FDD Talk: Snap Fitness Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, youll learn the following:

• Section I Background information on the Snap Fitness franchise opportunity, including relevant news updates

• Section II Estimated initial investment for a Snap Fitness franchise, based on Item 7 of the companys 2019 FDD

• Section III Initial franchise fee, royalty fee, marketing fee, and other fees for a Snap Fitness franchise, based on Items 5 and 6 of the companys 2019 FDD

• Section IV Number of franchised and company-owned Snap Fitness outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the companys 2019 FDD

• Section V Presentation and analysis of Snap Fitness financial performance representations, based on Item 19 of the companys 2019 FDD, including information on the:

• projected annual operating revenue (annual membership operating revenue, ancillary revenue, personal training revenue), operating expenses (occupancy, personal training commissions, continuing fee, web hosting fee, national marketing fee, payment processing fee/access/ongoing membership fees, MyZone, utilities/TV/phone/Internet, ancillary revenue COGS, insurance, office supplies, repairs and maintenance, miscellaneous, advertising and marketing), gross annual operating cash flow (before owner salary, wages, debt repayment, and taxes), wages and payroll expenses, and membership sales commissions for Modernized Clubs (i.e. franchised Snap Fitness Clubs that have been in operation for a period of at least 12 months and were either constructed or modernized consistent with Snap Fitness current standards and requirements no later than December, 2018), based on 400 members, 671 members, and 935 members

• average number of members and memberships for the top 30%, middle 40%, bottom 30%, top 70%, and all Modernized Clubs and all Stripe Model Clubs (i.e. franchised Snap Fitness Clubs that were not yet modernized consistent with Snap Fitness current standards and requirements), separately stated

• average, median, high, and low personal training revenue for Modernized Clubs and Stripe Model Clubs, separately stated

Section I Background Information

18 Things You Need to Know About the Snap Fitness Franchise

Names New CEO

1. Back at the beginning of 2019, Peter Taunton, founder and longtime CEO of Snap Fitness and parent company Lift Brands, announced that he was stepping down from these roles. At the time, a temporary CEO, Tom Welter Lift Brands chief operating officer stepped in to run both companies while the search for a new CEO took place.

2. Near the end of September, Snap Fitness announced that franchise business veteran Weldon Spangler was named the new CEO of Lift Brands. Spangler brings a wealth of experience in franchising, operations, international business, and strategic expansion.

3. Spangler has an extensive franchise background. Most recently, he served as president and CEO of Papa Murphys, a Nasdaq-listed franchise company with 1,400 locations and system sales of $800 million. At Papa Murphys, Spangler drove a system-wide turnaround by rebuilding relationships with franchise owners and partners and improving unit economics.

4. Previously, Spangler spent seven years with Dunkin Brands Group in leadership roles that included as senior vice president/general manager of Baskin Robbins working with 1,200 franchisees across over 2,500 locations, and as head of operations for Dunkin Donuts U.S. business with 1,200 franchisees and more than 8,000 locations.

5. Spangler also went through extensive cultural and language training for his earlier role as vice president of Starbucks Japan where he grew the brand to 600 stores, making it Starbucks largest international market at that time.

6. According to Spangler, Whether youre working in quick service restaurant franchising or in fitness franchising, building strong alignment between the franchisor and local owners and their teams is the key to generating long-term success and value creation. Im excited to build relationships with the 1,300+ franchisees and business partners at Lift Brands and chart a course for accelerated growth globally.

7. Sam Katz, managing partner of TZP Group, Lift Brands lead investor, added, We are thrilled to welcome Weldon to the Lift Brands management team. Weldon brings more than 30 years of global business excellence with a terrific track record of execution working closely with franchisees and partners to drive growth, consumer engagement, and innovation.

Partners with Kettlebell Kitchen to Promote Sustainable Wellness

8. In April 2019, Snap Fitness announced that it had partnered with Kettlebell Kitchen to help new members take on healthy habits that last a lifetime. For Snap Fitness, working with a trusted and growing company like Kettlebell Kitchen just feels like a natural pairing.

9. According to Tom Welter, chief operating officer of Snap Fitness, Were partnering with Kettlebell Kitchen to bring in nutritional expertise that addresses the busy consumer on the go who doesnt have time or interest in cooking. They offer a great product with national reach and healthy variations to suit every lifestyle need.

10. What makes Kettlebell Kitchen unique is that the brand provides high-quality, nutritious meals delivered right to customers doors. Without having to cook, customers save time on food preparation and cleanup, while still getting all the nutrients they need to achieve their fitness goals. Through Kettlebell Kitchens innovative approach to meal preparation, the brand is quickly changing the way people look at eating healthy.

11. Joe Lopez-Gallego, CEO of Kettlebell Kitchen, said, Our mission is to change lives through food. Thats why we offer meal plans tailored to our customers goals, whether that be losing weight, gaining muscle, or committing to a paleo diet.

12. Providing targeted nutrition to achieve specific fitness goals is an effective and forward-thinking approach to food and fitness. Made with the health-conscious and active consumer in mind, Kettlebell provides delicious meals without any unnecessary additives. Lopez-Gallego added, We design our meals around a variety of whole, nutrient-dense ingredients. Our food is free of dairy, soy, and artificial sugars, and all of the ingredients we use are naturally free of gluten.

13. To promote the new partnership, Snap Fitness had a special offer for new members. During the month of April, any new members signing up with Snap Fitness and ordering three weeks of Kettlebell Kitchen meals, received $100 off a fourth week of meals.

14. Welter said, We believe that in order to achieve long-term results, its important that our members are provided with not just physical fitness resources and support, but also address their nutrition and promote mindfulness. Addressing these three pillars of health, our members will not only see great, long-term results, but theyll stay with Snap Fitness because of our dedication to their well-being.

Company History

15. Snap Fitness was founded in 2003 by Peter Taunton, who had previously run several Americas Fitness Centers around Minnesota before starting his own company. A year later, Taunton began franchising the Snap Fitness concept and growth has been aggressive from the start. By 2009, there were numerous Snap Fitness gyms around the United States and the first international locations opened in Australia and New Zealand.

16. Over the next few years, Snap Fitness continued its domestic and international expansion. In 2014, Snap Fitness founder Peter Taunton established Lift Brands to serve as Snap Fitness parent company and to acquire other fitness brands. Currently, Snap Fitness sister brands include 9Round, YogaFit Studios, Insurgence, Steele Fitness, Kosama, and TRUMAV.

17. Today, Snap Fitness has centers in 48 U.S. states, plus Australia, Belgium, Canada, Egypt, Georgia, Hong Kong, India, Indonesia, Ireland, Mexico, The Netherlands, New Zealand, Philippines, Spain, Taiwan, Turkey, United Arab Emirates, and the United Kingdom.

Entrepreneurs Franchise 500

18. Snap Fitness ranked No. 327 on Entrepreneurs 2019 Franchise 500 list.

Section II Estimated Costs

• Please click here for detailed estimates of Snap Fitness franchise costs, based on Item 7 of the companys 2019 FDD.

Section III Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Snap Fitness initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the companys 2019 FDD.

Section IV Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year: 930
• Outlets at the End of the Year: 933
• Net Change: +3

2017

• Outlets at the Start of the Year: 933
• Outlets at the End of the Year: 899
• Net Change: -34

2018

• Outlets at the Start of the Year: 898
• Outlets at the End of the Year: 861
• Net Change: -37

Company-Owned

2016

• Outlets at the Start of the Year: 103
• Outlets at the End of the Year: 61
• Net Change: -42

2017

• Outlets at the Start of the Year: 61
• Outlets at the End of the Year: 34
• Net Change: -27

2018

• Outlets at the Start of the Year: 35
• Outlets at the End of the Year: 19
• Net Change: -16

Section V Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Part 1 Projected Annual Cash Flows

• The following chart is a projected annual cash flow statement for a franchised Snap Fitness Club that has been in operation for a period of at least 12 months and has been constructed or modernized consistent with Snap Fitness current standards and requirements.

• The projection below assumes that at the end of the first year you have a fixed number of members and that you remain at the level for the entire year, adding as many new members as the number of members that leave.

• The chart below includes three projections based on different numbers of members. One projection is based on club with 400 members, one projection is based on a club with 617 members, and the final projection is based on a club with 935 members.

• Snap Fitness based the revenue and certain expense projections on the experience of its 350 franchised Snap Fitness Clubs that have been in operation for a period of at least 12 months and were either constructed or modernized consistent with Snap Fitness current standards and requirements no later than December, 2018 (the Modernized Clubs).

• The revenue and expense information for the Modernized Clubs is as reported to Snap Fitness by its franchisees through its designated billing provider. Snap Fitness has not independently audited or verified this information.

• Because franchisees are not required to report all expense information to Snap Fitness, it relied on the historical experience of its corporate-owned Snap Fitness clubs in connection with certain expense estimates.

• In preparing these projections, Snap Fitness assumed that general market conditions will remain stable.

• As described further below, during the time period of January 1, 2018 to December 31, 2018 (the Measurement Period) the average number of members for the 350 Modernized Clubs was 617 members (474 memberships).

• The first projection in the table below represents a club with 400 members, which is below the average number of members for Snap Fitness existing Modernized Clubs. The second projection in the table below represents a club operating with 617 members, which is the average number of members for Snap Fitness existing Modernized Clubs. The third projection in the table below represents a club with 935 members which reflects the average number of members for Snap Fitness top 30% of Modernized Clubs.

400 Members (Approximately 308 Memberships)

Annual Operating Revenue

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