2020 Bain Case Competition

Team Alfa

​

Lefit

Growth Strategy in China

01

Industry Analysis

• Market Outlook
• Competitive Landscape

​

Industry Analysis - Market Outlook - Industry Growth

Increase in Consumer Purchasing Power

• Average per capita disposable income increased

by 8.3% from 2016 to 2017

Increase in Health Awareness

• Average per capita spending for health-related services increased by 11.0% from 2016 to 2017
• 4.5 billion people in China (33% of the population) perform fitness-related activities regularly

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China commercial gym revenue (B RMB)

2013-2015 CAGR 26%

2015-2018E CAGR 33%

China’s fitness industry has been experiencing accelerated growth in terms of revenue

Source(s): Bain

Industry growth is driven by both membership penetration and average spending increase

China gym membership

penetration of addressable

population (%)

China gym average

spending per membership

(K RMB / year)

Insights & Implications

​

• 22% of the US’s population are fitness customers
• 0.7% of China’s population are fitness customers; with AAGR of the number of new fitness customers at 10%
• China’s relatively unexplored yet fast-growing fitness industry provides sufficient opportunities for Lefit to expand and gain additional market share

Industry Analysis - Market Outlook - Technology

Number of fitness app users in China is projected to increase substantially until at least 2021

Source(s): Allcorrect, iResearch

Smart fitness technologies are more appealing to investors when compared to conventional service upgrades

Investments within China’s fitness industry (%)

Fitness app users in China in millions (#)

Integration of Technology with Life & Fitness

• More than 847 million Chinese have access to high speed internet with their smartphones; with average monthly data usage of over 7.2GB
• Individuals are taking advantage of technologies for fashion/trend seeking as well as price and quality comparisons before purchases
• Emergence of remote tutorials and lessons

Insights & Implications

​

• Fitness apps enables more efficient fitness progress tracking and communication with studios and coach
• Lefit should leverage on their strengths - combination of offline fitness studios and online service & data platforms - when expanding their business activities throughout China

Industry Analysis - Market Outlook - Density Comparison & Projection by City

Source(s): NBSC, Founder Securities

Multi-purpose fitness club (#)

Specialty fitness studio (#)

108

Fitness center (#) / million (population)

average of major US cities

Fitness center (#) / million (population)

China major Tier 1 & 2 cities

Insights & Implications

​

• China’s fitness market and its consumers seem to favor specialty fitness studios over conventional multi-purpose fitness clubs
• Compared to the US average, New Tier 1 & Tier 2 cities have significant growth potential
• Tier 1 cities - trendsetting & attracting early adopters
• New Tier 1 & Tier 2 cities - major future revenue generators of the fitness industry

Source(s): Great Wall Securities, iResearch Inc. WeChat ID: cychuangye, Zn Financial Report, Zhihu: danshuowufang

Industry Analysis - Competitive Landscape

Group classes

PT classes

Hands-on

equipment classes

​

3.2 million

registered users

Fitness beginners

Middle Class

People who travel a lot

​

450 stores

10% Direct-sale store

90% partnership

​

Monthly or single payments

Monthly pass: 129/199 Group class: 9.9 or free

PT class: 220/class

​

Large customer base

Various services

Satisfy different groups

​

Monthly pass may not generate sufficient cash flow

The partnership model increases operational risks

Smaller store size & without showers

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Group classes only

Without PT classes

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More than 30

million App users

Most have previous fitness experience

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14 stores

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Pay as you go

79/99 RMB per class

​

Established reputation from Keep App

Ability to convert

online users to offline customers

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Large number of online users does not guarantee in-store customers

Keep App is free while in-store classes are not

Class content overlap with Keep

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Group classes as

core services

PT classes

6 types of classes

​

5 to 9 million

visits per year

Beginners

Economical customers

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95 stores

​

Yearly revenue 4.8-8.4 million per store

69-239/class

average daily class: 8/store

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Various classes

Star trainers

Self-developed classes

​

Operational disfunction if human resource management is inadequate

Revenue stream is relatively simple

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Match customers with fitness stores and trainers online

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Around 500

thousand customers

Anyone interested in

fitness and want to try

​

​

​

Extracting commission

fee from merchants

Merchandise online sales

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Government support

Alipay & JD Support

Protect customers from the liability in case of the bank-

ruptcy of each service provider

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Potentially unstable business model

Rooted in Alibaba’s ecology, not independent enough

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1000 stores

Cooperate with 30% of gyms in Shanghai, with more than 500 stores

​

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Insights & Implications

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• Group classes are the industry’s primary revenue generators
• Digital integration would increase operating efficiency and reduce costs
• Consumers’ demand for professional training requires competent coaches and organized lesson plans

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Lefit

Date

Gym

Super

Monkey

Keepland

02

Consumer Analysis

• Target Customers
• Key Purchasing Criteria
• Value Proposition

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Consumer Analysis - Target Customers

Source(s): Founder Securities, iResearch

95%

of fitness customers are middle & upper middle class white collar workers and business executives

56%

of fitness customers are white collar workers (corporate employees & mid-level managers)

79%

of fitness customers are below the age of 40; 37% below 30;

42% between 31 and 40

79%

of fitness customers have average monthly salaries above 5000 CNY

75%

of total purchasing power are contributed by middle class white collar workers and executives

10%

average annual growth rate of the number of new fitness customers (fitness beginners)

Consumer Analysis - Target Customers

Source(s): WeChat ID:cychuangye

Insights & Implication

• Fierce competition among the 20 to 40 age demographic
• Potentially less industry competition among the 40 to 60 age demographic
• Government supports fitness initiatives that include consumers over the age of 40

Consumer Analysis - Key Purchasing Criteria

Source(s): Primary Resource by Survey

Affordability

Distance

Environment

Mentorship

• Under 15 minutes of commuting time from home or office
• Convenience & scheduling flexibility

• Most fitness beginners may not want to pay a large membership fee when they first begin exercising and visiting fitness studios

• Fitness studios should maintain professionalism, provide quality equipment while generating minimal distractions

• Fitness studios should provide mentorship including equipment training, health & fitness consultation, and fitness classes

Consumer Analysis - Value Proposition

Source(s): Primary Resource by Survey

Value

Location

Professionalism

Mentorship

• With over 450 stores all located in high density urban areas, Lefit’s studios are mostly within walking distance (5-15 mins)

• Lefit provides monthly or single payment options instead of expensive yearly membership fees

• Lefit’s simple interior design & store layout along with coaching guidance creates a professional & focused fitness environment

• In addition to in-store fitness consultation, Lefit offers group classes, equipment tutorials, as well as private training lessons

03

Strategy Layout

• Store Openings
• Revenue Projection
• Key Success Factors
• Risks & Mitigations

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Strategy Layout - Store Openings by City

Tier 1 Cities

New Tier 1 Cities

Tier 2 Cities

10%

50%

40%

220

New Stores

​

55

New Stores / City

1100

New Stores

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73

New Stores / City

880

New Stores

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29

New Stores / City

2200 Total New Stores

Strategy Layout - Store Openings by District

Business Districts

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Mixed-Use Development

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Residential Areas

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60%

20%

1320

New Stores

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5-10 minute

walk from office

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100-300m²

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440

New Stores

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5-15 minute

walk from home or office

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300-500m²

440

New Stores

​

5-15 minute

walk from home

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500-700m²

2200 Total New Stores

20%

Strategy Layout - Revenue Projections

Source(s): CNR, WeChat ID: cychuangye

¥120,900

Revenue per Store

​

2200

Total New Stores

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¥265,980,000

Total Revenue (Monthly)

Group Classes

¥220

per lesson

​

250

Customers

​

¥55,000

Revenue

PT Lessons

Monthly Passes

¥9.9

per class

​

5000

Customers

​

¥49,500

Revenue

Group Classes

PT Lessons

¥129/199

per month

​

1000 (500/500)

Customers

​

¥164,000

Revenue

Monthly Passes

Source(s): Deloitte, Forbes

Strategy Layout - Key Success Factors

Source(s): Deloitte

Strategy Layout - Risks & Mitigations

Risk 1

Partnership Stores

• Potential decrease in service quality

​

Mitigations

Direct Support for Partners

• Initial training
• Ongoing professional development
• Facilitate the implementation of marketing & management strategies
• Project management officer (PMO) per region/city as a point of contact for partners

Risk 2

Data Protection & Cybersecurity

• Loss of company or customer data

​

Mitigations

Enhance IT Support

• Establish an internal database and data security department to protect company & customer data and prevent information theft & misuse
• Work with tech consulting firms to evaluate overall system stability & security

2020 Bain Case Competition

Team Alfa

​

Lefit - Growth Strategy in China

Backup Slides & Additional Analyses

Source(s): Primary Resource by Survey

1.15-23

2. 24-40

3.41-60

• Individuals from age 24 to 40 value distance the most as this group of consumers usually have busy work schedules and would like to save as much commuting time as possible
• Individuals from age 41 to 60 have a higher demand for professional instructors due to their potential health conditions

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*Numbers calculated by rankings provided by survey participants; using 1 as a multiple for the top choice , 0.6 for the second choice, and 0.3 for the third choice

Backup Slides & Additional Analyses

Backup Slides & Additional Analyses

Source(s): Primary Resource by Survey

• Most consumers would like to have fitness stores within 15 mins of walking distance from home or office (96.5% of individuals surveyed)
• To increase the scope of walkability for its target customers, it would be in LeFit’s interest to increase the numbers of stores in both residential and business districts across China’s major cities

1) 15-23

2) 24-40

3) 41-60

Total Survey Participant

281

Source(s): IBIS World,WeChat ID: cychuangye

Backup Slides & Additional Analyses

Current Customer Demographics

Current Market Segmentation