4. Headlines Vision: “The Gym for All” Dominate the mass-market health club sector Strategy: Create an holistic all-inclusive offer (the VA model) Grow rapidly through targeted acquisitions and aggressive marketing Quickly achieve economies of scale High quality customer experience at mid-market price. Headline: 309,000 members and 71 clubs in UK 900,000 members and 170 clubs globally 4,500 employees 1999 1st club opened, Preston UK 2001, South Africa expansion (acquisition) 2002, Branson sells 55% stake to Bridgepoint Capital 2004, Italy expansion (acquisition) 2005, Branson regains control of VA 2005 Esporta acquired 2006, VA acquire Holmes Place 2008, VA Dubai launched 2009, VA Australia launched
5. Ownership Virgin Group (Majority 75%) Private Equity (20%) Management (approx. 5%) UK parent – VA Holding Co. Ltd Subsidiaries
11. Business Model - Summary Economies of scale achieved and improving Each new member adds directly to the bottom line (- small variable cost) 72% utilisation leaves 38% growth opportunity Projections suggest VA reaching utilisation in 5 yrs
15. Market Values: Private: £2.6 bn (60%); Public: £1.4 bn (40%)Value / Revenues (£m) and Growth (%) of UK private and public health and fitness facilities Source: Mintel 2009 and own calculations
18. Survey: What do gym members want? Survey results: 203 responses, 57 are current or past Virgin Active members
19. Industry Analysis High: Low barriers to entry; government initiatives; mcFit Result: Need for continuous innovation if VA wants to continue to succeed Threat of New Entrants Bargaining Power of Suppliers Rivalry Bargaining Power of Customers High:growth industry; aggressive poaching of customers Moderate: no real customer loyalty; location trumps price Moderate: exclusivity contracts, economies of scale Threat of Substitutes High: Entire leisure industry (recession)
20. 4. STRATEGIC ISSUES
21. Strategy Critique Entrepreneurial Effective managerial style Founded in strong values Excellent returns to equity Strong growth projections Out-performing sector Negative Realised strategy? Succession planning Micro management ELEPHANTS IN THE ROOM: Retention? Empty box during down time? Profit Maximisation? Positive
22. Relationship with Virgin Group Rebellious teenager metaphor Subsidiaries and spin-offs, majority-held by Virgin Group Virgin Management, comprising company execs, private equity Richard Branson, Founder, Virgin Group
23. The Virgin Brand 53% of survey respondents say “brand” is not important when choosing a gym But ... ‘Virgin’ brand is the key reason VA out-performs the market Psychological reasons for downplaying brand impact When all else is equal (location/cost/offering) brand does make a difference
24. Strategy - Summary Successful, but not sustainable in the long term VA model is currently unique but easily copied Only unique resource is the brand New ideas are needed if VA is to continue giving the expected returns to equity investors…
34. Relocation package (37% of survey respondents leave gyms because they move) Heart
35. Further Recommendations Internal Leverage IT: CRM Tesco clubcard Ipod/Nike run Facebook type application R&D department – JV with equipment companies – costs Training college Revenue Streams Locate revenue stream that does not require obtaining more members Added services Spin off advertising agency Government spending/investment – PFI? Online community Virgin Active Tour – mobile gym?
42. Mutually beneficial arrangement to ensure “buy in” from companyConceived strategic approach to net VA Met with company and successfully sold offering
43. Research Internal Environment External Environment Interviews: Peter Brennan, Managing Director Tim Davis, Head of Marketing Scott Hood, Head of Product Belinda Hogan, GM Islington Club Site Visits: VA Croydon, VA Islington, VA Clapham, VA Moorgate, VA Hendon Financial Analysis: 2007/8 Annual Reports, VA UK, VA International Consumer Online Survey: 203 responses (90% gym members; 34% VA members; 60% male; 57% 26-35yo) Interviews: David Stalk, COO of UK Fitness Industry Association Research: “Be Active, Be Healthy” Policy, UK Dept of Health 2009 “Market Re-forecasts - Leisure Pursuits - UK ,” Mintel March 2009 “Leisure Centres and Swimming Pools – UK,” Mintel April 2008 “Health and Fitness Clubs – UK,” Mintel May 2007 Competitors: 2007/8 Annual Reports, Fitness First, LA Fitness Site visits to Fitness First, Cannons/Nuffield Health, Green’s, Esporta, Dulwich Leisure Centre, LA Fitness
