Sector

Consumer

Background

Jonathan Abenaim is an investor at Arlen House Capital. We cover the history of the fitness industry, how Basic-Fit has put its own spin on a successful US-based playbook, and the clustering strategy that Basic-Fit has developed for entering new markets.

Cover

Date

February 16, 2022

Episode Number

47

Business Breakdown: Basic-Fit

Background / Overview

Basic-Fit, headquartered in the Netherlands, is Europe’s leading low-cost gym operator, with over 1,000 clubs and approximately 2.2 million members across five countries: the Netherlands, Belgium, Luxembourg, France, and Spain. Founded by Rene Moss in the late 2000s, the company evolved from Moss’s earlier venture, Health City, a mid-market gym chain with 250 locations. Moss, a former professional tennis player, pivoted to the low-cost model after observing the decline of mid-market gyms in the U.S. and the success of Planet Fitness. Basic-Fit’s business model is built on providing affordable gym memberships (€20/month) with high-quality cardio and weight equipment, stripped of expensive amenities like wet facilities, to maximize accessibility and grow the addressable market. Unlike Planet Fitness, which operates a franchise model, Basic-Fit owns and operates all its clubs, allowing greater control over customer experience and innovation.

The company serves a broad demographic, primarily under 30 years old, with 20-30% classified as “sleepers” who join for the option to work out but visit infrequently. Basic-Fit’s strategy emphasizes convenience through a clustering approach, building dense networks of gyms in local markets to reduce travel times and dominate market share. The company generates approximately €800 million in annual revenue and is the largest fitness operator in Europe, twice the size of its nearest competitor and building 15 times more locations annually.

Ownership / Fundraising / Recent Valuation

Basic-Fit is a publicly traded company, which provided critical access to capital markets during the COVID-19 pandemic when gyms were closed for approximately 18 months. The company raised both debt and equity to sustain operations and continue its expansion. Specific details on ownership structure, private equity sponsors, or recent enterprise value (EV) multiples are not provided in the transcript. However, the company’s ability to tap public markets underscores its financial resilience compared to the 62,000 smaller gyms in Europe, most of which relied on personal funds or government grants during the crisis. Basic-Fit’s IPO occurred when it had approximately 350 locations, suggesting a significant scaling since then. Valuation multiples or recent transactions are not disclosed, but the business is noted to earn a 35% return on invested capital (ROIC), indicating strong unit economics and investor confidence in its growth trajectory.

Key Products / Services / Value Proposition

Basic-Fit’s core offering is a low-cost gym membership priced at €20/month, providing access to high-quality cardio and weight equipment (e.g., TechnoGym and Matrix brands) in a no-frills environment. The value proposition centers on affordability and convenience, targeting price-sensitive consumers who may not have previously joined gyms. Key features include:

• Membership: €20/month for access to all clubs, with no cancellation fees and household-wide benefits (e.g., teenagers can use a parent’s membership).
• Gym Experience: Spacious gyms with cardio, weights, showers, and social corners, excluding costly amenities like saunas or pools.
• Digital Content: A mobile app with a vast library of localized workout content, produced in studios in each operating country, included free with membership.
• Omnichannel Expansion: A forthcoming bike business, partnering with Matrix to offer €2,000 bikes with financing, bundled with a four-year membership and digital content, using gyms as distribution centers.

The table below summarizes the value proposition:

Segments and Revenue Model

Basic-Fit operates a single primary segment: low-cost gym memberships. The revenue model is subscription-based, with members paying €20/month for unlimited access to all clubs. The company is testing an omnichannel expansion with its bike business, which could become a secondary segment, combining hardware sales, financing, and bundled memberships. Unlike traditional gyms, Basic-Fit does not rely on upselling add-ons like personal training or classes, focusing instead on volume-driven membership growth. The digital content library enhances retention but is not monetized separately. The bike business, while innovative, is a “free call option” with no significant capital deployment, leveraging existing gym infrastructure for distribution.

Splits and Mix

• Geographic Mix: Basic-Fit operates in the Netherlands, Belgium, Luxembourg, France, and Spain, covering roughly 50% of the population in these markets. The Netherlands and Belgium are mature markets with high penetration (e.g., 80% member share in Amsterdam), while France and Spain offer growth potential due to lower density.
• Customer Mix: Primarily under 30 years old, with 20-30% “sleepers” (infrequent users). The household-shared membership model enhances stickiness, as family members benefit from a single subscription.
• Channel Mix: All clubs are owned and operated, with no franchising. The digital app complements physical gyms, and the bike business will use gyms as distribution centers.
• End-Market Mix: Targets price-sensitive consumers, many of whom are new to gyms (50% of new members in a gym are first-time joiners). Competes indirectly with premium gyms (e.g., Equinox) and non-fitness alternatives (e.g., Netflix, fast food).

No specific revenue or EBITDA splits by geography or channel are provided, but mature markets like the Netherlands contribute higher margins due to scale and density. The company’s clustering strategy drives market share, with examples like Bordeaux (13 gyms, ~43,000 members, 70% member share in a 300,000-resident area).

KPIs

• Club Count: 1,000+ clubs, with a plan to reach 2,000 by 2025 in existing markets.
• Members: 2.2 million, with mature clubs averaging 3,300 members.
• Penetration: ~10% in Europe (1 in 10 people go to gyms) vs. 20% in the U.S. In Basic-Fit’s legacy markets (e.g., Amsterdam), penetration reaches 30%, similar to Planet Fitness’s mature U.S. markets.
• Churn: Average membership duration is 24 months, twice that of independent gyms (12 months). Low churn is driven by household-shared memberships and a lax cancellation policy.
• Member Acquisition: Clubs break even at 1,600 members (reached in 5 months) and mature at 3,300 members (24 months), generating €420,000 in club-level EBITDA.
• Multi-Location Usage: 25% of members used multiple locations at IPO (2016, 350 clubs); likely higher now due to denser clusters.

The business shows acceleration in club openings (15x the rate of competitors) and member growth, with 50% of new members being first-time gym joiners, indicating market expansion.

Headline Financials

Revenue Trajectory and Drivers

Basic-Fit’s €800 million revenue is driven by 2.2 million members paying €20/month across 1,000+ clubs. The company’s clustering strategy drives volume growth by increasing gym density, reducing travel times, and capturing market share (e.g., 70% in Bordeaux, 80% in Amsterdam). Key revenue drivers include:

• Volume: 50% of new members are first-time gym joiners, expanding the addressable market. Penetration in Europe (10%) lags the U.S. (20%), with Basic-Fit’s mature markets reaching 30%. The company plans to double its club count to 2,000 by 2025, implying a revenue CAGR of ~15-20% if membership density holds.
• Price: Fixed at €20/month, significantly below independent gyms (€39/month). Pricing power is limited due to the low-cost positioning, but economies of scale allow Basic-Fit to maintain margins while offering lower prices.
• Mix: Mature markets (Netherlands, Belgium) contribute higher revenue per club due to density and penetration. Newer markets (France, Spain) drive growth but have lower margins during ramp-up.

Cost Trajectory / Operating Leverage / Profit Margins

Basic-Fit’s cost structure is highly leveraged, with significant fixed costs (rent, labor, CapEx) and low variable costs per member, driving operating leverage as clubs mature.

• Fixed Costs:
• Rent: €150,000/year per club.
• Labor: €130,000/year for 2.5 full-time employees (FTEs). Testing 1-2 FTEs with smart cameras, potentially reducing costs by €50,000/year.
• Club Operating Costs: €150,000/year for software, cleaning, etc.
• CapEx: €1.2M upfront per club, significantly lower than independent gyms (€1.8M) due to scale advantages in equipment purchasing (e.g., largest buyer of Samsung TVs in Europe).
• Variable Costs: Minimal, as incremental members add ~100% gross margin. Marketing costs are low due to national advertising and landlord preference (Basic-Fit drives foot traffic, increasing real estate value).
• Operating Leverage: Clubs break even at 1,600 members (5 months) and reach 3,300 members (24 months), generating €420,000 EBITDA at a 50% margin. Testing reduced staffing could push margins to 65%. Fixed costs (~€430,000/year) are spread over growing membership, driving margin expansion.
• EBITDA Margin: 50% at mature clubs, with potential for 65% in optimized locations. Group-level margins are lower during expansion due to new club ramp-up costs.

Capital Intensity and Capital Allocation

Basic-Fit is capital-intensive, with €1.2M CapEx per new club and a target of 1,000 additional clubs by 2025. Maintenance CapEx is not specified but likely minimal, as equipment is high-quality and refreshed strategically. The company’s owned-and-operated model requires significant upfront investment but avoids franchisee conflicts and ensures control over innovation. Capital allocation prioritizes:

• Organic Growth: Clustering strategy to build dense networks in existing markets (covering 50% of current market population) and planned entry into new markets (e.g., Germany, Portugal) post-2025.
• Innovation: Low-CapEx initiatives like the bike business (financed by banks) and digital content (produced in-house) enhance the value proposition without significant investment.
• COVID Financing: Debt and equity raises sustained operations during 18-month closures, with no specific figures provided.

Free Cash Flow (FCF)

FCF is constrained during expansion due to high CapEx (€1.2M/club) and working capital needs during club ramp-up. Mature clubs generate strong cash flows (€420,000 EBITDA/club), but group-level FCF is reduced by new club investments. The 35% ROIC suggests efficient capital deployment, but FCF margins are not disclosed. The cash conversion cycle is favorable due to subscription-based revenue (collected upfront) and minimal inventory, though rent and labor are significant fixed outflows.

Value Chain Position

Basic-Fit operates midstream in the fitness value chain, between equipment manufacturers (e.g., TechnoGym, Matrix) and end consumers. The company’s primary activities include:

• Inbound Logistics: Bulk purchasing of equipment (e.g., Samsung TVs, TechnoGym) leverages scale to reduce costs.
• Operations: Owning and operating 1,000+ clubs with standardized layouts and minimal staffing (2.5 FTEs, potentially 1-2 with technology).
• Marketing/Sales: National advertising and landlord preference reduce customer acquisition costs (CAC). The household-shared membership and lax cancellation policy enhance retention.
• Service: Digital content and multi-location access improve customer experience. The bike business extends the gym experience to homes.

Basic-Fit’s value-add lies in its economies of scale and convenience-driven clustering strategy, which create a defensible position. The company captures value by offering high-quality equipment at a low price (€20/month vs. €39/month for independents), passing cost savings to consumers. The go-to-market (GTM) strategy emphasizes high-visibility locations (preferred by landlords) and national branding, reinforced by digital content tailored to local markets.

Customers and Suppliers

• Customers: Price-sensitive consumers, primarily under 30, including 20-30% “sleepers” who value the option to work out. Household-shared memberships enhance stickiness, as family members benefit from a single subscription. Churn is low (24-month average stay vs. 12 months for independents), driven by convenience and low price.
• Suppliers: Equipment suppliers (TechnoGym, Matrix, Samsung) and landlords. Basic-Fit’s scale (largest Samsung TV buyer in Europe) reduces supplier power, enabling lower CapEx (€1.2M vs. €1.8M for independents). Landlords favor Basic-Fit due to foot traffic and reliable payments, securing prime locations.

Pricing

Basic-Fit’s €20/month membership is fixed across markets, significantly below the €39/month charged by independent gyms. Pricing is driven by:

• Economies of Scale: Bulk equipment purchases and low staffing (2.5 FTEs vs. 6 for independents) reduce costs, enabling lower prices.
• Value Proposition: High-quality equipment, multi-location access, and digital content justify the price for price-sensitive consumers.
• Mission-Criticality: Low price and household benefits reduce price sensitivity, as the membership is a low-cost household utility.
• Contract Structure: No cancellation fees, with flexible month-to-month terms, enhance retention. The average member stays 24 months, with many returning after seasonal churn (e.g., post-New Year’s).

Bottoms-Up Drivers

Revenue Model & Drivers

Basic-Fit generates revenue through €20/month memberships across 2.2 million members, yielding €800 million annually. The clustering strategy drives volume by increasing gym density and convenience, capturing 50% of new members who are first-time gym joiners. Key drivers include:

• Volume:
• Industry Growth: Europe’s gym penetration (10%) lags the U.S. (20%), with Basic-Fit’s mature markets reaching 30%. The company expands the market by offering affordable access, similar to Planet Fitness’s 86% capture of U.S. membership growth (2010-2019).
• Switching Costs: Low churn (24-month stay) due to convenience, household benefits, and no cancellation fees. Members return post-churn without additional marketing spend.
• Growth Drivers: Organic club openings (1,000 to 2,000 by 2025), new markets (e.g., Germany, Portugal), and digital content enhance retention. The bike business could add incremental volume.
• Price:
• Fixed at €20/month, reflecting a cost-plus model with scale-driven savings. Limited pricing power due to low-cost positioning, but margins are protected by operating leverage.
• Competitors charge €39/month, highlighting Basic-Fit’s value proposition.
• Mix:
• Geographic Mix: Mature markets (Netherlands, Belgium) have higher penetration and margins; newer markets (France, Spain) drive growth.
• Customer Mix: Price-sensitive, younger demographic with 20-30% sleepers. Household model broadens appeal.
• Product Mix: Core membership dominates; bike business could diversify revenue.

Cost Structure & Drivers

The cost structure is fixed-heavy, with low variable costs, driving operating leverage as clubs mature.

• Variable Costs:
• Minimal, as incremental members add ~100% gross margin. Marketing costs are low due to scale and landlord preference.
• Contribution margin is high, as direct COGS (e.g., cleaning, utilities) are small relative to revenue.
• Fixed Costs:
• Rent: €150,000/year (35% of club costs).
• Labor: €130,000/year for 2.5 FTEs (30% of costs). Testing 1-2 FTEs could reduce this by €50,000.
• Opex: €150,000/year for software, cleaning, etc. (35% of costs).
• CapEx: €1.2M upfront per club, amortized over time.
• Cost Analysis:
• % of Revenue: At a mature club (€792,000 revenue = 3,300 members x €20/month x 12), fixed costs (€430,000) are 54%, yielding a 46% gross margin before CapEx. EBITDA margin is 50% (€420,000).
• % of Total Costs: Rent (35%), labor (30%), and opex (35%) are balanced, with labor offering the most flexibility (e.g., smart camera trials).
• Operating Leverage: As membership grows from 1,600 (breakeven) to 3,300 (mature), fixed costs decline as a % of revenue, driving margin expansion.

FCF Drivers

• Net Income: Not specified, but EBITDA margins (50%) suggest strong profitability at mature clubs. Interest and taxes reduce net income during expansion.
• CapEx: €1.2M per club, with 1,000 new clubs planned by 2025, implies €1.2B in growth CapEx. Maintenance CapEx is minimal.
• NWC: Favorable due to upfront membership payments and low inventory. Rent and labor are fixed outflows, but the cash conversion cycle is short.
• FCF: Constrained by CapEx during expansion. Mature clubs generate significant cash (€420,000 EBITDA/club), but group-level FCF is reinvested in growth.

Capital Deployment

• Organic Growth: Prioritizes club openings in existing markets (50% population coverage) and new markets post-2025. Clustering ensures high ROIC (35%).
• M&A: No significant M&A activity noted, as the owned-and-operated model favors organic expansion.
• Innovation: Low-CapEx initiatives (digital content, bike business) enhance the value proposition without diluting ROIC.

Market, Competitive Landscape, Strategy

Market Size and Growth

• Size: Europe’s gym market has 62,000 gyms and 10% penetration (1 in 10 people), compared to 20% in the U.S. Basic-Fit’s markets (Netherlands, Belgium, Luxembourg, France, Spain) have ~50% population coverage, implying a total addressable market (TAM) of ~200 million people (assuming half of 400 million population in these countries).
• Growth: Driven by volume (new gym joiners) rather than price (fixed at €20/month). Basic-Fit’s clustering strategy mirrors Planet Fitness’s U.S. success, capturing 86% of membership growth (2010-2019). Europe’s low penetration suggests a 10-15% volume CAGR as low-cost gyms expand.
• Industry Drivers: Rising health awareness, urbanization, and disposable income growth. Low-cost models expand the TAM by targeting price-sensitive consumers.

Market Structure

• Fragmented: 62,000 gyms, mostly independent or mid-market, with high costs (€39/month) and lower quality. Basic-Fit is twice the size of the next largest competitor (e.g., Pure Gym, Gym Group in the UK).
• Oligopolistic Potential: Basic-Fit’s clustering creates local monopolies (e.g., 80% share in Amsterdam, 70% in Bordeaux). The UK regulator blocked a Pure Gym-Gym Group merger, recognizing the winner-take-all dynamic.
• MES (Minimum Efficient Scale): High due to CapEx (€1.2M/club) and density requirements. Basic-Fit’s scale (1,000 clubs, bulk purchasing) creates barriers to entry, limiting competitors to subscale players (e.g., Gym Group).

Competitive Positioning

Basic-Fit dominates the low-cost segment, competing on price (€20/month vs. €39/month) and convenience (dense clusters, multi-location access). It targets price-sensitive consumers, avoiding premium gyms (e.g., Equinox) and at-home solutions (e.g., Peloton). Indirect competitors include non-fitness options (e.g., Netflix, fast food) for consumer discretionary spend.

Market Share & Relative Growth

• Market Share: 70-80% in mature markets (e.g., Bordeaux, Amsterdam), similar to Planet Fitness’s 90% in U.S. legacy markets. Basic-Fit captures ~50% of new gym joiners in its markets.
• Relative Growth: Outpacing competitors by opening 15x more clubs annually. The company’s 1,000 clubs cover 50% of its markets, with a runway to 2,000 by 2025, implying faster growth than the market (10-15% volume CAGR).

Competitive Forces (Hamilton’s 7 Powers)

1. Economies of Scale: Basic-Fit’s 1,000 clubs and bulk purchasing (e.g., Samsung TVs) reduce CapEx (€1.2M vs. €1.8M) and opex (2.5 FTEs vs. 6). Shared scale lowers prices (€20/month) while maintaining 50% margins.
2. Network Effects: Clustering creates a convenience flywheel: more gyms reduce travel times, attracting more members, enabling more gyms. Multi-location access (25%+ usage) enhances stickiness.
3. Branding: National advertising and landlord preference build brand equity. The household-shared model creates a “household utility” perception.
4. Counter-Positioning: The owned-and-operated model allows innovation (e.g., smart cameras, digital content) that franchisees (e.g., Planet Fitness) resist due to CapEx. Competitors can’t replicate Basic-Fit’s density without massive upfront investment.
5. Cornered Resource: Prime locations secured through landlord preference (Basic-Fit drives foot traffic, pays reliably).
6. Process Power: Standardized operations (2.5 FTEs, high-quality equipment) and technology (smart cameras, digital content) optimize costs and experience.
7. Switching Costs: Low churn (24-month stay) due to convenience, household benefits, and no cancellation fees. Returning members require no reacquisition cost.

Strategic Logic

• Clustering: Builds dense networks to dominate local markets, ring-fencing against competitors. High upfront CapEx is offset by monopolistic margins (50-65%) and market share (70-80%).
• MES: Basic-Fit operates at MES, leveraging scale to lower costs and prices. Competitors struggle to reach MES without significant capital and density.
• Vertical Integration: Controls operations (no franchising) to innovate and pass savings to consumers. The bike business extends the value chain to homes without significant CapEx.
• Geographic Expansion: Focuses on existing markets (50% coverage) until 2025, then new markets (e.g., Germany, Portugal). Proximity to current markets ensures operational efficiency.
• Innovation: Digital content and bike business cater to omnichannel trends, enhancing convenience without diluting core economics.

Risks and Opportunities

Risks

• Consumer Behavior: A shift toward at-home workouts (e.g., post-COVID) or reduced fitness demand (e.g., metaverse, remote work) could impair membership growth. Basic-Fit mitigates this with its digital app and bike business.
• Competition: Subscale players (e.g., Gym Group) could lower prices to gain share, but Basic-Fit’s clustering and scale make this unprofitable. Premium or at-home solutions (e.g., Peloton) target different segments.
• Capital Intensity: High CapEx (€1.2M/club) and fixed costs (€430,000/year) expose Basic-Fit to demand shocks (e.g., COVID). Public market access mitigates financing risks.
• Over-Earning: 50% margins could attract entrants, but clustering and MES create barriers, ensuring winner-take-all dynamics.

Opportunities

• Market Expansion: Doubling to 2,000 clubs by 2025 in existing markets, with new markets (e.g., Germany) post-2025. Europe’s 10% penetration offers significant runway.
• Omnichannel: The bike business and digital content enhance convenience, potentially increasing retention and incremental revenue.
• Innovation: Smart cameras (reducing labor to 1-2 FTEs) could push margins to 65%, freeing capital for price cuts or reinvestment.
• Monopolistic Positioning: Clustering and scale create local monopolies, ensuring high market share and margins.

Valuation

Specific valuation metrics (e.g., EV, multiples) are not provided. However, Basic-Fit’s 35% ROIC and 50% EBITDA margins suggest a premium valuation relative to subscale competitors (e.g., Gym Group, with lower returns). The company’s monopolistic positioning, rapid growth (1,000 to 2,000 clubs by 2025), and low churn (24-month stay) support a high multiple, potentially 15-20x EBITDA for a high-growth, capital-intensive business. Public market access and resilience during COVID indicate investor confidence. For precise valuation, investors should review Basic-Fit’s latest financials and market multiples for comparable firms (e.g., Planet Fitness).

Key Takeaways

1. Winner-Take-All Dynamics: Basic-Fit’s clustering strategy creates local monopolies (70-80% market share), mirroring Planet Fitness’s U.S. success. High MES and CapEx barriers deter competitors, ensuring monopolistic margins (50-65%).
2. Economies of Scale Shared: Bulk purchasing, low staffing (2.5 FTEs), and national advertising reduce costs, enabling €20/month pricing while maintaining 50% margins. Savings are passed to consumers, expanding the TAM.
3. Convenience as a Moat: Dense clusters and multi-location access (25%+ usage) minimize travel times, enhancing stickiness. Household-shared memberships and no cancellation fees drive low churn (24 months vs. 12 for independents).
4. Capital-Intensive Growth: €1.2M CapEx per club and 1,000 new clubs by 2025 constrain FCF but deliver 35% ROIC. Public market access mitigates financing risks.
5. Omnichannel Innovation: Digital content and the bike business cater to post-COVID trends, enhancing convenience without significant CapEx. These initiatives strengthen the value proposition and retention.
6. Market Expansion Runway: Europe’s 10% penetration (vs. 20% in the U.S.) and Basic-Fit’s 50% coverage in current markets offer significant growth potential. New markets (e.g., Germany) extend the runway post-2025.
7. Risks Mitigated by Scale: Consumer behavior shifts and competition are risks, but Basic-Fit’s scale, clustering, and omnichannel strategy create a defensible position.

Basic-Fit’s business model exemplifies how scale, convenience, and innovation can transform a commoditized industry into a monopolistic infrastructure asset, tolling fitness with high margins and defensible market share.