Indian Fitness Industry Tharikha Ajit

 The Indian Fitness Industry Industrial analysis Tharikha Lakshmi A, Ajit Tambay Industrial Economics October 28, 2016 Table of Contents Introduction: 1 Statistics: 1 Top Players: 2 SWOT Analysis: 3 Bargaining power of Suppliers: 3 Bargaining Power of Consumers: 4 Threat of new entrants: 4 Threat of Substitutes: 5 Competitive Rivalry: 5 Government Influence: 6 Strengths in the Industry: 6 Weaknesses in the Industry: 6 Opportunities: 7 Threats: 7 Key Drivers of Growth: 8 Works Cited 10  Key Findings The Indian fitness industry is one that is an opportune industry to make an investment. The current market coverage in Indian fitness is still in the infantile stages, hence making it an ideal environment for rapid growth and expansion. However, getting into this industry is not an easy task as there are quite a few barriers to entry, the most important requirement being the possession of a high level of capital. Yet, the current industry’s scope for expansion outweighs the risk of a high capital, especially considering that the top 5 players make up for the top 15% of the market share, but only the top 28% are organized players within the market. The top 5 players account for almost half of the organized players' market share, thereby leaving room for an influx of new players.  The industry requires investment in skilled labour as well as better reach towards a larger population, as there is a distinct lack of fitness centers that can cater for the different levels of the economic ladder. Due to the increasing generations of people that are aware of health and fitness, the demand for fitness centers is on the rise, however, the cost of creating major fitness centers is still a risk due to the flagging membership rates found all across India. Introduction: As a developing country, India has finally begun to open its doors to an entirely new industry that has already found itself to be well-established in developing countries. The fitness industry is one that has arrived with society’s increasing emphasis on the physical image of a person as well as the individual’s growing awareness of their own health condition. The average office going Indian tends to suffer from a myriad of health conditions, most commonly high blood pressure and diabetes. India has already been dubbed as the diabetes of the world as incidences of this disease have just continually been increasing to the point where 5% of the population suffers from it (Malik). In an era where countless members of the labour force spend majority of their days sitting down in front of computer screens while chowing down on junk food, it is no surprise that there are a large number of health problems occurring within the population. With growing middle class households that have more and more disposable income, coupled with the rapidly growing awareness of fitness and healthy lifestyles, the demand for exercise products and services is on the rise. In the past decade, the usage of gyms and fitness centers was exclusively for the affluent and the famous. Now, the such services have reached out far and wide from their original central metropolitan locations, all the way to villages on the frontiers of urbanization (Kaushik). The entire market is split between fitness services (50%), fitness equipment (20%) and other health products and services (~30%) (Indian Gym). Statistics: Other players in the market are, Fitness First with 7 gyms in all major cities as of 2015 with plans to expand. They plan to invest 160 crores to open 30 new centers which will then increase its membership to over 45000. Gold gym currently has 80 centers and is still looking to open 30 new centers in 20 cities. Fitness One has over a 100 centers in India. Ozone Fitness and Spa has 17 centers in the major cities (Indian Gym). Top Players: India’s GDP is currently at around 2.25 trillion dollars and is fast growing. The fitness industry contributes around 30 billion dollars in 2014 and it expected to increase to about 82 billion dollars in 4 years at roughly 16-18% growth (Indian Gym). The health and wellness industry currently has 21000 centers across India. The industry also employs a large number of people (estimated to be at least 3 million) with the highest paid jobs belonging to health instructors, physical therapy assistants, gym and fitness program instructors, etc (R,N.). While India is still an upcoming market when it comes to fitness, the top 5 players in the industry contribute to only 15% of the total market share, which is far behind countries like Japan and Singapore, which are at 40% and 20% respectively. This proves that the players in the Indian Industry have huge scope moving forward.  This also means that there are various opportunities for new players to enter the market as well. Currently, some of the key players in the market are Talwalkar’s Gym, Fitness First, Gold’s Gym, Fitness One, Ozone Fitness and Spa, etc. Talwalkar’s gym is found in almost all major cities in India. It increased from a total of 63 gyms in 2010 to a 144 in 2013. The total membership as of 2013 was at a staggering 1,33,000. They are active in 75 cities in 19 different states. Its recent investments include acquiring a stake in other fitness start-ups like Chennai based In Shape Health and Fitnez Private Ltd (51% stake), Gym trekker Fitness (19% stake) and Sri Lanka’s Power World Gyms (49.5% stakes).  Talwalker’s gym franchise is the most widely spread in India (R, N.). Gold’s Gym is an American based franchise of gyms that expanded to Mumbai, India in 2002. It is the largest chain of gyms globally with over 700 centers. it provides a comprehensive approach to health, wellness and fitness backed by state of the art infrastructure and delivery through multiple programs. These programs are designed to help an individual reach his or her maximum potential (Chhabra). SWOT Analysis: Bargaining power of Suppliers: When looking at the Health and Fitness industry, the number of manufacturers in the fitness equipment industry is large. With television retail channels becoming more and more popular, the equipment manufacturers are now beginning to target the home segment. However, not many people opt for the equipment based on these ads and that makes the supplier power low. Another scenario is that those consumers from the home segment who do buy the product use it in the wrong way and end up injuring themselves. The lack of trainers to help individuals at home reduces supplier power as well (R, N.). Another disadvantage for the fitness sector is that the products themselves are not necessarily distinct. Current fitness equipment, if at all slightly better than traditional equipment, is still not too different from one another. However, the only distinction is between normal and luxury equipment. For example: some high-end centers use technologically advanced treadmills that have a virtual reality system attached which allows the used to run while seemingly in any county he inputs into the machine. But on a general note, considering the products are so similar, the switching costs for a consumer are very low and this again makes the supplier power low. Hence, when looking at the whole picture, the suppliers do not really have any power when it comes to the fitness industry (Chhabra). Bargaining Power of Consumers: Unlike the suppliers who have almost no power when it comes to keeping the world fit, but can the same be said for the buyers. The consumers in this industry can either be individuals or institutions. Individuals in India are slowly gaining a better perspective in India about the importance of staying fit. Be it doctor prescribed or just an individual’s choice, the number of buyers in this market is growing daily. The youth alone reached about 400 million in 2015 (Chhabra). With this immense increase in the customer base, the suppliers have the slightly upper hand. The buyers cannot really influence the prices because the market is big enough to do so itself. This does not provide the consumers with a lot of wiggle room or power. However, the switching costs, as mentioned before, is quite irrelevant in this industry which provides the consumer with an opportunity to move from one supplier to another if they are dissatisfied (R, N.). Threat of new entrants: By studying the expected retaliation and the barriers to entry, the threat that new entrants pose to existing players can be analyzed. Those firms entering into the fitness industry need a large capital investment in terms of a one time cost which it will incur when buying the equipment that is necessary. Depending on how large this player wants to be, the penetration costs will be extremely high and not to mention the array of fixed costs that comes with it. A few estimates revealed that it can take upto 2 - 3 months to set up a working fitness center, and it still requires 2 years before it can make a profit (Sachitanand). This large investment in space and equipment acts as barrier to enter into the market. As mentioned before switching costs are not too high, which means that if the new entrant is able to provide a differentiated product, service or experience, getting a loyal customer base would not be too hard. However, what needs to be taken into consideration is the fact that this customer base could just as easily move to another entrant as well (Chhabra). Also, because already existing players could lose their customer base, they will retaliate as soon as a new entrant makes an appearance. Additionally, there are issues with having existing members renew their membership with their fitness centers. It should be noted that across the industry, membership renewal is only at 40% - 50% (Sachitanand). Another barrier to entry is the current market prices for real estate. The fitness centers need to be set up in locations that provide easy access to their more expensive clientele. However, this directly leads to much higher rental costs; costs which can be changed very quickly based on the landowner’s wishes, i.e: Gold’s Gym originally had two branches in Mumbai. The first of which was supremely successful as it catered to the upper strata of Mumbai’s economic powerhouses. The second Gym, however, was forced to shut down due to poor membership and an abrupt doubling in the rent of the land (Sachitanand). Hence, it is safe to say that there is a moderate threat posed by new entrants, as the barriers to entry are already high enough to keep out all but the biggest or most financially capable brands, therefore leading to there being a certain amount of risk of losing customers to new players (R, N.). Threat of Substitutes: What needs to be kept in mind when analyzing the fitness industry is that fitness can be achieved anywhere; be it at the gym, at a dance class, playing sports or just taking a walk in the park. This means that when it comes to substitutes, the fitness industry has lots of cheaper existing alternatives. Once again looking at the point about low switching costs, the threat of substitutes is fairly high. In countries like China and India, most fitness training happens in the outdoors and not in centers. This move towards outdoor fitness regimes also illustrates the threat of substitutes (Gym, Health and Fitness). Competitive Rivalry: The fitness market in India has a lot of players and is also very fragmented. About 72% of these players are also very small in size and are highly unorganized which leaves only 28% of the players to be recognized as “organized players.” When looking at price competition, the fitness industry provides a consumer from packages that they can choose from. Since the products and services are so similar, there is a high level of price competition. At the same time, despite being similar, some firms innovate and stay ahead of the game which brings in a product differentiation angle to competitive rivalry (R, N.). Government Influence: Due to the current level of influence of the fitness industry in India, the government has taken very few measures to regulate or promote the growth of this industry. The few policies in places are primarily related to maintenance of hygiene standards. In particular, civic services in New Delhi have put in place a regulation that requires fitness centers to obtain a license in order to achieve and uphold particular standards of quality and hygiene (Chitlangia). The civic body in New Delhi also, plans to regularly make random checks of the licensed fitness centers, however, due to a distinct lack of manpower, these random sweeps are not very regular at all (Chitlangia). Strengths in the Industry: The population of India is the second largest in the whole world is fast growing. This means that theoretically there is a large customer base that one can tap into as well. Also, India has the largest number of diabetes patients who are specifically asked to exercise by the doctors. Same can be said for other health disorders. While this cannot be looked at as strength for India, it definitely can be looked as a chance to tap into a new market for the firms in the fitness industry (Chhabra). As most of India’s fitness centers are unorganized, if a new entrant were to establish itself in the top 25% of the players, then he will be recognized as one of the major players (Indian Gym). Weaknesses in the Industry: While the population of India is vast, the ratio of that population that actually makes an effort to go to gyms or other fitness centers is very small. For those who do go, the quality of the equipment and service provided is not as important as convenience - in terms of location for example. Hence, a center providing superior quality could have the same business as a center with very poor quality equipment. This leads to the organized players losing out on a large number of customers because the unorganized players install cheap equipment and still attract the surrounding customers (R, N.). When it comes to price, the organized players can’t compete with the unorganized players either. Another weakness in the industry is the lack of good trainers who have sufficient knowledge. Anyone who seems fit goes ahead and becomes a trainer with no real knowledge about what they are doing. Hence there is a lack of a set standard in the industry. Another major weakness is the seasonality that comes with the fitness industry. For example, the youth visit the gym the most during the break in summer and the gyms are full during this time but when work comes around, fitness takes a back seat with most of them (Chhabra). Opportunities: India has one of the highest numbers of populations in the working-class group. Reports show that by 2020, the average age in India will be 29. This goes to say that the large number of youth in India provides the fitness industry with an opportunity to boom. With India in the era of dominance of social media, almost everyone is looking to put their best foot forward and this opens a plethora of opportunities for the fitness and beauty industries in particular (Chhabra). The per household disposable income in India is on the rise as well which further proves that people will willingly spend money on the way they look in the years to come. Currently only 28% of the market is held by organized players, small and big, hence the entrance into that sector of the industry could be relatively easy and also highly profitable (Indian Gym). Threats: The main threat that the fitness industry faces is its lack of standardization when it comes to the hiring of trainers in these gyms. India in particular does not have too many training centers where interested personnel can first get trained and then train others. While in countries like the US, this is a mandatory step in order to become a trainer. The lack of quality trainers could hurt the industry because consumers will then have to reply on their own knowledge, which could be limited, and they could invariably injure themselves. Also, since the entry into the industry is not too hard because of the small number of organized players, it could be a threat to already existing players in the industry (R, N.). The most major threat is the fact that fitness does not necessarily achieved only in a gym. Most fitness centers work on a membership basis and this means there is a lot of money involved. However, a person can stay fit by working out at home, buying equipment and having a mini-gym suited to their needs, using body weight instead of weights, or just going out for a run anywhere. Recently, there are resistance bands (elastic bands) which can be bought at roughly 1000-1500 rupees which completely replaced the need for equipment at all because the band gives you the same level of resistance and hence works the muscles the same way a machine at the gym would. Hence, the availability of substitutes and the lack of trainers is not the best combination because of which the fitness industry could really be hurt (Chhabra). Key Drivers of Growth: The fitness industry is currently growing at a rate of 16 to 18 percent annually which is relatively high when compared to other countries like the US or Singapore. The organized sector alone is growing at 22 to 26 percent. With existing players expanding at great speed and new players entering the market as well, it is quite clear that the fitness industry in India is currently booming and there are multiple reasons why (Indian Gym).   Purely economically speaking, the GDP growth in India is constantly increasing the disposable income per individual. This means a higher portion of their income can be spent to their discretion. This invariably improves their lifestyle and along with this comes an increase in diabetes and obesity. This in turn increases awareness on the importance of staying healthy and fit. Even if there was a slowdown in the growth of the industry, it would not change the fact that a part of the consumers need to stay fit in order to stay alive, and hence, the fitness industry remains almost unhurt by the slowdown. What is also a major advantage for this industry, as mentioned before, is the population demography of India. With most of the Indian population currently in their youth and the average age of an Indian being 29 by 2020, the fitness industry in particular will benefit a lot from this. Another growth driver is urbanization. The fitness industry itself is divided into three tiers based on which the kind of fitness centers vary as well (Indian Gym). The first tier consists of cities like Delhi, Chennai, Mumbai, Bangalore, etc. Tier two comprises cities like Pune, Ahmedabad, Jaipur, Lucknow, etc and Tier three has cities like Roorkee, Coimbatore, and other smaller cities. Most of the current growth is happening in the highly urban areas, which is essentially tier one cities. Hence, urbanization too is an indirect driver of growth for the fitness industry (R, N.).   Another driver of growth is that the fitness industry combines both the product (equipment) and the service (training), which means that those consumers who choose it can have both without really buying the product and the service separately. This leads to an economic means of staying fit. On the other hand, online retail and television retail brings in a fair number of buyers for the equipment alone (R, N.).   Franchising is another tool that is pushing forward the growth rates of the fitness industry. When you look at this industry in particular, only about 22% of the centers are self-owned. The rest 78% are essentially franchisees. However, recently there has been a shift away from franchising to ensure quality control across all centers. However, players like Talwalkar’s still work with a model where 51% of the centers are franchisees(Chhabra).   The only other thing that could provide a huge boost to the growth rate for this industry is improving the quality of the trainers. With quality equipment and quality trainers, this industry could grow at a much higher rate that what it is currently at (Chhabra).  The Indian fitness industry is still in its nascent stages, as such, there is a growing demand for the services and goods that allow for an increasingly more health-conscious population to achieve their fitness goals. In order to make the most of this industry, investment is required in training skilled labour in order to provide quality service that is comparable to the standards found in developed nations. The lack of skilled labour as fitness trainers holds back the sector from further development. It would also be beneficial investment within the organized sector, as the unorganized sector, though numerous, has little to no means of attracting more members. The innovative ideas that involve the use of more technologies still requires a large amount of capital. In the case where there are fitness centers that focus on minimalistic training equipment usage, a franchise or brand name will be what makes it popular. India’s fitness industry is in the greatest period of growth and will only keep getting bigger as the years pass. This is an industry that will keep growing for many years until the entirety of its potential is reached, therefore investing in the current organized sector would be a good choice for earning well in terms of future profits. Works Cited Chhabra, N. (2016). Health and Fitness Industry: Indian Industry Analysis (Rep.). Retrieved 2016, from http://oysterconnect.com/sites/default/files/Health and Fitness Industry Analysis By Nikhil Chhabra.pdf Chitlangia, R. (2014, August 3). Licence must for fitness centres. Retrieved October 27, 2016, from http://timesofindia.indiatimes.com/city/delhi/Licence-must-for-fitness-centres/articleshow/39501208.cms Gyms, Health & Fitness Clubs in Asia-Pacific. (2016, February 16). Retrieved 2016, from https://pdf.marketpublishers.com/marketline/gyms-health-fitness-clubs-in-asia-pacific.pdf Indian Gym / Fitness Industry 2015 - SMERGERS Industry Watch. (n.d.). Retrieved October 27, 2016, from https://www.smergers.com/industry-watch/india-gym-fitness-industry/ Kaushik, P. (2015, January 16). Fitness Industry: Perched For A Soaring Take-off In India. Retrieved October 27, 2016, from http://www.businessinsider.in/Fitness-Industry-Perched-For-A-Soaring-Take-off-In-India/articleshow/45907784.cms Malik, R. (2016, January 28). India is the diabetes capital of the world! - Times of India. Retrieved October 27, 2016, from http://timesofindia.indiatimes.com/life-style/health-fitness/health-news/India-is-the-diabetes-capital-of-the-world/articleshow/50753461.cms R, N. (n.d.). The Health & Fitness Industry: A comprehensive industry analysis for the Indian market (Rep.). Retrieved October 27, 2016, from http://oysterconnect.com/sites/default/files/INDAnalysis_H&F_NATARAJAN.pdf Sachitanand, R. (2014, August 31). Why gyms and health clubs are finding it hard to stay profitable. Retrieved October 27, 2016, from http://economictimes.indiatimes.com/magazines/panache/why-gyms-and-health-clubs-are-finding-it-hard-to-stay-profitable/articleshow/41281833.cms Images: [Kick boxing for fitness]. (n.d.). Retrieved October 28, 2016, from http://hdwallpaperbackgrounds.net/wp-content/uploads/2015/09/Fitness-Wallpapers.jpg [Driver of Growth]. (n.d.). Retrieved October 27, 2016, from https://www.smergers.com/industry-watch/india-gym-fitness-industry/ Tharikha, Tambay| 13