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Tuesday
May262015

The expanding IHRSA universe: Brazil

For a variety of reasons, Brazil is now the place for the industry to watch.
After hosting the World Cup last year, it will be home to the 2016 Summer Olympics. It boasts a population of 200 million and a $2.1-trillion GDP, the seventh largest in the world. And in the health and fitness club sector, major local chains and equipment manufacturers are striving to increase awareness about the importance of physical activity in order to achieve greater market penetration and increase sales; they’re doing so with great success.
According to the 2014 IHRSA Global Report, the Brazilian industry currently consists of nearly 31,000 clubs, serving 7.6 million members—fourth after the U.S., Germany, and the U.K. in terms of number of customers—and generating $2.6 billion in annual revenues.

“In terms of growth, Brazil will continue to lead Latin America as it works to reduce the level of physical inactivity, and, in the process, improve the lives of millions of people,” predicts Joe Moore, the president and CEO of IHRSA.

Still, the first months of 2015 witnessed the introduction of a series of economic measures that may pose a challenge. In order to harness inflation and reduce public debt, higher taxes have been imposed, interest rates have risen, and labor laws have been changed. However, despite these potential obstacles, many believe that the industry’s momentum is likely to continue.

Gustavo Borges—an Olympic swimming medalist, the owner of Academia Gustavo Borges in São Paulo, and a member of IHRSA’s board of directors—cites clubs’ ability to address the needs of individual customers as one of the strengths of the Brazilian industry. “The companies, whether they’re small studios or large chains, that look closely at certain groups within their membership are going to grow,” he suggests.

Waldyr Soares, the president of Fitness Brasil, sees additional factors at work. “In 2007, the number of club members in Brazil stood at around three million, less than half the current number. This growth has been spurred by public interest in exercise, and by a dynamic local market that’s able to produce equipment equal to that offered by global manufacturers. The Brazilian market is ready to meet the growing demand.”

Fitness Brasil, also based in São Paulo, holds the largest trade show in the country in partnership with IHRSA, and provides continuing education in nutrition, physiotherapy, and physical education for industry professionals.

While Soares concedes it will be nearly impossible for the fitness arena to go completely unscathed by the current economic turmoil, he, like others, agrees that the fitness segment tends to be more resilient than others. “Fitness businesses have customers with purchasing power who aren’t willing to give up the healthy habits they’ve acquired over the years. For them, physical activity has become a priority,” he contends.

The 2016 Summer Olympics—officially known as the Games of the XXXI Olympiad— which will take place in Rio de Janeiro, are also expected to boost interest in fitness. The record-breaking performances of Olympic athletes is expected to have an “aspirational effect” on Brazilians, prompting them to engage in regular exercise. In addition, the Brazilian Olympic Committee (COB) is encouraging clubs to help train the athletes. Participating facilities can access credit lines provided by the National Economic and Social Development Bank (BNDES), a public financial institution, which are designed to promote investment in certain segments of the economy.

Equipment manufacturers

For the preceding and a variety of other reasons, Brazil has tremendous potential for expansion. The club membership penetration rate is just 3.83%, the lowest in Latin America. And, as Soares points out, the market includes large, well-established equipment manufacturers that, in many cases, operate worldwide.

A prime example is Brudden Movement (also known simply as Movement). Presently Brazil’s largest manufacturer, Movement has installed its products in 48% of all the gyms in Brazil, and boasts annual sales of approximately $70 million. Its two factories, in São Paulo and Manaus, introduce 10 to 15 new products a year, including bikes, treadmills, cross-trainers, and weight training equipment. The company exports its products to more than 20 countries.

“At first, we only produced cardio equipment, which is still strongly represented in our sales,” says Takashi Nishimura, the CEO of Movement. “But now, we also make weightlifting machines, which we’re developing quickly. And I’m proud to say that, this year, we were granted the iF (International Forum) Design Award—one of the most respected industrial design awards in the world—in Hannover, Germany.”

Nishimura believes his company’s strong results will continue for at least the next five to 10 years, yielding an annual growth rate of around 15%. To achieve that, he intends to develop new products and grow the commercial arena, employing the convergence between medicine and physical exercise as a springboard.

“Ten years ago, a cardiologist, endocrinologist, or vascular doctor didn’t prescribe physical activity as a form of rehabilitation,” he points out. “Today, however, virtually all Brazilian health professionals recommend it for a life free of disease and physical problems. We’re working to disseminate this culture.” The emerging medical connection, he believes, will encourage more people to join clubs. “Soon, 6% of the population will frequent clubs, which will represent an increase of nearly 50%.”

Another manufacturer, Supertech, has grown by 300% over the past five years by focusing on small and medium-sized clubs, allowing it to expand its portfolio. “Today, we have a varied product line, including bicycles and cross-trainers,” says Fernando Lorenzetti, a partner at Supertech. “During the first quarter of this year, we’ll also be introducing a new line of fitness equipment.”

The company already manufactures 7,500 machines a year, and is now constructing a new industrial complex with three times the current capacity.

Like Supertech, Athletic also focuses on small and medium-sized businesses, especially those located in the central region of Brazil. It has a presence in 25 countries, and expects to grow about 20% this year. “The fitness market is going through a decentralization process that’s strengthened some regions, but, since we have 32 stores and 170 sales points in all of Brazil’s states, we’re able to serve customers in these areas,” reports Vlademir Coelho, an Athletic technical adviser.

Chain growth and segmentation

Small and medium-sized fitness facilities currently compose 80% of the domestic market, and, because of the massive size of Brazil, the expansion of club chains is likely to take place on a regional basis.

For example, Alpha Fitness, a nine-year-old company based in Salvador, the capital of the northeastern state of Bahia, has 13 company-owned and franchised units, but has no presence in the Southeast, which contains the largest number of clubs. “In order to reach at least 30 clubs within the next five years, our priority will be our own backyard,” explains Leandro Cardoso, a partner at Alpha. He notes that increased press reporting on the benefits of physical activity has spurred development in regions where, formerly, there hadn’t been much interest.

The chains also are focused on growing in an efficient man- ner, while making improvements to their infrastructure. For example, Runner, a club chain based in São Paulo, intends to utilize its licensing model to open 10 to 12 new clubs this year. Luiz Carlos Trielli, the company’s marketing director, says the most promising candidate for a license is a person who already has a club, but wants to change over to the Runner brand.

“Given the consolidation that’s taking place in the Brazilian market, we plan to reduce the entrance barriers to make our model accessible to many entrepreneurs,” he says. “All are faced with the need to invest in marketing, training, and tech- nology. Our expertise simplifies the entire process.”

What about the tension between upscale and lower-priced clubs, a common phenomenon in many countries of the world? Richard Bilton, the CEO of Companhia Athletica, a São Paulo- based chain, and a former member of IHRSA’s board of directors, is convinced that there’s room for both, and believes that many cities would welcome them. “However,” he adds, “at Companhia Athletica, we believe in less volume and more quality, and in greater service and increased efficiency in delivering results. That’s the way to maintain a good business.”

Companhia Athletica, now 30 years old, serves some 35,000 members at its 18 clubs, which are open 363 days a year. It has annual revenues of approximately $50 million.

The Bio Ritmo club group, also of São Paulo, targets both
markets with its upscale Bio Ritmo facilities and its lower-cost
Smart Fit chain. “We plan to hit 75 clubs in Brazil, 30 in Mexico,
 and five in Chile this year, alone,” says Edgard Corona, the CEO
of the Bio Ritmo group. “In general, consumers with less income
are looking for places close to their are looking for places close to their work or home, with a relaxing ambience, and offering quality services—at reduced prices.

Our business model calls for a lean, but high-quality, product.”
The Bodytech Company, based in Rio de Janeiro, targets high-income individuals who are more demanding and require sophisticated facilities. It now has 83 units in 15 states (a 36% increase from 2010 to 2014), 132,000 members, and reported sales, for 2014, of $146 million.

“In recent years, the increase in sales and number of members has been around 15%, and, for the next five to 10 years, we’re predicting between 8% and 10%,” reports Luiz Urquiza, the CEO of the company. Bodytech plans to expand its market presence, with 156 company-owned clubs and 85 franchises by 2019, at which point it should reach 316,000 members and $362 million in annual revenues.

“To achieve these goals, we’ll maintain our national presence, continue to target different income segments, and continue to differentiate our facilities,” says Urquiza.

In the final analysis, what will be the keys to serious, sustained growth in the Brazilian fitness industry?

The huge economy, the vast population, the low level of market penetration, and the growing interest in fitness—all of that adds up to purchasing power, suggests Robson Nakamura De Bonis, the CEO of Total Health, an equipment manufacturer headquartered in Jaboticabal, in the state of São Paulo. He’s convinced Brazil will remain a leader in the worldwide fitness industry for the foreseeable future. Founded in 1999, his company, which produces cardio and functional training equipment, has achieved an average annual growth rate of 15% to 25% a year.

“Unlike many Brazilian industries,” he concludes, “the fitness sector should remain hot. We believe, in the next decade, that Brazil is going to surprise the world. It will have the largest number of clubs anywhere!”

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