Nick Kozak for the Toronto Star
Case Studies

Competition heats up for luxury gym in Barrie

Vital Stats
Name:
Barrie Athletic Club
Owners:
Jeff Deverill and Mike McPhee
Address:
565 Bryne Drive, Barrie, Ontario, L4N 9Y3
Contact:
www.barrieathleticclub.com, info@barrieathleticclub.com, 705-722-4792
Field:
Fitness club
Employees:
Nine full-time, seven part-time and 11 sub-contractors
Active:
One year
Core customers:
Male and female young professionals and boomers

When Mike McPhee and Jeff Deverill purchased the Barrie Athletic Club in late 2012, the fitness industry veterans knew they’d found the perfect investment.

The squash and fitness club boasted a solid reputation as the region’s top squash venue and had a loyal squash membership. And Barrie, located 45 minutes north of Toronto, is touted as one of Canada’s fastest growing communities. The pair quickly realized that by upgrading the club’s tired décor and by building the neglected fitness side of the business, they could create the city’s first higher-end commercial sports and fitness club.

The business partners personally invested $650,000 to purchase and transform the 12-year-old facility into a finely-appointed club complete with a licensed food and beverage service, and luxurious locker rooms with whirlpools, steam-rooms, saunas, new fixtures and a free towel service. A culture of exceptional customer service and high maintenance and cleanliness standards was implemented. Monthly fees were set at $49-$89.

Membership numbers were tracking closely with expectations – the local newspaper named it Barrie’s Best Fitness Club in 2013 – until 12 months post-purchase when an imposing big-box, lower-cost American chain, LA Fitness, charging $35 a month, opened just two kilometres away. With an aggressive sales posture and deep discounting, it siphoned away 50 Barrie Athletic Club members and started competing for prospects.

As a result, the Barrie Athletic Club’s short term success has been disappointing. Although membership has grown by 50 per cent since opening, the club is currently 100 members short of its 900-member target.

McPhee and Deverill believe they have all the pieces in place to succeed – but it’s now a race to aggressively exploit their club’s value proposition and to sign-on prospects in a suddenly highly competitive market.

The partners were fully aware of the breadth of competition before committing to the purchase. Their analysis of the local fitness club landscape, at that time, showed a glut of lower-cost, lower-service clubs: a multi-club chain charging $45 a month, two no-frills clubs charging $15-$20, and three small franchises charging $40, along with several yoga and Pilates studios, three community centres and two YMCAs. They saw a gap in the market for a higher-end, full-service club believing that Barrie exercisers were ready for a more sophisticated exercise environment.

The business partners are no newcomers to the fitness club industry.

For his first 20 years in the business, McPhee managed or owned four large sports and fitness clubs in the GTA. For the last 12 years prior to purchasing the club, he worked as a consultant to over 100 North American clubs, providing design, marketing and management expertise.

Deverill is a former squash pro who developed the squash program at Mississauga, Ontario’s Club Meadowvale into one of the most successful program at the time in Canada. He later founded Planet Kids Ltd. and has spent 16 years growing it into one of the largest private summer day camp in Canada.

The pair is working diligently to eventually grow to 1,200 members (where they say they will generate “a respectable profit margin”) and to differentiate their club and justify its higher monthly fees.

“Nobody asks why it costs $50 more a night to stay at a Sheridan Hotel than a Holiday Inn,” says McPhee. “But when it comes to fitness clubs, consumers don’t always recognize that there can be huge differences in the quality of operations, staff and customer service.”

The Barrie demographic is proving to be particularly demanding and price conscious, he adds.

David Hardy is president of Fitness Industry Council of Canada, a non-profit organization representing over 5,000 fitness facilities and four-million members.

“The Canadian fitness club business is more competitive than ever due to industry consolidation and competition from a recent increase in U.S. fitness chains and franchises,” he says. “Success flows to those who are well capitalized and who have a depth of knowledge in areas like programming, marketing, HR, branding, information technology and sourcing equipment.”

To help boost the bottom line, the partners purchased a well-established karate school and moved it into an underutilized space in the club. There are now 150 members paying $95 a month.

They have recently joined three local networking groups and the chamber of commerce, launched a Facebook page and will soon be active on Twitter. They have begun sending email blasts to members, alumni and prospects. Upcoming plans include upgrading its website, generating cross-promotions with local retailers, launching a corporate membership program and joining the Rotary Club.

McPhee and Deverill admit that a premium sports and fitness club might be slightly ahead of its time for a small city like Barrie, but they’re determined to make it work.

“We know that to be successful our big-box competitors need about 6,000 members each while we need only 1,200,” says McPhee. “As owners, we’re determined to get there. If we have to do sales and work the front desk, then that’s what we’ll do.”

EXPERT VIEWS

As Interviewed by: Rosemary Westwood

In effect, it seems that given the level of competition when they purchased the club, the duo invested to the point that they were attractive enough to create 900 active members. But in the face of an aggressive marketing competitor, LA Fitness, the 900 members became an elusive target. Why is that? It appears that “Barrie’s Best Fitness Club in 2013” was good enough to scoop the competition, but no longer. If they want to generate “a respectable profit margin” they will need to step up and provide added value for its existing and prospective members. McPhee and Deverill cannot afford to wait. The acquisition of the Karate Club demonstrates that Barrie residents are prepared to pay $100 for the right services. This is greater than the current fitness club monthly dues. McPhee and Deverill have the experience and knowledge to ensure that their club continues to be “Barrie’s Best Fitness Club.” But it needs to deliver greater value at a higher price. The team needs to step up and put more money into the venture in order that it differentiate the club today and not when it reaches 1200 members. Show the 800 members that theirs is money well spent today and that there is more to come very soon.

by Steve Tissenbaum Ryerson

Deverill and McPhee have a timely business in a burgeoning city, the challenge is in commanding the membership required for healthier operating margins. There are a few basic options here: 1) decrease operating costs, 2) increase fees and thereby operating revenues, 3) increase membership numbers. The first two options are fairly simple but don’t allow for significant growth. The third option would require a marketing strategy to increase consumer interest and enrolment. Given the localized nature of this fitness centre, the best marketing tactics would be localized print or out-of-home (e.g. local publications; billboards, transit shelters) as well as word-of-mouth (WOM) advertising. WOM campaigns work especially well with young professionals and boomers, both of whom respond well to social advocacy (message authenticity) and market information delivered peer-to-peer (source credibility). Establishing WOM campaigns is an art and a science but is typically done through: referral and loyalty programs, special offerings and contests, social media campaigns, and/or ‘buzz’-producing activities that are remarkable enough to get people talking to and tweeting one another in order to drive enrolment interest.

by Brynn Winegard - SEEC

Barrie is a growing community with people that have chosen luxury lifestyles outside Toronto, and there’s also a very strong community feel. The Barrie Athletic Club has a great opportunity to leverage this. This big box gym just declared war and took the first shot by opening up and cutting prices. So Jeff and Mike need to go into attack mode. Sell the differentiation: they’re local business men and entrepreneurs, as opposed to a big american chain. Leverage the squash reputation and the camp reputation, leverage the upscale offering and the quality of the gym. For the hard sell, stand outside the competitor’s gym with flyers and recruit there. Take out ads and use the owners voices on the radio and TV saying, “This is what we offer: luxury not a factory.” For the soft sell, join the clubs, get out and make yourself the guy everybody knows. Maybe cross-promote with a one of the yacht clubs. Support the pee wee hockey team and offer memberships for the winners, get your name on the jersey, and donate memberships to local charitable drives. These guys have a lot to offer, but this is war.

by Deirdre Fitzpatrick - GBC

Advertisement