As an industry, we need to ensure we do not sleep walk into a situation where we become over reliant on aggregators, because if they are allowed to get too powerful they will control pricing. This is exactly what has happened with Booking.com, for hotels, and Rightmove, for estate agents. In the Polish health and fitness market this has already happened with Benefit Systems, which provides operators with 50 per cent of their members and has forged a position where it controls the market.
If we allow aggregators to become this dominant in the UK health and fitness market, they will inevitably increase their margins at the expense of the operators’ margins, and the operator will struggle to say no to accepting a lower price per visit.
Aggregators claim they are good for consumers, since they are driving incremental joiners/members and help the industry to increase access and reduce marketing costs. In less penetrated markets this may be true, such as Brazil or Spain, but independent, fact-based analysis in the UK and other markets suggests the modest benefits aggregators may bring are much lower than the cost to the operator.
"If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the
present, never sign long term or exclusive deals and monitor the situation very, very carefully"
Two of the major aggregators have each raised around US$500m. I have worked with some of the Silicon Valley providers of that capital and I know they will be asking these aggregator platforms to try to get positions of strength and pricing power in this market. The only viable way they can make a return on the huge investment is by trying to extract profits currently earned by the hard graft and capital investment of operators.
If an operator is going to engage, there are some golden rules: remain in control, think about the future not just the present, never sign long term or exclusive deals and monitor the situation very, very carefully. Operators must learn how to use aggregators to drive reach and trial, but to avoid being so reliant on them that they can dictate terms.
This means retaining control of the inventory released to aggregators – for example, only one place in peak classes, and using aggregators to fill off-peak classes. Direct customers should be rewarded.
When approaching an agreement with an aggregator, my recommendation would be to only trial a small number of gyms, not the whole business. Do not accept incentive payments or guarantees to sign up for long periods of time – make sure you can exit on three months’ notice. Measure the true underlying incremental performance very carefully. Above all, never let an aggregator control a material chunk of your members.
If the right decisions are taken, we will have a situation whereby the aggregators work for and service the industry, not the other way round. Going forward, I would not rule out a situation in which an industry-owned “cooperative” aggregator is created which provides benefits to consumers but ensures the industry business model can be sustained for the good of all in the long run.
Operators must not become reliant on aggregators, says Puregym’s CEO