goals.

6.  According to Chad Waetzig, executive vice president of marketing and branding for Crunch, “Apple Watch has delivered the best technology for people to monitor their fitness progress and well-being and therefore is the right device to help us elevate our members’ workout experience. Together, Apple Watch and the CrunchTime Active Rewards app gives our members a fun and engaging way to achieve their goals. And if members meet all the challenges, it’s almost like the Apple Watch pays for itself.”

Launches Crunch Cares Initiative to Support and Strengthen Local Businesses

7.  At the end of July 2020, Crunch Fitness Corpus Christi announced the launch of “We Keep Each Other Moving,” a Crunch Cares initiative specifically designed to support and strengthen Crunch members and their local small businesses through the COVID-19 crisis. The No Judgments brand touted for its values of kindness, inclusivity, fun, and innovation is partnering with Crunch members and their local small businesses to encourage locals to support their community.

8.  Members can submit their business information to Crunch Fitness through an easy online registration form and will receive promotional support through in-club advertising and online social media posts at no cost.

9.  Stephanie McColly, marketing manager of Crunch Fitness, said, “We are thrilled to launch this program. Being a part of our local community is important to us as stewards of wellness. We recognize health and wellness are more than a workout. It’s about caring for our community.”

Celebrates Franchisees and 30th Anniversary at Annual Convention

10.  In early October 2019, Crunch Fitness celebrated its seventh annual International Franchise Convention at the Music City Center in Nashville, Tennessee, a gathering that drew more than 450 attendees from 31 states and 7 countries. Attendees enjoyed three action-packed days of education, idea-sharing and networking, and celebrated franchisee accomplishments and the 30th anniversary of Crunch’s founding.

11.  The four-day gathering, which was supported by Crunch Franchise’s vendor network, was primarily hosted at the Nashville J.W. Marriott in Downtown Nashville. A vendor showcase held in a dedicated conference hall enabled franchisees to meet Crunch Franchise vendors and learn about their new products and services.

12.  Ben Midgley, founding partner and CEO of Crunch Franchise, said, “It is always a great experience to get together with the incredible Crunch Franchise family to reconnect as a group, share ideas and celebrate everything we have accomplished together. Our franchisees and vendors are the best in the business, and we are so thankful for all of their hard work, energy and support of our collective mission.”

13.  Crunch’s annual Franchisee Awards Ceremony took place at the Country Music Hall of Fame’s storied CMA Theater, and was accompanied by a closing party in the Hall of Fame’s Event Hall overlooking the Nashville skyline. Awards were given in 38 categories. Top award winners included:

• Crunch U Excellence Award: Tim and Tara Delorenzo
• Excellence in Group Fitness: Lisa Julien
• Rookie of the Year: Greg Tibbs
• Crunch Cares Award: Pablo and Hemy Ortiz
• The 10k Award: Bay Area Crunchers, LLC
• Developer of the Year: JF Fitness of North America, LLC
• Franchisee of the Year: CR Fitness Holdings, LLC

Company History

14.  Crunch Fitness, commonly called just Crunch, was founded in 1989 by Doug Levine, a former stockbroker, in New York City. Levine wanted his gym to be different from others in the industry so he focused on group fitness classes that encouraged positivity, inclusivity, and fun. This is a feature that Crunch gyms maintain today.

15.  Crunch quickly became popular by appealing to young people through heavy promotions and marketing with some humorous and sexual connotations. The chain also capitalized on its branding and has always sold merchandise at its locations.

16.  Over the next decade, Crunch grew fairly slowly and there were only about 20 locations when the company was sold to Bally Total Fitness in 2001 for $90 million in cash and stock. Bally had plans to double Crunch’s footprint, but found that the company was unprofitable and was unable to get out of long-term leases in poorly performing locations. Crunch was then sold to Angelo, Gordon & Co., a private equity firm, for $45 million in 2005.

17.  Crunch continued to struggle under this new ownership and in 2009, the company filed for bankruptcy as part of a reorganization by which it was acquired by New Evolution Fitness Company (“NEFC”), a company founded by Mark Mastrov (co-founder of 24 Hour Fitness), Jim Rowley, and some of the Angelo Gordon principals. The following year, Crunch finally started franchising and grew exponentially.

18.  In 2019, Crunch was acquired by private equity firm TPG Growth. Today, there are Crunch Fitness locations around the U.S., Puerto Rico, Canada, and Australia.

Entrepreneur’s Franchise 500

19.  Crunch Fitness ranked No. 148 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Crunch Fitness franchise costs, based on Item 7 of the company’s 2020 FDD.

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

• Please click here for detailed information on Crunch Fitness’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

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

2018

• Outlets at the Start of the Year:  148
• Outlets at the End of the Year:  196
• Net Change:  +48

2019

• Outlets at the Start of the Year:  196
• Outlets at the End of the Year:  225
• Net Change:  +29

Company-Owned

2017

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

2018

• Outlets at the Start of the Year:  26
• Outlets at the End of the Year:  25
• Net Change:  -1

2019

• Outlets at the Start of the Year:  25
• Outlets at the End of the Year:  25
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• As of December 31, 2019, 313 Crunch Fitness franchised locations were open or engaged in presale activities. Of those locations, 250 locations were located domestically in the United States, and 63 locations were located internationally.

• Of the 250 domestic locations, 233 had completed their first workout and had initiated member billing activities. Of these 233 locations, 25 locations were affiliate-related and operated within the holding structure of the Company.

• Locations excluded from this analysis include the 63 international locations, 17 locations which were not open, and 53 locations that either did not submit financials or had been open less than 6 months.

• 180 franchise locations are, therefore, represented in the table(s) of operating activity below.

Part 1 – Gross Revenue of Franchised Units

• The following chart separately shows Average Annual Gross Revenue for units greater than and less than 20,000 square feet for franchised locations with a first work-out at least 6 months before December 31, 2019.

• 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 the franchisee received 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

Upper Third