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Planet Fitness CEO: ‘The fitness boom is underway today’

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Planet Fitness CEO Chris Rondeau joins Yahoo Finance Live’s Brian Sozzi and Julie Hyman to discuss the fitness company's $800 million acquisition of Sunshine Fitness and the outlook for the fitness industry amid the spread of the Omicron variant.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: Planet Fitness has made an $800 million acquisition of Sunshine Fitness to secure its future on the East Coast. Sunshine Fitness is an operator of more than 100 Planet Fitness clubs in the US, mostly in the South. Joining us now for more on the deal is Planet Fitness CEO Chris Rondeau. Chris, always nice to see you. Happy new year.

I know you guys as primarily a franchiser of gym chains. But now you're going to take these clubs inside the company. These are going to be company-owned locations. Why did you make this move?

CHRIS RONDEAU: Yeah, so we have currently about 100 corporate stores today we operate and have. And they've always been a testbed for us. It's kind of like Test Kitchen, if you will. We test concepts and ideas, construction, membership types. And we always build a couple of stores, a few stores a year.

When this acquisition opportunity came up, they're located in the Southeast part of the US. We're all mostly in the Northeast. So it diversifies our portfolio from a corporate store standpoint. But as a franchise company, those franchisees happen to be one of our best performing franchisees in the system, as well as our first franchisee, believe it or not, from 19 years ago.

So when the opportunity came up, and with a very well-proven out, veteran management team that comes along with the sale, and we said, jeez, this is a great performing group. We can now roll our existing 100 stores under their umbrella and have them influence our 100 stores the way they have with theirs. And it really is an elegant solution to running our corporate store division, as well as what it does is this frees up some of our franchisee support here in the office, right, because it was more of a hybrid system, where our Marketing Department here, our Development Department here, for example, was helping our corporate store portfolio. Now they can focus 100% of their time on servicing franchisees to drive even hopefully better results in the future. So it really was a great opportunity to make this acquisition.

BRIAN SOZZI: Chris, I like what you said in the release, that you want to use these locations to test new things that ultimately you could sell the franchisee community on and maybe adopting in their stores. I mean, as you're thinking about the gym of the future or postpandemic, what might you want to test?

CHRIS RONDEAU: Yeah, I mean, we're always looking for new ideas. And a lot of the ideas come from our franchisees. And we have a very strong relationship with our franchisees. And we like to walk the walk and talk the talk. So the fact that we own the stores, and through the pandemic is a prime example. We went through the trials and tribulations that they went through to get through to the other side.

And extremely happy to say that we lost no gyms in the pandemic. And the industry lost 22% of the gyms closed permanently. We lost none. So the fact that we owned gyms alongside of our franchisees, we understand what they go through.

And when we test things, it's easy to get buy-in, right? They understand that we did it. We like it. It works. We test a few franchisees. They do have the same experience.

We then roll out ideas, whether it's different membership pricing, whether it's meditation pods in our gyms, kind of like our massage beds, for example. We're testing the digital subscription right now in 100 stores. So for $24.99 Black Card, you get premium digital content in the app included in the membership. So we're always testing things like that to help drive customer satisfaction.

JULIE HYMAN: I don't know how Sozz feels about meditation. I'm all for that one. I'll take that one, Chris.

I wanted to ask you, the beginning of the year tends to be a big time of year for the fitness industry as a whole, right, not just Planet Fitness. Of course, a lot of people sign up. They want to make resolutions for the year. This year, though, is different because of Omicron. And I wonder if you guys are seeing lower additions than you typically would as we see this latest wave.

CHRIS RONDEAU: Sure. So right now we're in the middle of our January sale. It's the 12th of the month, so it's still early to tell how the first quarter or January ends up. But first quarter is really a big push for the industry.

But through the fourth quarter, specifically December, when you had a lot of media around Omicron as it was beginning to surge and that variant was found, typically what we'll see is member workouts pull back first. And then you see the membership impact following that. We didn't see a pullback in workouts through the month of December. So thankfully for that, I think.

And we didn't see that in Delta variant either earlier in the year. And I think with vaccines being broadly distributed, people getting ready to be out. And I think health now, as we can imagine, is front and center of everybody's mind, based on who the COVID variant or all the variants have affected the most, right? It's people that are overweight or obese with preexisting conditions.

Almost 80% of all hospitalizations, people are obese or overweight. So people are taking health a lot more seriously, I think. Even though the variant is out there, they're ready to get on with their life and take care of their health, which is great.

JULIE HYMAN: And sort of on a related note, Chris, I'm curious if you're having any staffing issues at the gyms. We've seen that in a host of different industries, just because people are sick. Not to say that they're necessarily very sick or in the hospital, but they're sick. They're out for a week or so with Omicron.

CHRIS RONDEAU: Yeah, we've had some small bumps and hurdles for all locations naturally, just like anybody else has. But one thing that's really interesting with our model, Julie, is that because you don't have all the classes and aquatics and basketball courts and daycare and juice bars and pro shops, it's straight fitness, right, 20,000 square feet, big open box. So staff is there to clean and to check people in and to help them with the equipment if they need it.

So we don't need a lot of people to run our stores. A typical shift will have three people, give or take. So luckily we don't need 20 people working all the departments in our facility. So we're not having the struggles that most people have or in fast food, for example.

BRIAN SOZZI: Chris, last one for me, we were talking a little bit about your story, me and one of the producers here. You started at Planet Fitness, I believe, in 1992, and in many respects have helped build the company from the ground floor. What has it been for like for you personally, just to see the wild swings in the business, to see gyms empty, now people coming back? I mean, what have you been through here?

CHRIS RONDEAU: Yeah, it's amazing, right? It's the American Dream, right? And forever grateful and always look back and what's all happened over the last almost 30 years now this year.

But I never thought I'd work as hard as I have in the last probably three. It's been quite the peaks and valleys along the way. But I think what's become evident here and what I'm passionate about here, which is health and fitness, is that we've all been told for decades, Brian, right, you've got to take better care of yourself, you've got to eat better, and you've got to exercise.

And unfortunately, most of the US has looked the other way to that. And I think the COVID virus has really brought that front and center on the repercussions of not taking care of your health. And I hopefully believe that the fitness boom is underway today. People are going to take better care of themselves coming out of COVID. They've got to look at who's it affected the most? And I think now, this industry's going to really benefit.

And with Planet Fitness in 2,200 locations in all 50 states at $10 a month, it's an unbelievable value. The access is there for everyone. So hopefully my passion here, I think, with Planet, this will help get people access and availability to work out and take better care of themselves.

BRIAN SOZZI: Well, it's always great to see you, Chris. Planet Fitness CEO Chris Rondeau, good to see you. And good luck this quarter.

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