MINNEAPOLIS — Much of the health club industry growth in the past several years has come from small format club operators, says The Mercanti Group, a boutique investment bank headquartered in Minneapolis.

U.S. club membership tops 41 million, revenues exceed $17 billion annually, and since 1983 the business has enjoyed 8 percent annual growth, according to Mercanti's recent report about the industry.

The trend will be aided by continued growth of larger format, multipurpose club operators, who have opened approximately 150 new facilities since 2004. However, increasingly small-format, niche-oriented or express clubs have and will continue to aid growth, says Mercanti Group Director Dave Remick, who authored the report.

The explosive unit growth of the small format clubs has been financed through franchising.

“Smaller format clubs tend to have more convenient locations and focus on a particular customer niche — women only, one-on-one training, fitness only — whereas the larger format, multipurpose club operators need larger real-estate footprints that are more expensive and difficult to develop, and by their nature, focus on offering a broad array of services, amenities and activities catering to a more diverse customer group, including families,” he says.

The industry's growth has raised concerns regarding overcapacity. However, Remick notes that the bulk of new club openings are small format facilities with more limited member capacities.

“Clearly the bar has been raised,” says Remick. “The industry, despite some consolidation, remains highly fragmented, and most health clubs in the U.S. remain in the hands of single-unit operators. It is ripe with opportunity.”

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