Who doesn't want washboard abs and to look great in a bikini? 'Fitness' is a broad term and includes everyone from the Arnold Schwarzenegger wannabe to the midlife crisis weekend warrior, to the spinach-eating spin class goer, to the ultra-marathon runner. For some, the goal is to get a six-pack. For others, it is a means to live longer and better. However, every fitness enthusiast is united by a common aspiration - the desire to become better than they currently are. No matter the method-- weights, HIIT, Pilates, or running, we all have the desire to be in shape. The number of gyms and fitness centers is growing rapidly, as more and more people aspire to reach their fitness goals. In this modern day and age, it is difficult to walk the streets without finding gyms and fitness studios everywhere. They've sprouted like mushrooms and have proliferated widely.

When the pandemic sent us home, we took fitness classes with us. As the world changed, people adapted to a new reality and the importance of fitness was amplified. Some went on walks or runs to stretch their legs after being tied down to their desks. Others squeezed Peloton bikes into cramped apartments and spent their days on stationary bikes. YouTube at-home workouts and challenges turned trainers like Joe Wicks and Chloe Ting into household names. While in isolation, people recognized the need for physical activity in their everyday lives and embraced it with vigor. Many fitness gyms shut down during lockdowns, but they are back at full strength today. So, is the fitness business at an all-time high? The world, especially developed countries, is on course to continue on the fitness train. However, Southeast Asia, which accounts for roughly 10% of the global population, has seen lacklustre gains. This article will zero in on DSGCP's point of view on Southeast Asia's fitness industry and why we are paying close attention to it.

First, the macro landscape.

Globally, there is no lack of fitness clubs, with over 200,000 worldwide (Statista, 2022).

Take a closer look at the leading players and you will soon see that most of them are Western or from the largest developing economies:

In Southeast Asia, Anytime Fitness has the largest presence with 286 clubs across the region (145 Philippines, 89 Singapore, 36 Malaysia, 13 Indonesia, 2 Thailand, and 1 Vietnam). F45 has at least 53 locations and Fitness First has 82. With Southeast Asia encompassing eleven countries, 10% of the global population and a rapidly rising middle class, why haven't we seen a stronger fitness industry in the region?

People need to get paid at work, so they can pay to workout: as disposable income increases, so do gym memberships.

Based on IHRSA’s and the World Bank's 2021 data, we analyzed the correlation between consumers' disposable income and gym membership penetration rates.

There is a correlation between GNI per capita and gym membership penetration rates, that much is clear. As disposable income rises, more people can afford to purchase gym memberships and attend fitness classes. The correlation is unsurprising: higher disposable income should directly translate into greater affordability when it comes to purchasing and subscribing to gym memberships and fitness classes. Most of Southeast Asia, with the exception of Singapore and Malaysia, has penetration rates well below 1%. While gyms and fitness studios exist in the region, there are far fewer branded fitness clubs. GNI per capita plays a crucial role here where Southeast Asian disposable income is significantly lower in comparison.

As a consumer-focused fund, DSGCP has been studying the inflection point that a nation's GNI per capita might have to achieve in order to afford certain goods and services. The question here then becomes: does it take a certain level of GNI per capita before the fitness industry can flourish in a certain country, and if so, what is this number? We tried to ascertain the correlation in China. China's GNI per capita in 2001 was USD 1,010 and there were only 500 gyms reported in the same year by DaXue Consulting. In 2014, China's GNI per capita hit USD 7,000. Coincidentally, most of China's largest new-age gym and fitness brands were founded in that period: Lefit in 2015, Super Monkey in 2014, SunPig in 2015, KuaiKuai in 2015, Keep (the most popular fitness app) in 2015, etc. In Brazil, SmartFit became the largest chain of fitness clubs in 2008, the same year GNI per capita surpassed USD 7,000. So it would appear that developing countries need to reach a particular threshold of disposable income before their fitness industries begin to emerge.

However, the rise in disposable income is not the only factor which determines the penetration rate of the fitness industry. High GNI per capita Asian nations like Japan, South Korea and Singapore have significantly lower penetration rates when compared to Western nations. The relationship between disposable income and gym use is not linear, with other factors coming into play. For most SEA countries, the GNI per capita is at an inflection point between the ability to afford core necessities and spending on aspirational wants. That is why it is crucial but difficult to consider both socioeconomic and cultural factors.

Who has the time to work out?

Work culture may impact the demand for fitness goods and services. The notorious intensity of work cultures in nations like Japan, South Korea and Singapore may be linked to limited recreational activity. Statista reported an OECD report whereJapan and South Korea ranked 5th and 7th respectively out of 38 OECD countries in terms of the lowest quality of work-life balance (based on length of working hours vs. time for leisure and personal care). The US and the UK ranked 13th and 14th respectively, in comparison. Western nations that are known to prioritize better work-life balance are arguably more likely to encourage recreational fitness. On the other hand, certain Asian cultures may view gym culture as a luxury that comes later in the list of household spending priorities.

A little vanity can go a long way.

Consumers in geographies that place a higher value on physical aesthetics will spend on their vanity. We use Japan, a wealthy developed nation, as our independent variable to analyze this statement. Brazil has a penetration rate of 4.9%, which is significantly higher than Japan's 3.3%. Brazil has a far lower GNI per capita than Japan (USD 7.7k vs Japan's USD 42.6k), but it also happens to be the Botox capital of the world. Japan and South Korea have experienced a similar phenomenon. South Korea is the global leader in cosmetic surgery, where it is estimated that a third of women between the ages of 19 and 29 have had plastic surgery. While South Korea has a GNI per capita that is 20% lower than Japan's, it has double the penetration rate. Botox and cosmetic surgery may not be directly tangible drivers for gym penetration rates, but the correlation here is definitely interesting.

Is Southeast Asia ready for a robust fitness industry?

We zeroed in on the region's largest country and the fourth most populous nation on earth - Indonesia. DSGCP conducted a survey with 1,000 middle-class Indonesians. Here's what we learned about the state of and future of the fitness industry in Indonesia.

• Money will matter.
  
  Indonesians are extremely price sensitive when it comes to paying for gym memberships. 47% of survey respondents said that pricing was the reason they did not purchase a gym membership.
  
  
  
• Local neighbourhood gyms.
  
  Local mom-and-pop gyms are still the fitness go-to. 80% of respondents who do have a gym membership pay under USD 20 per month (61% between USD 6.50 and USD 13), which suggests they are not going to branded gyms but instead heading to a local neighborhood gym.
  
  
  
• It will take time to build up stamina.
  
  The vast majority of Indonesians use gyms infrequently and want a short trial. 84% of respondents with gym memberships only go once a week and 61% of respondents only bought 1-month gym memberships.
  
  
  
• It is not just about affordability - gyms need to fit into the culture.
  
  For Indonesians, cultural fit with social groups is a key factor in decision-making. Middle-class Indonesians are not comfortable working out in high-end mall gyms that are catered to the wealthy. 51% of respondents said they would not go to a high-end gym like Celebrity Fitness even if the price was as low as neighbourhoodgyms.

Only one thing from this survey surprised us: the importance of culture fit. We knew that money was going to matter, and behaviour change would take time, but even when the cost was taken out of the equation, a little over half of respondents turned down a 'higher quality' gym. So we investigated further. DSGCP spoke with Indonesian consumers and understood that middle-class Indonesians are more comfortable in unpretentious neighbourhood gyms that not only provide equipment and facilities but also a sense of community. This is an especially important finding in a country where the market has yet to be developed.

Price influences culture, and so we took a deeper look at the price segmentation of the Indonesian gym market. We segmented it into three categories of gyms: premium mega, boutique stand-alone and mom-and-pop gyms.

There is a gap in the market.

Given the blaring difference between the higher end of the industry and the bottom, DSGCP believes there is a massive whitespace for the aspiring middle-class Indonesian fitness market. IHRSA valued Indonesia’s gym membership market at just USD 270 million in 2021. According to the Indonesian government's Statistics Indonesia (Badan Pusan Statistik), there were 8,700 gyms in the country for 270 million Indonesians in 2018. We did a rough count of major gym brands and estimated that there were 100 branded mega gyms and 200-300 boutique gyms. This indicates that 95% of the total is comprised of fragmented, local mom-and-pop neighbourhood outlets. In essence, we believe that the lack of a larger fitness industry can be attributed to the fact that there is nobody addressing the whitespace between premium and low-tier gyms. DSGCP has studied several prominent startups that are eager to take on this opportunity and it is clear that local brands are seeing what we see. While we optimistically watch how they develop and scale their businesses, we recognize that they will still have to overcome the longstanding difficulties of the industry.

Building a gym is not a walk in the park, it's an intense workout.

Fitness clubs are capital-intensive.Branded gym clubs can cost upwards of USD 200,000 to set up, including renovations and equipment. Higher-end brands (Equinox, FitnessFirst, gyms that buy Technogym equipment) can exceed this many times over.

Overhead is expensive.Renting over a thousand sqm of space in any mall is never going to be cheap. This is where many high-quality gyms are situated.

Retaining New Year Resolution go-ers.Retention rates for gyms are low. The gold standard lies with Planet Fitness (US), which boasted 50% annual cohort retention rates (March 2020 - March 2021). Other heavy-hitters include 24-Hour Fitness, Gold's Gym, Equinox, and Anytime Fitness, each of which reported a retention rate of around 35% in 2017. With such low retention rates, companies are forced to rely on aggressive customer acquisition strategies.

Trainers are the backbone of the fitness industry, and they are in short supply.Fitness trainers are the foundation of the fitness industry. Trainers are responsible for acquiring and retaining customers, leading group classes that are often social events for consumers, and generating additional revenue through private classes. Due to its small market, Southeast Asia has a lack of fitness trainers relative to its population size.

In IHRSA's 2017 report, it was observed that:

• For every 2 interactions a staff member has with a member in a given month, it results in one extra visit from that member the following month and this additional visit reduces the risk of the member cancelling a membership by 33%.
• Social interaction is very important to members. 90% of surveyed members said that they valued social communication with gym staff.
• The risk of cancellation is 56% higher among members who just use gym equipment vs. Those who exercise in groups.

Coach, what's the playbook? What model will succeed in Southeast Asia? It is yet to be determined. Globally, Planet Fitness (US) and SmartFit (LatAm) have seen success using a mix of company-owned and franchise outlets. While they have had success in their respective regions, neither model has successfully played out in this region thus far. The largest locally-grown premium brand in the region, Fitness First, underwent a less-than-satisfactory merger with Celebrity Fitness in 2017. The combined entity has since acquired a luxury yoga brand (Fivelements) in Bali, Indonesia and rolled out a low-cost gym brand (Chi Fitness) in Malaysia. Needless to say, experimentation is still ongoing.

Where do we go when the whistle blows? Southeast Asia has yet to see a successful exit outcome in the fitness industry. Even on a global scale, the industry has seen limited success. There are few publicly listed gym brands and even fewer that are performing well. Even brands that have managed to franchise globally and become household names have struggled. For example, globally recognized F45's stock price has tanked 86% since IPO (as of 27 Feb 2023) despite its dedicated fanbase and rapid international expansion.

With great challenge comes great opportunity.

The Southeast Asian fitness industry, while filled with potential, undoubtedly has a lot of challenges to overcome. Based on our research and reflection, we could believe that the region is not yet at the inflection point for mass market consumption of fitness studios. From a financial perspective the region’s overall GNI per capita must increase significantly before the aspirational middle class is ready to hit the gym full-time. Culturally, while consumers increasingly understand the importance of physical wellness, they have yet to make it part of their lifestyle due to working culture implications and minimal prioritization of work life balance.

And yet, DSGCP has had the privilege of meeting insurgent brands that are rising to the challenge. They operate within middle-class neighborhoods and office areas, culture-fitted for working-class Indonesians who have never experienced a fitness brand that suits their lifestyle. Some provide their customers with free group classes (absolutely important for building culture), and disruptively affordable access to multiple club locations and personal trainers. If these brands are able to fill the gaps in the market and solve for both the socioeconomic and cultural complexities that have been major hurdles for the industry, they may serve as the first touchpoint for millions of Indonesians embarking on their fitness journey. Needless to say, we are going to be watching their progress eagerly.

DSGCP believes there is a large opportunity ahead for all adventurous founders keen on building the next generation of the region's fitness brands. They have their work cut out for them as the business fundamentals of the industry will continue to remain difficult. Southeast Asian fitness founders have the chance to learn from past playbooks and build what the region’s consumers crave. We believe it's a matter of time before the Southeast Asian fitness industry blooms and we will be watching the space with great interest.