local players dominate in a land of outdoor sport enthusiasts
By Catherine Larner
Known for their love of the outdoors, for skiing, sailing, swimming, jogging and walking in their beautiful countryside, the Scandinavian people are also associated with a receptiveness to the health and fitness message. Norway and Sweden are both topping the European average in penetration rates, and the markets in Denmark and Finland, while much further behind, are growing at a rapid rate.
Distant from the rest of Europe and with small populations spread over vast areas, and then clustered into high concentrations, the Nordic region is not an easy market to conquer. As a result, although the countries attracted interest by major international players some years ago, it is now almost exclusively homegrown operators that are securing the business here.
Characterised by the huge popularity of group training, the necessity for childcare facilities and the lack of customer demand for swimming pools, the clubs here are mainly situated in the key cities and are generally mid market facilities. The typical customer is in their early 30s, and busy with family and work. They want clean, attractive facilities, well located with good equipment. The health and fitness industry has met their demands and been rewarded with high penetration levels.
Community and not-for-profit facilities are also widespread in this region. The biggest player in this sector is Friskis & Svettis, which has clubs all over Scandinavia - there are 109 in Sweden alone - run by volunteers. These sites vary in specification from a hall to cater for aerobics classes, to providing a full range of equipment and programmes. Their prices are low and 75% of their users are women.
Penetration poised to double in Denmark
Currently the Danish industry - of which the key players comprise fitness dk (20 clubs), SATS (17), Hard Work Studio (11), and Equinox (10) - has no unified voice to be able to speak to government and raise awareness, says Rasmus Ingerslev, CEO of fitness dk.
"Being the largest player brings responsibility in pushing open doors. Our merger (see sidebar) will hopefully develop the market further and create even more focus on this business. Already we have gained a lot of contacts in real estate that have found sites for us. Being a national player has created a lot of attention and that is good for the business. For the consumer it means a lot of possibilities. We now have 1,200 employees so we will be focusing more on our own education."
Already the company has released findings of a survey it conducted of 1,000 members of the clubs.
"The survey shows that previously Danes used fitness and wellbeing centres in order to improve their looks. Nowadays the primary motivation is wellbeing and to get into shape," says Ingerslev. He is convinced that the new organisation will help to create an even bigger market for health and wellbeing.
His optimism is supported by research conducted by Deloitte for the 2005 IHRSA European Market Report, which found that Denmark could expect a medium to long-term increase in penetration rates. Currently standing at 3.7% of the population, this could grow to 7-8%, meaning a potential of 250,000 new members. There is a positive outlook for 2006 when higher personal incomes and stable taxes are expected to improve the economy.
Finnish market shows potential
The relatively immature Finnish health and fitness market is currently growing at the fastest rate in Scandinavia, according to Deloitte. Public awareness is on the increase and quality facilities and operations are becoming more available. The penetration rate is just 1.9% and there are still only five key players, each with just a handful of clubs - Motivus (9 clubs), SATS (8), Finnbody (7), Elixia (5) and Esport Fitness (2).
The Finnbody chain is based in the Helsinki area. Its typical customer is aged around 37 years, and female, and there are plans to open two more 600-800sq m clubs in the next year, depending on whether an investor can be found.
"It is difficult to finance development," said CEO Jan Vorselman. "The banks in Finland are very wary of the fitness industry because they remember the spate of bankruptcies that occurred in the early 90s. Similarly landlords are reluctant to lease space for gyms because they do not think we are viable businesses. Slowly, through proving to them that we are good businesses, this is changing, but we need to raise our profile as an industry here to educate people about the possibilities for health and fitness operations."
The strength of the sector in Norway and Sweden is doing a great deal for lifting confidence, however, says Vorselman.
Competition heats up in Norway
Norway, a relatively small country, has a very developed fitness market with a penetration rate of 10.9%. There are about 350 fitness clubs with around 500,000 members (2005 IHRSA European Market Report/Deloitte) and the market is expected to continue to grow.
"We are a small country but the industry is very positive at the moment," says Morten Holck, joint CEO (with his wife Hilde Thommesen Holck) of 3T, a chain of 13 clubs. "And we are being taken seriously. For the last five or six years clubs have been popping up everywhere as everyone wanted to get big quickly and sell out to an English or German chain. But while the golden era is still here business is more sensible and realistic. Many clubs have changed hands and we are now seeing consolidation."
The 3T chain of clubs is celebrating its 20th anniversary this year. The company was founded by Holck's father-in-law, Tor A Thommesen, as a rehabilitation clinic. Today the 10 clubs and three franchises average 1,800sq m and boast a pool, spa, squash, and football as well as health and fitness facilities. The typical customer among the 24,700 members is aged 34 if female and 33 if male.
The company attributes its success to having the best locations all over the city of Trondheim - the third largest city in Norway where there is intense competition among health and fitness operators.
"There are too many clubs here," says Holck. "There is a population here of 160,000 yet our clubs alone have 25,000 members."
For 3T retaining its place in the market means extensive refurbishment of its clubs. Over the next two years, some E5m is being invested in new equipment, spa areas, lockers and in expanding existing clubs.
The largest player in Norway is SATS (see sidebar) with 70 clubs, including 35 Spenst clubs and two franchises. Here SATS rivals Coca-Cola in brand awareness, the company claims.
After SATS Elixia has 15 clubs. These two leading companies, which both have interests across other countries, actually have sites opposite each other in Oslo. While rivalry is naturally strong, the companies worked together in recent months to secure a VAT rating of 0% for health club membership.
Elixia spans five markets - Norway and Finland in Scandinavia, and Austria, Germany and France on the continent. The company has grown quickly through acquisition, originally operating under the name of Balance. Today it has 15 clubs in Norway and five in Finland. In June another small club (1,300 members) in Honefoss, outside Oslo, was added to the stable and work is underway on a 2,000sq m facility in a new shopping mall development in Helsinki. In total the Nordic company has 65,000 members and is now hoping to expand further.
"We are looking at possible acquisitions," says Staale Angel, CEO of Elixia Scandinavia. "If we find something suitable we will buy it, but we have turned down a number of propositions. In Norway and Sweden the competition is vast. The clubs are very close to each other because the market is well penetrated. In Oslo, a city with a population of 500,000, there are some 50 or 60 clubs. The main problem we are facing is that it is hard to find new locations."
Elixia clubs are modern, bright and airy with wooden floors, large windows, plants and leather seating. There is an emphasis on wellness, although spa areas are not featured and there is no demand for pools. The clubs appeal mainly to women (65% are women, 35% men in all age groups), and a typical member is a woman aged 30-35. Group training is a strong attraction; there are 150 group classes a week in the largest clubs. Personal training is gaining in popularity and the mind-body interest means yoga and Pilates classes are well attended.
"This sector is very interested in group training," says Hakon Bakkevig from the Nordic Wellness Company. "Traditionally Scandinavians are used to working together in groups. Also the big chains have focused on this and have put their best people into developing choreography and different programmes. It is profitable because you can get a lot of people in a limited area and it creates loyalty and retention. There is stronger interaction with people than with a machine."
"The industry is very positive," says Angel. "But we would like to see more government support for the sector by encouraging companies to pay the monthly health club membership fee for their employees as they are starting to do in other countries.
"The problems of obesity and inactivity that are facing the USA will be felt here soon so we need to start to take action now."
Inviting children into clubs is one way of raising levels of activity and educating the population, Angel suggests.
The media coverage of Virgin Active clubs in Europe is encouraging a number of Scandinavian companies to consider the appeal of family facilities, says Hakon Bakkevig. "There will be growth in the mass market in full service clubs but also in the special populations of 40 , express clubs for 20-40-year-olds, and children's facilities. The maternity leave is up to one year here so mothers with young children is a major segment to attract. In the next three to four years we will see more of the specialised clubs."
Sweden boasts healthiest market
Different markets are also being targeted in Sweden where the industry is the healthiest in the region. Here women dominate the market with 56% working out, compared to 44% of men, according to SATS, and the majority of members are aged 25-35.
With 800 fitness clubs, the country boasts a 10% penetration rate. Top players include Friskis & Svettis (109), nautilus (56), SATS (27), Feelgood (21), and World Class (17).
Recognising a market that would be receptive to its offer, a new player entered Sweden at the end of 2004. Russian operator Planet Fitness opened the first of three sites it has planned for Stockholm.
The 4,000sq m club is a full-service fitness facility with indoor pool, day spa, cv, free weights, selectorised equipment, whirlpool, steam room and sauna. The club also offers onsite babysitting, a full restaurant and outdoor eating area. Group exercise classes and personal trainers are also available.
"Having lived in Stockholm for most of my life, I am very excited to bring our Russian fitness company and philosophy to the people of Stockholm," said Irina Razumova, Planet Fitness managing director. "This will be the first of many locations we hope to bring to Sweden in the years ahead."
Planet Fitness has 23 clubs across Russia with 75,000 members and a turnover of £23m (E34m). It was formed in 1996 by 24 Hour Fitness's Mark Mastrov and Leonard Schlemm, with Irina Razumova and Marianna Maslennikova. Mastrov had already worked within the Swedish market when 24 Hour was the owner of the SATS chain of clubs (see related article) - the largest player in Scandinavia - which was sold to Nordic Capital in 2002.
Looking forward: opportunities and challenges
All the countries face the issue of raising prices and service levels, but providing good service is a cultural issue and a problem across all sectors, according to Hakon Bakkevig, Managing Director of equipment distributor Nordic Wellness Company, and a former employee of leading health club chain SATS. "More segmentation is also needed. When you have a 20% penetration rate in the city of Oslo, Norway, one of the only ways to grow is through developing more specialised clubs."
Design will become stronger in the future, he says. "Most clubs look as if they were designed in the 1980s and 90s. Most have invested in equipment and people but the box itself needs to be upgraded. Good design is becoming a vital part of every commercial activity in society-including health clubs."
Obesity is a growing public health problem. The number of overweight adults in the Nordic region has climbed sharply in the past 10 years. In Stockholm the percentage of overweight men has increased from 33% in 1990 to 51% in 2002. Absenteeism is also a problem and there are several studies in the region showing that physical training can reduce this by 30-60%.
While the industry as a whole is immature and dominated by a handful of players, there is no one strong trade body representing all the operators, notes Herman Rutgers, IHRSA Director Europe.
Nevertheless Norway has a zero rating on VAT for fitness training, and tax breaks for companies providing fitness training for their employees have been adopted in Sweden and Finland. Doctors in Norway also have the facility to prescribe fitness programmes, on a Green Ticket initiative, to the growing number of patients who are obese and overweight.
"As is the case in other European nations, we need to work together to help each country benefit from one another's successes in improving the overall business climate," Rutgers said. "And we need to continue to get the word out that regular exercise, in the supportive environment of a health club, is essential to solving the obesity epidemic."
