After 14 years building a multi-brand restaurant empire, Trey Jasenski is branching out.
He owns nearly two dozen Subway locations as well as multiple 16 Handles yogurt stores and Auntie Anne’s pretzel shops throughout the Albany, New York area. But a few years ago, he started to invest in gyms.
The reason was simple he said: math.
“In New York, the minimum wage is going up to $15 an hour, and that’s a bit of a shot for us,” he said. “In general, it’s not nice having to worry so much about your margins.”
Jasenski opened his first Retro Fitness location in 2016, his second in 2019 and is looking to expand further. Startup costs are higher than his small quick service restaurant outlets, he says, but once the equipment is purchased, variable expenses are much lower.
“At my restaurants, I have to staff up for the lunch rush so we can sell as much as possible in a narrow timeframe. I have to hire and train and pay all those extra workers, and then I have to hope that the weather’s not bad enough to keep my customers away,” he says. “There are a lot of ways for your margins to get pinched.”
By contrast, membership dues mean the gym provides predictable income. Without as many variable costs, as the membership rolls grow gyms can produce much higher EBITDA (earnings before interest, tax, depreciation and amortization) than the 15% typical for restaurant franchises.
A high-growth industry
The gym industry has enjoyed consistent growth — even during recessions. From 2008 to 2012, during the worst of the Great Recession, gym membership in the U.S. increased from 45.6 million to 52.2 million, according to the International Health, Racquet and Sportsclub Association (IHRSA). Revenue reached $32.3 billion in 2018, according to the IHRSA, and is expected to grow another 20% over the next five years.
Demographic trends also favor continued growth. According to the Physical Activity Council, nearly 64% of millennials and 71% of Gen Zers are regularly involved in high calorie-burning activities. That compares to 41.6% of baby boomers.
Less worry, more time
Rhandi LoPiccolo spent 25 years in the restaurant industry. At one point, she owned a full-service restaurant plus four bagel shops, but she grew tired of working 70 to 80 hours a week and wanted to spend more time with her teenagers. She sold her businesses and took a job at a bank while waiting for her next opportunity. A bank customer, David Vargas, evolved into a new business partner. As they explored opportunities, they discovered Retro Fitness.
“We started looking at numbers from a few different Retros in the area, and it seemed almost too good to be true,” she said. “We were looking at the P&Ls and member counts, and I thought, ‘Wow, that is a good amount of money to make.’ And these were almost absentee ownership models.”
She loves that she no longer has to worry about food waste, mistakes on orders, food being sent back, refrigeration going out, whether snow will keep customers away, and whether the tomatoes she bought last week for $12 are going to cost $75 this week because of a swing in commodity prices.
LoPiccolo says the fundamentals of the two industries are the same: keeping everything clean, providing friendly greetings and caring about the customer experience. Hiring great people is still essential — but it’s easier to hire and keep employees in an environment where customers are happy, and where you can see the positive impact you are having on customers’ lives.
“I love it,” she says. “When I owned my restaurants and people found out what I did, they were mildly curious, but when they find out you own a gym, they perk up. It’s something that gets people excited.”
GET THE RETRO FITNESS BUSINESS MODEL EBOOK
The eBook includes details about financial performance, an analysis of the fitness industry and its competitive landscape, and how Retro Fitness is positioning franchisees for growth. One of our team members will be in touch to answer your questions.