Boutique gyms and competitive socialising venues continue to capture the wallets of consumers and are being hotly assessed by operators, investors, advisors and banks alike. In a response to rising demand, the market has seen a swathe of new entrants across the UK. There are more than 130 competitive socialising venues across the UK with nearly 300 boutique gym venues in London alone. Are these trends set to last and will they provide long term shareholder growth?
Fast growth and strong financials…
There is little argument to suggest that these fast growing sub-sectors of the leisure space are going to fall away. Consumers’ thirst for unique experiences and an increasing appetite and awareness for on-trend wellness activities should continue to drive growth.
On the face of it, both sub-sectors make perfect investment sense. A replicable model allows for easy roll-out with little capital investment. There is also great support from landlords who see these operators as highly refreshing and attracting a young and affluent customer base to complement other venues on site.
Remarkable financial performances on a consistent basis by certain operators are delivering exciting returns at a site level. A familiar story to the successful restaurant, pubs and bars operators that have received substantial backing in the past.
Crowd funding has enabled brands like Boom Cycle, Core Collective, 1Rebel & BLOK to grow whilst more traditional investment firms have also committed capital to Ten Health & Fitness (Foresight VCT), Frame (Piper), Boom Cycle (Pembroke VCT, Nectar Capital & Foresight) & 1Rebel (Codex Capital), Hot Pod Yoga (Edition Capital).
In competitive socialising Whistle Punks (Edition Capital), Swingers (Cain International), All Star Lanes (Risk Capital) & Social Entertainment Ventures (Acropolis Capital) have all backed concepts in the space.
...but are they sustainable and scalable?
However, is uniqueness and on-trend a potential problem? For competitive socialising, how often are consumers actually willing to repeat the experience? Perhaps once with friends, once with colleagues, but after that? When does an experience or venue stop becoming unique?
Boutique gyms suffer from fickle customers where apart from a handful of elite international brands there is no loyalty. Expensive marketing and new training styles lure customers away.
It’s not surprising that ClassPass has become the first unicorn of 2020 by offering access to an array of classes across different studios. Today’s consumer wants variety so boutique fitness concepts will likely move quickly in and out of favour. There is also the continued encroachment from larger traditional operators that are beginning to offer comparable models to attract customers.
Private equity is the most likely purchaser for those founders looking for an exit. PE investment relies on a strong current pipeline of sites but also evidence that there is clear site growth available for the next purchaser. However, many operators are struggling to grow profitably beyond 3 to 5 sites. This is due, in part, to a lack of strategic locations in London and a lack of brand appeal to develop nationwide. This has raised concerns from investors over what is a realistic site ceiling?
Consolidation; the key to bright long-term future?
Brand consolidation can help capture fickle consumers and alleviate the site ceiling risk. Digme Fitness has recently acquired Another Space and Social Entertainment Ventures, through their investment partner Acropolis Capital, has continued to build a collection of competitive socialising brands. Over the coming year, we will continue to see consolidation in both sub-sectors as the markets mature from their rapid initial rise and a more sustainable future is forged. The benefits of consolidation will include better quality data, higher frequency rates, improved first timer conversion rates and significant operating efficiencies.
This should make investors more comfortable with the space and see an influx of capital to support growth and provide long-term shareholder value.
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Corporate Finance Assistant Director – M&A
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