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Panellist

Right service, right price

Energy costs are not yet prohibitive in the US, but even if they rise, Drop Fitness aims not to hike prices, says Jeb Balise
Published 5. December 2022

Our latest edition of RIDE HIGH includes a must-read supplement – A Global Crisis? – in which we speak to operators across Europe, Asia-Pacific, Africa and the Americas to understand the region-by-region challenges facing the fitness sector at the moment, and the strategies that might be deployed to navigate them.

Check out all our expert comments here or download a PDF of the full magazine, including the supplement, above.

Here, we share the perspective of Jeb Balise, founder and CEO of Drop Fitness in the US. Interview conducted 10 October 2022.

 

Energy costs have risen in the US, but from own experience and conversations with other operators, not yet in a way that’s prohibitive to doing business. We can still manage for now, which also means there’s no government support at this stage.

Beyond this, I can only speak for Drop Fitness: our single-site operation that’s been open for four months and that operates a very distinct model. The way we respond to any challenges will inevitably be shaped by this.

Drop fitness reception
Might people turn off their energy at home and visit the club more often? asks Balise

We only have a small fitness floor alongside three boutique studios, so plugged-in CV equipment accounts for less than 20 per cent of our product. It means we aren’t severely impacted by this power requirement.

“If our team starts to struggle financially, we’ll need to look at how we take care of them so we retain our talent”

In fact, I’m just as mindful of our employees and the potential indirect costs of any future cost of living crisis. If our team starts to struggle financially – finding it harder to travel to work, among other things – we’ll need to look at how we take care of them so we retain our talent.

But this is all hypothetical for now, because as I say, we aren’t yet seeing prohibitively high costs. At Drop Fitness, our energy bills currently account for around 5 per cent of our total costs. That might get closer to 10 per cent depending on club utilisation levels.

We still have to be prepared for rising heating costs this winter, though, including looking carefully at how we distribute heat and energy around our club. We’ll also address obvious things like turning heat off when we’re closed overnight and carefully scheduling switch-on times so the club is welcoming as soon as we open the doors, but without wasting energy.

But there will only be so much we can do, because as fitness operators, there’s no practical way to simply switch everything off. This is what we do. The value we bring to our customers starts with the provision of equipment in an adequately heated, adequately lit environment 365 days a year. And who says people might not start coming more often, so they can turn off the power at home for a while? We’ll certainly keep an eye on club usage and energy prices to see what happens to our bills. 

Drop fitness boutique studio
Drop Fitness has three boutique studios and a gym floor in one location

But still, for now this isn’t one of my top five considerations; as a new business in a market where we aren’t yet unduly worried about energy costs, I’m much more focused on margin improvement, managing future capacity constraints and so on. It means I haven’t really given much thought to what our recession play might be. 

If it comes to it, I think the big question for our business will be: do we pass on rising costs to the customer or not? Will they understand, or will their own reduced disposable income in such a climate make a price hike something they can’t swallow? 

And our answer, within the model we operate, will be to eat in to our own margin for as long as we can. I believe competitive advantage will come from continuing to provide customers with the right service at the right price. 

Published 5. December 2022


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