Crunch Fitness CEO 'Getting Ready for Really Explosive Growth' After Acquisition

July 1, 2019

By Spencer Feingold

Crunch Fitness, the “original no judgment” gym, has been acquired by the investment firm TPG Growth, the companies announced on Monday.

TPG Growth’s purchase includes Crunch’s company-owned facilities as well as its 300-plus franchised gyms around the world.

An acquisition from an investment firm “validates that what you’re doing is good work,” Jim Rowley, the CEO of Crunch Fitness, told Cheddar, hours after the announcement was made. “What we have established with our franchise company and our own company is the point of inflection where we’re getting ready for really explosive growth.”

The financial terms of the acquisition were not disclosed.

Since its founding exactly 30 years ago in New York City, Crunch has grown to include 1.3 million members with gyms in 29 U.S. states and Puerto Rico, as well as, across Australia, Canada, and Spain. The gym began franchising its brand in 2010, a year after Rowley and the company’s chairman Mark Mastrov took over operations. Rowley and Mastrov were previously executives at 24 Hour Fitness.

“With TPG, we’ve found a partner who understands our vision and industry. They have a long history of working with companies to build authentic brands, and we’re excited to welcome them to the Crunch team,” Mastrov said in a statement.

With the injection of capital, the company said it expects to double in size in the next five years and take advantage of the growing interest in the health and fitness industry, which was worth over $36 billion in 2019 and had an annual growth rate of 3.5 percent in the last five years, according to the market research group IBISWorld.

“Consumers across every age group are prioritizing health and wellness more than ever before,” Chris Kelly, an investment head at TPG Growth, said in a statement. “Crunch is capturing that consumer interest by providing a unique, high-quality and affordable gym experience.”

FULL TRANSCRIPT

FEMALE_1: Jim Rowley is the CEO at Crunch Fitness.

FEMALE_1: Great to have you, and congratulations on this deal.

Jim Rowley: Thank you.

FEMALE_1: What does this mean for the business overall,

FEMALE_1: the chain, the customers?

Jim Rowley: I, I think the big thing it

Jim Rowley: means is that we've got a tier,

Jim Rowley: one private equity group that's,

Jim Rowley: that's backing us now and we're looking for

Jim Rowley: explosive growth over the next three to five years.

Jim Rowley: Crunch will double in size in the next five years.

FEMALE_2: Will this impact your business model though,

FEMALE_2: overall the low price model,

FEMALE_2: lots of franchises across the country. Any change there?

Jim Rowley: No. They really bought it to support

Jim Rowley: the business model to be honest with you.

Jim Rowley: So we've got 88 franchisees that make up

Jim Rowley: our over 300 stores that are open now,

Jim Rowley: and, and we're just going to continue to grow with

Jim Rowley: that franchise group and bring on new ones of course.

Jim Rowley: Uh, but it's really

Jim Rowley: supporting the model that we, that we brought forward.

FEMALE_1: And to those, you know, who may not be as familiar with

FEMALE_1: TPG and also with

FEMALE_1: the infusion of a capital sometimes the private equity,

FEMALE_1: explain, uh, to those folks

FEMALE_1: why it's important to

FEMALE_1: bring in a partner like this at this time.

Jim Rowley: Well, it's important because it

Jim Rowley: validates that what you're doing is good work,

Jim Rowley: and I think that what we've established

Jim Rowley: with our franchise company and our own company is,

Jim Rowley: is the point of inflection where we're getting

Jim Rowley: ready for a really explosive growth.

Jim Rowley: So when you have a group like this with

Jim Rowley: Jonas- Jonathan caused with

Jim Rowley: the CIO actually doing the deal with Chris Kelly,

Jim Rowley: it really is kind of that stamp of

Jim Rowley: approval that your company's made it or,

Jim Rowley: or are about to be on to something big, yeah.

FEMALE_2: Where does that growth come from?

FEMALE_2: Is it doubling down on

FEMALE_2: the existing franchises and getting

FEMALE_2: more members or finding new pockets of

FEMALE_2: the country where gyms don't exist?

Jim Rowley: Yeah.

FEMALE_2: Where does that growth come from?

Jim Rowley: That's a great question. So we

Jim Rowley: have two divisions of our company.

Jim Rowley: Our franchise division will continue to grow

Jim Rowley: that both domestically and internationally.

Jim Rowley: And we have our own division, our

Jim Rowley: signature clubs which are in urban markets,

Jim Rowley: New York, Miami, Los Angeles, and San Francisco.

Jim Rowley: Both sides will grow

Jim Rowley: over the course of the next five years.

FEMALE_1: Now you used to run 24 Hour Fitness,

FEMALE_1: what made you decide to move over to Crunch?

Jim Rowley: Wow, that's a great question.

Jim Rowley: Um, 24 Hour Fitness was sold in 2005,

Jim Rowley: and I stayed on as the president till 2008 and,

Jim Rowley: um, just decided it was time to go do something else.

Jim Rowley: So the founder of that company

Jim Rowley: Mark Mastrov and I formed a new company,

Jim Rowley: and part of that new group was,

Jim Rowley: was the purchase of Crunch as well.

FEMALE_2: So you guys are available on ClassPass.

FEMALE_2: Um, how does the proliferation of these kinds

FEMALE_2: of subscription services impact your business?

FEMALE_2: Is there any fear of cannibalization

FEMALE_2: because people can access your gym

FEMALE_2: without even being members.

Jim Rowley: Yeah. It's actually been a great complement for our,

Jim Rowley: for our company because we have people

Jim Rowley: that maybe are experiencing

Jim Rowley: Crunch for the first time, maybe trying us out.

Jim Rowley: Our conversion rate on

Jim Rowley: ClassPass to Crunch member is incredibly high.

Jim Rowley: Yeah.

FEMALE_1: That's fantastic.

FEMALE_2: Can you share what that conversion rate

FEMALE_2: is or just a sense?

Jim Rowley: That's private information.

Jim Rowley: [LAUGHTER] I'd hate to,

Jim Rowley: uh, share something without their approval.

FEMALE_2: Is- it just surprises me because I,

FEMALE_2: I full disclosure, I'm a member of ClassPass,

FEMALE_2: and I don't know anyone anecdotally who

FEMALE_2: was ever converted to becoming a member of a gym-

Jim Rowley: Yeah.

FEMALE_2: -if they're a ClassPass member.

Jim Rowley: Yeah.

FEMALE_2: So how did- why do you think people convert for Crunch?

Jim Rowley: I think maybe they have,

Jim Rowley: uh, an opinion of Crunch that,

Jim Rowley: uh, is changed through

Jim Rowley: the work out, through going to ClassPass,

Jim Rowley: and they decide that it is fun,

Jim Rowley: it is part of their community,

Jim Rowley: it's something that they want to do more

Jim Rowley: often and the, the value is there, right?

Jim Rowley: So if you buy a Crunch membership,

Jim Rowley: you can go every day and it's much cheaper. Yeah.

FEMALE_1: Wha- what is the, the value

FEMALE_1: graph right now because you've got,

FEMALE_1: you know, Equinox which charges $250 a month.

Jim Rowley: Right.

FEMALE_1: Um, they just raised it on me.

Jim Rowley: Right.

FEMALE_1: I just got the notice. [LAUGHTER].

Jim Rowley: Congratulations.

FEMALE_1: Hello. Thank you. [LAUGHTER] And so, you know-

Jim Rowley: We'd be, we'd be happy to have you as a Crunch member.

Jim Rowley: [OVERLAPPING]

FEMALE_1: I mean, I want you to pitch to me because, you know,

FEMALE_1: I have to weigh in my mind what does

FEMALE_1: $250 look like a month-

Jim Rowley: Right.

FEMALE_1: -versus e- everybody else.

Jim Rowley: Right. So how'd you like to save $150 a month right?

FEMALE_1: Well so what is the di- what is the difference?

FEMALE_1: What do I get. [OVERLAPPING].

Jim Rowley: So we said- so 24 Hour Fitness kind

Jim Rowley: of sits in that midmarket, right?

Jim Rowley: And then Crunch sits above that,

Jim Rowley: and then Equinox sits above that and at, at Crunch,

Jim Rowley: you can get broad classes,

Jim Rowley: you can get personal training,

Jim Rowley: you can get hit zone classes, you can get, uh, um,

Jim Rowley: a traditional workout, but our group fitness

Jim Rowley: is really what kind of anchors our company.

FEMALE_1: Do you have eucalyptus towels? [LAUGHTER]

Jim Rowley: We don't.

Jim Rowley: But for $150 a month,

Jim Rowley: you know how many you could buy and

Jim Rowley: have been waiting in your apartment?

FEMALE_2: [LAUGHTER] That is a good point.

Jim Rowley: Yeah.

FEMALE_2: The group offering is tha- to your point,

FEMALE_2: um, a really appealing part of Crunch.

FEMALE_2: How do you think about what group classes,

FEMALE_2: what fitness trends you

FEMALE_2: offer for those group classes. You mentioned hit.

Jim Rowley: Yeah.

FEMALE_2: You have pilates,

FEMALE_2: zumba even, how do you keep up with those?

Jim Rowley: Yeah. So we've got a gentleman that runs our,

Jim Rowley: our group fitness division called Mark Santa Maria,

Jim Rowley: and Mark is really kind of on the tip of

Jim Rowley: the spear with everything that's happening in LA,

Jim Rowley: what's happening in New York,

Jim Rowley: what's happening with equipment companies.

Jim Rowley: He travels to Europe,

Jim Rowley: and he creates an incubator where he tries new things.

Jim Rowley: And our, our select instructors come in,

Jim Rowley: we'll give them a piece of equipment,

Jim Rowley: and they'll cultivate a new class out of it.

FEMALE_2: What's popular now class-wise?

Jim Rowley: Right now we're relaunching a new class called rings.

Jim Rowley: So it's done with like gymnastic rings but not to where

Jim Rowley: you have to support your entire body weight

Jim Rowley: [OVERLAPPING] which is impossible from us.

Jim Rowley: But my favorite class is a class called deep.

Jim Rowley: It's like deep tissue massage,

Jim Rowley: self mile fascia release and

Jim Rowley: yoga kind of all blended together.

FEMALE_1: That sounds fantastic.

Jim Rowley: Yeah.

FEMALE_1: Well, what is your favorite workout

FEMALE_1: in the gym if you could just do one?

Jim Rowley: Bench press. [LAUGHTER] I'm a weight lifter.

Jim Rowley: Yeah. So if I could do one exercise-

FEMALE_1: What is your least favorite?

Jim Rowley: Squats. Yeah.

FEMALE_1: A- and how do you find time being

FEMALE_1: the CEO to work out? What's your routine like?

Jim Rowley: Well, fortunately, my office

Jim Rowley: is right across the street from the Crunch gym.

Jim Rowley: So I can work out in the morning,

Jim Rowley: afternoon, or evening whenever my schedule frees up,

Jim Rowley: and I travel to our clubs frequently,

Jim Rowley: and part of my travel is getting a workout in.

FEMALE_2: To that point really quickly,

FEMALE_2: people are trying to find time to work out.

FEMALE_2: [OVERLAPPING] That solution for some people is having

FEMALE_2: an on-demand in-home fitness, Peloton, mirror etc.

FEMALE_2: How do you think about combating

FEMALE_2: those trends really [OVERLAPPING]

FEMALE_2: where people want to work

FEMALE_2: out at home because

FEMALE_2: they don't have time to go to the gym? [OVERLAPPING]

Jim Rowley: Yeah. So two things, one,

Jim Rowley: uh we believe Peloton and mirror are really,

Jim Rowley: uh, a lot of the people that have

Jim Rowley: those are also members of the clubs.

Jim Rowley: So we've done a lot of research on this.

Jim Rowley: It's not really something we're competing with.

Jim Rowley: It- It's something that we collaborate with,

Jim Rowley: and the other thing is we have

Jim Rowley: a product called Crunch Live.

Jim Rowley: It's a digital, uh, workout.

Jim Rowley: So our members can take Crunch anywhere they go.