Planet Fitness gym seeks to appeal to the 'casual first

Planet Fitness CEO Chris Rondeau joins Yahoo Finance Live to discuss the fitness company's membership growth, post-pandemic usage trends, and competition in the fitness space amid the economic slowdown.

- It was an uphill climb for the fitness space following the COVID-19 pandemic, but the sector is bouncing back. Planet Fitness saw its highest quarterly net member growth since the first quarter of 2020, surpassing 18 million members in its latest report. Planet Fitness CEO Chris Rondeau joins us now live in living color here on set. Chris, great to see you.

CHRIS RONDEAU: Thanks for having me.

- Absolutely. All right. Walk us through some of the catalysts for this quarter. What really jumps out to you as the reason why you're seeing so many members come back?

CHRIS RONDEAU: Yeah, there's no doubt ever since COVID started to pass us, there's definitely a undertone of people paying more attention to their health and wellness. We're seeing people work out more. Cancelations are down. And the younger generations, millennials, and especially Gen Zs, are joining quite a bit faster than we anticipated as that generation rolls in.

There's still about five more years left of them rolling in of age. But they're joining quite a bit faster than we have expected. And today already, we have about 9%. Almost one in 10 of every Gen Z in the country is already a member.

And those other five years aren't even of an age to join yet. Believe that. And millennials are already at 9% as well. So it's just a great trajectory we're seeing of them joining. And then you may have heard, we just launched high school summer pass, which is where we open our doors to teenagers in high school to work out for free all summer long, no strings attached.

- And what's interesting about these numbers is not only are people joining, but they're coming a lot, right? They're frequency of visits is high. How long-- when you see in the past, people come, and there's usually a burst of energy when people join, right? They want to work out a lot. How does that-- what's the sort of attrition or stick with it rate usually of people when they do that?

CHRIS RONDEAU: Yeah, so how we look at it-- and as we talk about the model a lot, we really cater to casual first-timers. So we're really not about the person getting fitter. We try to get people off the couch and introduce them to fitness. And at $10 a month, anybody can attain a membership.

So we look at what happens after a year. If we can get you to stay a year, we feel like we've turned you into a lifer, right? [INAUDIBLE] about 2 and 1/2 to 3% a month attrition. But right now, we're seeing better attrition today than we did a year ago. And even with the inflationary costs of [? wallet's ?] not going as far, we're actually seeing that better.

- Wait. And how many people stick around for the first year? You said it's 2% to 3% after that year.

CHRIS RONDEAU: Yeah, after the first year, we don't even watch it. We don't even track it. We [INAUDIBLE] you and let people off the wagon.

But what we like is easy come, easy go. And 30% of our joints are rejoins. They come back. And that was 20% pre-COVID.

So not only that. [? It's ?] coming back faster than they did in the past. So they're not choosing bricks and mortar. They're not choosing-- not choosing home fitness. They're not choosing working outside. They're coming back faster.

- Yeah. I mean, it's well documented in our discussions in the past. I have been a black card member over at Planet Fitness. And the problem for me is that it is so easy for one to cancel it.

However, it's also so hard for me personally to cancel it because I use it, actually, more when I travel than I do around the corner. So how, in terms of just making sure that people are getting the full benefits of whatever tier they decide to sign up for and even upselling? Say, somebody comes in at the low tier membership, but they decide, you know what? Later on, I want to get up to a black tier membership, even, or the highest tiers. What in that relationship do you typically upsell them on, and where are you investing further in those experiences to get more conversions towards that top tier?

CHRIS RONDEAU: Yeah, that's a great question because most people see us, know us as our $10 membership. That's what we advertise the most. And believe it or not, over 60% of our members walk in end up taking the black card membership at point of sale.

Once they understand the value of the black card membership-- and to your point, reciprocity. Use any club in the world, all 2,400 of them, no additional charge. And that's the most used. One in five workouts is not at your home club. You're visiting a different club.

You have guest privileges. You can literally bring a free guest to work out with you every day. Different guests, same guest, no extra-- no additional charge.

Then you have our black card spa areas in the clubs, access to tanning massage beds, and massage chairs. We're now putting meditation pods on these areas. And that's free use. If you're a black card member, you can use those amenities.

And the new one is our perks program. So in our app is we do partnerships with Shell gasoline, Crocs, Blue Apron, Sam's Club. You get on the list.

So if you're member at Planet, you get discounts at these other partners. And if you're a black card member, some of those get bigger discounts. So we continue to add value. And that's why it drives that black card acquisition.

- Pre-- pre-pandemic, it really felt like there was an explosion in boutique fitness in things like Rumble, in things like Barry's, certainly, that are very popular in urban areas like here in New York City. How much of that is competition for you guys? I mean, I know you said you sort of are targeting first-timers, people who don't work out all the time. So do you do you see that there's a lot of overlap there?

CHRIS RONDEAU: Yeah, I don't see them as competition at all. They're really-- they're are really-- they're great exercise, but they're hard. First time who's never done it or maybe hasn't done it for 20 years in college, you're not doing that your first visit in a workout. And it is pricey compared to the $10 membership.

So I don't look them as competition. I look at them as kind of fighting over the same customer in their own world. People get bored with doing a CrossFit type class. They might do a cycle class.

They might go to a Rumble boxing. They might go to a Pilates and bounce around. I do think I benefit in the fact that most of those type boutiques need reservation to workout. You can't just walk in and workout that day. You need to make an appointment.

Now, if you can't get in, that means you don't work out that day. So I think I benefit from people who do memberships. The plan is your secondary membership. So if I can't get into a class today, you can go to Planet, and get on a treadmill, and do some weights. And I'll take my Orange Theory class tomorrow.

You know, so I think I benefit in the fact that we don't need reservations. You can come in 24/7 in most of our clubs. And you have 20,000 square feet of all the equipment ever want, you know?

- Even when there was such just wave of people who were looking at connected fitness devices and saying, I need to be doing more in-home fitness, at least, either prompted by the pandemic or because they had made that purchase during the pandemic and they had to continue to spend into or make sense of that purchase. You fast forward to now, 2023, where would you say that we were at in the cycle of in-home fitness as it correlates to where you're seeing people move back into that in-person fitness experience at Planet Fitness? Because you had also invested heavily in that digital touchpoint for a lot of end users or gym goers, even, if you will.

CHRIS RONDEAU: Sure. I look at any exposure to fitness is great for everyone, right? And I think I still-- I am still a beneficiary of that. And I think people realize, whether they give it a shot at home or they had to give it a shot at home because of COVID [INAUDIBLE] bricks and mortar opened.

And let's face it. At-home fitness has been around forever. It's been around since Richard Simmons in the '50s and '60s, you know? But a real true bricks and mortar experience, if it's affordable, is going to fire away anything you have at your house. And that's if you have the room in your house to do it or you have the money to spend on apparatus.

But I think-- I think, also, what digital fitness is good is it's good education, right? You don't need to hire a trainer to learn to workout and pay $100 a session. You can use your digital fitness in our clubs and use all the equipment and don't have to hire a trainer.

And we have a lot of content in our app. And people use it in our clubs to learn how to use the equipment. But they also use other people's apps, which is fine if that's the experience that they like and they use our equipment.

So I look at it as good exposure. It's good education. And it allows them to get a better experience at our clubs, which might lead to more workouts, like we're seeing.

- Do you guys still do the free pizza?

CHRIS RONDEAU: We haven't restarted [INAUDIBLE].

[INTERPOSING VOICES]

CHRIS RONDEAU: I know. We have Tootsie Rolls. We have those still. But we haven't done that since COVID. But we keep talking the debate about bringing it back.

- A Tootsie Roll is not a pizza. Sorry. It's true.

- It'll give you a little boost. I don't know. Your mentioning Richard Simmons has me hearkening back to my mom working out to his wake up and breathe.

[INTERPOSING VOICES]

- Very fond memories of that period. Chris Rondeau, great to see you, as always. [INAUDIBLE].