CorePower Yoga & The Rise Of Consumer Driven Healthcare
Our grandmother used to say “Health is wealth.” As fitness enthusiasts and scholars of the dollar, this resonates with us on a personal and professional level. We have experienced firsthand the power of personal movement as athletes, coaches, and people. Paying more than $100 a month for a membership to a CrossFit gym ourselves, we recognize the profit potential that resides in empowering people seeking health, wellness, and fitness. This is why we are constantly evaluating business models in that arena.
A few months ago, we took a look at the yoga market. Among the leading multi-unit yoga chains is CorePower Yoga (“CPY”). Having been purchased in 2013 by private equity group Catterton Partners for a rumored 10x-15x EBITDA, we chose to start our analysis at the unit level rather than the enterprise level to see what propelled such a valuation. As you can see in the table below, estimated unit level profits are nothing but impressive and give rise to the question why anyone with the coin and the interest has not bought a CorePower franchise location yet.
The figures are estimates based on publicly available information of 2013 franchised units and Splash 4 Partners' analysis of the data.
Splash 4 Partners real interest in CorePower Yoga resides in its ability to integrate education / training, fitness, consumer branded products, technology, and scale into a single platform.
Training, Fitness, & Scale
There is a reason they are called yoga classes. Students come to learn movement, positions, and breathing, and they are taught through experiential instruction. Many participants receive an endorphin release from the activity and become dedicated members of the studio’s community, which in return breads a stickier customer. The financial results of which we already highlighted above.
In addition to the Company’s marketing efforts, students opt for the CPY brand because of the focus placed on quality and consistency of curricula. In order to achieve consistency across the brand, instructors have to go through 200 hours of training provided by the corporate parent. CPY executives have turned a traditional cost center—staff / instructor training—into a revenue generator and strategic asset for growth by opening their training and certifications to outsiders for a fee. According to Amzak Capital, more than 2,000 people a year go through this training. This has allowed CPY to source talent trained in its techniques, image, and culture as they open new locations and geographies.
Consumer Branded Products
CPY has enhanced the customer experience by partnering with premium yoga brands, such as lululemon, to be a one stop shop for yoga classes, a yoga community, and the yoga uniform (apparel) that go along with it. In fact, we estimate that the average CPY studio generates $30,000 to $40,000 of incremental revenue selling yoga related products.
Leveraging its existing content and curriculum, CPY has expanded its customer reach using technology to offer access to streaming on-line videos. With more than 70 videos available for a monthly subscription fee, the Company is positioned to capture a portion of the growing digital yoga class market for the at home or on-the-go participant. By adding a technology-enabled, do it on your own time at your own pace offering, it increases the likelihood that CPY captures more of the population new to yoga (a market that has been growing at 6.5% annually) and before it even has studios in those customers’ local markets. Furthermore, with a recent study suggesting that 44% of people not practicing yoga are interested in trying it, the on-line, digital offering creates a low-cost, low intimidation way for beginners to give it a try before stepping into a CPY studio.
The Rise of Consumer Driven Healthcare
While we offer props to CorePower Yoga for its ability to execute, we believe their success and the success of other branded conditioning and fitness programs (such as CrossFit, SoulCycle, YogaWorks, and UFC Gyms) is part of a broader macro trend among consumers. As the landscape of healthcare continues to change, individuals are increasingly incented to act as consumers of healthcare rather than passive patients. This includes allocating spending to non-third party payer funded products and services.
Deloitte Consulting reports that out-of-pocket consumer healthcare spending—which excludes fitness related spending—in 2012 was $672 billion in the U.S. Nutrition supplements represents $60.5 billion of the $672 billion, while complementary and alternative medical services account for another $33.8 billion.
Below are a few additional ways consumers are expanding their definition and consumption of healthcare by choosing to:
- Pay for expensive gym memberships that incent utilization;
- Consume organic, non-GMO, gluten free, paleo, or vegan foods;
- Seek alternatives to traditional medicine that are not traditionally reimbursed by health insurance, such as acupuncture, Active Release Technique, and nutrition counseling;
- Screen for genetic predisposition of disease; and
- Partake in the biohacking movement by regularly testing glucose levels, mapping the biome of the digestive system, and databasing numerous metrics gathered by their wearables.
The Affordable Care Act and an aging demographic have set the stage for the expansion of the awakened healthcare consumer. Splash 4 Partners looks for continued opportunities to partner with companies that look to meet the growing consumer demands in these fields. In coming Splash 4 Insights, we will explore the trends and opportunities we are seeing in the various industries both in and outside of the health, wellness, and fitness space.