Internet Companies Are Spending Hundreds of Millions to Disrupt the Gym. Will It Work?

Linking gyms to the internet: is this the next Uber-style disruption, or just another group-buying war?

Put these two offers side by side, and the choice seems easy:

• Option A: pay one gym an annual membership fee of 3,000 to 10,000 yuan;
• Option B: pay an internet service 99 yuan a month for access to thousands of gyms across the country.

This is the choice the fitness app Quancheng Relian (“Hot Workout, Citywide”) wants you to face. The service launched in May 2015 and raised 10 million yuan within two months.

For 99 yuan, a Quancheng Relian user can train at any gym on the platform for a month. The only catch is that you can visit the same gym just three times a month. Even so, the platform has already signed up 3,000 gyms in 8 cities, more than 400 of them in Beijing alone.

A Quancheng Relian promotional poster

Unlike a traditional gym card, says Quancheng Relian CEO Si Wei, the service can guarantee “a dozen or more gyms to choose from in every core business district.” In each city it has a street-level sales team of three or four people whose main job is to sign deals with gyms. Si says it took less than three months to pass 200 venues in each city.

Xiaoxiong Kuaipao (“Little Bear Run”), incubated by Papaya Mobile, runs almost the same model. For the same 99 yuan a month, it promises users “unlimited” visits across its 2,000 venues. With gyms, Xiaoxiong Kuaipao works much like a group-buying site: each month the gym decides how many visits it will put up for sale. “Some gyms even chase us to work with them, and many ask to renew with more visits,” Tian Yingying told QDaily. For some gyms, she said, the platform brings in more than 100,000 yuan a month.

Xiaoxiong Kuaipao CEO Shen Si serves as the brand’s spokesman himself

On the surface, these internet services meet the needs of gyms and users at once, and another industry looks ripe for disruption, just as Kuaidi and Didi upended taxi hailing.

But Ran Fitness (“Burn Fitness”) sees it very differently. It charges users per visit, from 20 yuan to several hundred (the expensive end is usually personal training). There is no monthly plan: you pay each time you go. Ran’s CEO Wang Hao told QDaily that the platform already handles 1,000 orders a day and expects to reach 3,000 to 5,000 in August. Last month the company announced US$15 million in funding, when Ran had been live for only six months.

Ran, a pay-per-visit booking service

These services come at the problem from different angles, but they and the fitness industry are moving in the same direction: using online booking to break the expensive, lock-in annual card.

Sounds wonderful, doesn’t it?

Another Taxi-Hailing War?

“To me, this is just another Didi-style subsidy war,” says Ji Zhongbin, head of marketing at Wulin Legend. The chain runs dance and fitness classes, with more than 30 studios in Beijing and about 400,000 members.

Like many fitness venues in Beijing, Wulin Legend once worked with several gym-booking apps at the same time. But Ji says its partnership with Quancheng Relian recently ended badly. “At 99 yuan a month, of course lots of people come, so there are lots of orders. But they thought we were faking orders,” he told QDaily.

We do not know exactly how the partnership broke down, but monthly services like Quancheng Relian do care a great deal about how often users actually turn up. A few weeks ago, Quancheng Relian quietly added a rule to its app: book and fail to show up more than three times in a month, and your account is frozen.

A screenshot of the Quancheng Relian app

The rule follows from how these platforms deal with gyms: for every visit, the platform pays the gym. Si Wei says paying members go to the gym three times a month on average.

This looks like a contradiction. The platforms want to win users with a better experience through a monthly plan, yet once the experience is good they don’t want you to go too often, because every extra visit means another payment to the gym. The platforms’ monthly plans work the same way as the gyms’ old model: both make money from lazy people.

Ran Fitness, fresh from its US$15 million round and now running costly lobby ads in office buildings through Focus Media, tries to sidestep the monthly model by charging 30 yuan per visit. CEO Wang Hao says the market is still being built, so Ran takes no cut and passes the full 30 yuan to the gym. On top of that, Ran pays a 20-yuan subsidy per order, so a gym actually gets at least 50 yuan per user per visit. The subsidy also rises in steps: the more orders, the bigger the subsidy per order...

Although it has split with Quancheng Relian, Wulin Legend still works with Ran, precisely because of the subsidies. “Business has got harder in the past few years. After the group-buying wars a few years ago, people spend more rationally and don’t buy membership cards on impulse any more,” Ji says.

Wulin Legend itself benefited from the group-buying war among Chinese internet companies around 2010, growing into a chain on the back of cheap classes and membership cards subsidized by group-buying platforms.

The subsidies are also why Wulin Legend even encourages its members to sign up for Ran Fitness to get discounted classes. “They can give us subsidies and help with publicity, so for now we mainly cooperate with the platforms. But in the future we may become competitors. Honestly, without subsidies, some merchants probably wouldn’t keep working with them.”

Partners, Increasingly Rivals

Asked whether he worries that his users will go on to buy annual gym cards, Ran Fitness CEO Wang Hao said: “I’m not worried about that at all. Once you’ve had better service, you don’t go back. After I started using Uber, I never took a taxi again.”

But unlike Uber, booking platforms have no control over gyms. Uber drivers can get work only through Uber. To earn weekly bonuses, they work a dozen or more hours a day and treat passengers well to win five-star ratings; otherwise the subsidy disappears. The relationship between booking platforms and gyms today looks more like the one between Didi, Kuaidi and taxi drivers in 2013. A taxi can pick up passengers without a hailing app, and for a gym an internet platform is just one channel among several. If a channel doesn’t pay off enough, the gym may drop it.

And gyms are already acting.

In late July, more than one Quancheng Relian user was turned away at the door after booking a class. Front-desk staff told a QDaily reporter that the partnership had ended. Quancheng Relian said the two sides were still negotiating and that it was talking to the gym by phone.

Baolihao’s IFC branch in Beijing

After that, Quancheng Relian users could get into the gym as normal, but during the weekday rush from 5 to 8 pm, those on the 99-yuan monthly plan could not use the lockers. They had to leave their bags beside the treadmill while they worked out, much like the group-buying customers who got second-class treatment in restaurants a few years ago.

The head of a mid-to-high-end gym chain in Beijing told QDaily that his company gives internet platforms only limited resources, because the deals don’t pay: “Right now only two of our Beijing branches work with them, and we keep it under strict control and cooperate very little. Recently a smaller startup came to me offering one hundred visits a month at one branch, 50 yuan a visit. There’s no way I can agree to that. The price is too low and the volume too small; it isn’t worth my while.”

“Quancheng Relian is a reseller. In effect it shrinks my role, and without them, we could do the same thing ourselves.”

So internet startups have begun turning from chains to smaller gyms. Ran Fitness CEO Wang Hao describes his criteria: “First, newly opened gyms suit us, because the space is nice and the equipment is new. Second, they don’t have many members or orders. We don’t really consider the big chains.”

Even so, the conflict between the two sides soon spilled into public view.

On August 14, an HTML 5 page began circulating on WeChat Moments under the title “Joint Statement of 100 Beijing Fitness Clubs: Boycott the 99-Yuan Monthly Gym Plans of ‘Xiaoxiong’ and ‘Relian.’” In it, a number of Beijing clubs announced an “alliance” that refuses to work with these services, claiming they “set up partnerships by buying the clubs’ single-visit cards, then sell them to consumers as 99-yuan monthly plans without authorization.”

The HTML 5 boycott page began circulating last weekend

Over the next few days, the “alliance” made three more HTML pages with similar content to spread its message. Its members include Tianao Yingpaisi, Rui Fitness and Bokang Fitness, clubs that each run five to ten branches in Beijing.

QDaily interviewed a member of the alliance who asked not to be named. This person said that platforms such as Quancheng Relian and Xiaoxiong Kuaipao bundle and resell gyms’ trial single-visit cards without the gyms’ permission, while telling the gyms the aim is to promote them, which this person called fraud.

When we pressed the source on whether gyms knew, when they signed up, that the services would sell the visits as monthly plans, the answer was vague.

We also spoke to Xiaoxiong Kuaipao, at the center of the dispute. It confirmed the boycott, said the matter was being handled, and said there was no outcome yet. Many of the gyms on the boycott alliance’s list are still available on Xiaoxiong Kuaipao or Quancheng Relian.

The Gym Will Change. It Is Only a Matter of Time

The gyms’ backlash is not hard to understand.

Building a gym is expensive. Ji Zhongbin of Wulin Legend says: “Take a small or mid-sized gym with a swimming pool, say 300 square meters. Rent and equipment alone mean putting up 1.5 million yuan at once. That’s before hiring anyone.” Most gyms, Ji told us, especially mid-to-high-end ones, don’t want to attract customers with per-visit pricing, because the money comes back too slowly.

A gym usually has far fewer machines than members; it is betting that many people who pay will never show up. Beyond the membership fee, users can also hire a trainer at the gym. At market rates of 300 to 500 yuan an hour, an ordinary member who takes one to three months of classes pays about as much as a membership card costs.

Gyms need annual-card revenue to pay fixed rent and to buy and maintain equipment. Trainers, for their part, had to attach themselves to gyms, which used to be the only place with a steady flow of customers. The two lived in symbiosis.

But since smartphones spread, the gym’s place as the “only place to spend” is changing. Today anyone can find a trainer, pay online and even take lessons by video, all through a phone. Even the gym atmosphere is being copied by apps where people show off their abs to each other.

Trainer Yang Dongxing has worked in fitness for five years. He used to be “stationed” at a gym, teaching clients while selling them classes, and the two sides usually split the money 50-50. Lately, though, his coexistence with the gym has been falling apart, because internet personal-training platforms are poaching trainers.

“Trainers all know about these platforms now. Most are just watching and wondering whether to jump,” says Yang, who tried services such as Jiaolian (“Call a Trainer”) and Chulian (“First Workout”) early on, submitting his profile and certificates to get “listed.” On these platforms you can now easily find all kinds of fitness classes. They offer trainers who come to your home for 100 to 500 yuan an hour, and rely on user ratings to weed out weak trainers.

Chulian, an at-home trainer service

Not long ago Yang also signed with Randian (“Ignition”), another at-home personal-training service, at a fixed 169 yuan an hour; it charges trainers no agency fee. Because it works with large internet companies such as Baidu, its clients are big-company employees, and Yang is fairly happy with it.

Another trainer, Mia, a “video coach” on the app Super Weight-Loss King, told us she no longer works at a gym either. Selling video classes keeps her fully booked five to six hours a day, all from home, at 99 yuan a session.

Besides no longer handing a share to the gym, trainers choose these platforms because they no longer carry the gym’s sales quota for classes.

“Before, the quota meant you had to teach and sell classes at the same time, and that actually hurt the teaching. On an internet platform that doesn’t happen. Without the quota, trainers can focus on getting results for clients, and in the long run you get more repeat customers.”

As with offline shops and taxis before them, traditional gyms cannot compete with mobile apps for customers, and expensive annual cards plus even more expensive trainers will not last forever.

For now, one-on-one at-home training is still small and not enough to threaten the gyms’ model. And because they depend on the gyms’ physical space, the platforms, whether they sell a 99-yuan “monthly card” or a 30-yuan “single-visit card,” end up as the weaker party in the partnership.

“We will grow together with the gyms,” is how Ran Fitness CEO Wang Hao describes the relationship between internet companies and gyms.

Yet in the late 1990s, when the internet was just getting started, Amazon also ran a business like this: operating online stores for offline chains such as Best Buy.