Sport Life Group

To be in a network

July 17, 2017
Delovaya Stolitsa

The network sports clubs become the leaders of the fitness industry in modern Ukraine. Why do investors prefer networks offering a wide range of services at affordable prices? What is investment attractiveness of such investments and risks?

A little of history

Fitness as a phenomenon came to Ukraine as early as in the wild 1990s of the last century. The service was unusual at that time, but became very popular at once. The first clubs were opened on the basis of infrastructure inherited from the Soviet sports clubs and schools. There were often used unsuitable premises, including basements, warehouses and so on.

There were two types of the pioneer fitness clubs: top-class establishments for wealthy clients offering a full range of fitness services, as well as the related services, and primitive gyms as a budget choice.

Both had not bad profitability. According to Oleksandr Melamud’s estimates, owner of the capital fitness club “Aquarium” which was opened 15 years ago, it was easy to do this business in the early 2000s: there was almost no competition.

A whole army of operators entered the market within five-seven years since the early 2000s — both single and network players. A business class niche separated and rapidly grew, it was offered by the network clubs which were ready to provide a client with a full range of services at affordable price.

The market was dynamically growing — by 15-20% a year. The prices in premium and business classes followed a similar pattern. While fitness of economy class stopped and even got cheaper. There were more than 200 fitness clubs in Ukraine by 2007. The crisis of 2008 stopped the market development, but not for long. By 2012 its capacity made $675 million, and in 2013 — reached almost $690 million. Only in Kyiv there were about 300 clubs of different level and class — both network and single.

The war couldn’t be ignored

The analysts give several reasons for a sharp market decline seen today: the occupation of Crimea and considerable part of eastern regions, sudden devaluation of national currency (a market volume in hryvnia dropped only by 20%), and — transformation of the market itself which is going through a period of “growing-up”, according to experts.

The occupation and military actions in ATO zone deprived the market of one fifth of all establishments in the country that worked in different segments from economy to luxury class.

According to Henadiy Romanenko’s data, owner of one of the sports clubs in Chernivtsi, — there was a considerable number of clubs in Donetsk — the second after Kyiv. The statistics confirm these words: a proportion of Donetsk region in total volume of the market exceed 11% before the war. Luhansk region contributed about 4%. The same was with the Crimea. Of course, the client base is also lost. The analysts of Pro-Consulting company confirm: a number of visitors of fitness centres in Ukraine has dropped to 3.8 million people — or almost by 18% comparing with 2013 since the military actions and occupation. However, the potential size of the market is still near $2 billion, say experts. In other words, deferred demand for the service is still huge.

Paddle only in network

Today about 10% of Ukrainians, who live in the large cities with a population ranging from 500 thousand people, visit the fitness clubs with varying frequency. “Despite the stresses the branch suffered the market is still growing, — says Dmytro Yekimov, founder of the group of companies Sport Life. — The territories not involved in the military actions and occupation show a growth by 0.5-1% over the past two years, which in itself is significant”.

An important point: interest of clients is focused, first of all, on inexpensive packages of fitness services offered by the network operators. The fitness clubs of luxury class lost some clients and have to work on the margins of commercial viability.

According to prognoses of Vadym Humeniuk, vice-president of the Ukrainian fitness association, the current market tends to “pragmatism”: price policy would be adjusted and costs would be reduced. Myroslav Dutchak, the market expert, the First Pro-rector of the National Institute of Physical Education and Sport, considers the operators are forced to this by the growing expenses for premises managing and, in particular, — for community facilities, as well as a constant rise in price of import equipment and materials caused by sharp exchange rate fluctuations.

“Nevertheless, today the market of fitness services is more than attractive both for investment and business, — considers Dmytro Yekimov. — Rent price of premises was one of the key points that kept down the market growth. This factor is off the agenda now. The real estate market is in the stagnation, for the third year there is a high vacancy of premises, it significantly lowers the entry threshold, the rental price dropped greatly that provides new points for our market growth. However, you should keep in mind the market keeps several serious pitfalls ignoring of which could cause a loss of investment and business”.

A benefit from cooperation with the network operator of fitness industry for development business is clear. As the analysts say on condition of long-term contracts and minimum investments in repair and adaptation of premises and when they are rented by network operator, expenses on construction of these premises would pay off already in 3-5 years.