How pay-as-you-go chain The Gym Group built up its muscle and plans to bulk up further

 
Courtney Goldsmith
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In the past few months the company’s shares have fallen as low as 165p, down from the 195p when it floated in 2015 (Source: Getty)

Since opening in 2008, pay-as-you-go chain The Gym Group has grown at a rate of knots.

Led by chief executive John Treharne, the gym operator is the second largest budget gym in the UK with 89 sites and 448,000 members as of December. The group has a plan to open a further 15 to 20 gyms per year to fill the gap in the market for low-cost gyms, a sector that is set to grow 20 per cent by 2020, according to research by Mintel.

Treharne has an unshakeably positive outlook for the years ahead, in which he sees The Gym Group moving into new markets and forming new partnerships.

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But in the past few months the company’s shares have fallen as low as 165p, down from the 195p it floated at in November 2015.

And one analyst has cautioned investors that the group has set its sights too high.

Sahill Shan, analyst at N+1 Singer, downgraded the group to a “sell” rating in February. Despite having done an excellent job in rolling out its disruptive business model, Sahill warned growth expectations are too high and the market could become oversaturated with rivals like Pure Gym planning to expand at a similarly rapid rate.

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“There is early evidence of increased competition and cannibalisation becoming a real feature of the value segment, with rising rentals and relatively smaller gym openings a telling feature. We also believe like-for-like growth in the sector is becoming challenging,” Shan said.

When questioned on this view, Treharne told City A.M.: “Time will tell, but we’ll prove that he’s wrong.

“All the indicators are that this growth will continue, both in terms of membership numbers but also profitability.”

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Treharne says the firm hasn’t shown any signs that its growth isn’t sustainable, adding the company has never had to close a gym and has never had a loss-making gym.

In a note after The Gym Group’s latest trading update in January, analysts at Numis said structural growth opportunities for low-cost gym operators continue to be very promising.

Treharne is confident in the low-cost business model, which relies on technology to trim costs.

Read more: Gym Group's share price falls as losses widen

“A traditional health club can’t do most of the things we do,” Treharne insists. While mid-market operators spend about 25 to 30 per cent of their turnover on staffing, The Gym Group spends less than six per cent, he says.

“The staff are focused on the members. We use technology to do everything else,” he adds.

The no-frills gym doesn’t have any shelves to stock or pools to clean, and it has even done away with reception and other administration duties. Members apply online and are issued a pin number to save on costs.

Read more: The Gym Group reaches 2015 finishing line in good shape

The Gym Group also uses technology to shape each gym to its community. Motion sensors evaluate what equipment is used most often and when so the company can ensure there will always be enough treadmills.

The Gym Group wants to push its relationship with tech even further by collecting data on customer exercise habits like a Fitbit. “That’s the next stage for us. Being able to provide you with the ability to monitor what you do both in the gym and outside the gym.”

Treharne says this will likely be implemented in the next 12 months.

“You’ll be able to pay for your membership out of the savings you make on your healthcare,” he adds.

The Gym Group is also eyeing expansion abroad. The chain’s full year results will be released on 14 March.

For now, the outlook is healthy.

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