Olav Thorstad

CEO of Health & Fitness Nordic Group

The great sprint of a fitness empire

SATS ELIXIA case

The fitness trend took off during the mid-90s, and a fitness membership card has since become a fixture in many wallets. This proved to be a golden opportunity for the fitness industry, which has flourished due to the continuously growing demand. SATS ELIXIA grew as a consequence of this, and became Scandinavia’s largest chain of fitness centres. Eventually, however, harsh competition from both low-price players and niche clubs squeezed SATS ELIXIA into an unfortunate, middle-market position, which ultimately forced them to redefine their entire value proposition.

The great sprint of a fitness empire

SATS ELIXIA case

The fitness trend took off during the mid-90s, and a fitness membership card has since become a fixture in many wallets. This proved to be a golden opportunity for the fitness industry, which has flourished due to the continuously growing demand. SATS ELIXIA grew as a consequence of this, and became Scandinavia’s largest chain of fitness centres. Eventually, however, harsh competition from both low-price players and niche clubs squeezed SATS ELIXIA into an unfortunate, middle-market position, which ultimately forced them to redefine their entire value proposition.

Between a rock and
a hard place

SATS ELIXIA is the result of a merger between SATS, Fresh Fitness and ELIXIA. In August 2014, the three joined forces under one organisation named Health & Fitness Nordic. With over 200 clubs, 500,000 members and a revenue of more than NOK 3 billion, they are the biggest fitness player in the Nordics. A merger can be somewhat of a challenging process – and this was no exception. However, after a year and a half, SATS ELIXIA found themselves on the other side of a somewhat bumpy ride, which had taken them through the implementation of internal processes and systems as well as a range of cultural challenges. “It has been a pretty rough journey”, Olav Thorstad, CEO at Health & Fitness Nordic, explains. “However, we made it all the way through, and eight months ago, we were ready to evaluate our situation and ask ourselves; where do we go from here?”

If, like many others, you have taken part in the fitness mega trend, you will not be surprised to find that fitness is an industry of harsh competition. Despite the industry being rather new, there are many players in the market, competing on both price and a wide range of offerings. Consequently, traditional ‘all-inclusive’ clubs like SATS ELIXIA find themselves squeezed between the low-priced companies and the more exclusive niche clubs. As Olav states, “Being stuck in the middle is not an optimal situation for those of us who have read Porter. But that was the situation we were in, and this created the basis for us to re-evaluate our strategy”.

Olav Thorstad
CEO at Health & Fitness Nordic Group AS

As the CEO of a fitness empire, you are somewhat obliged to go to lengths with your own physical training. Olav’s fitness conscience, however, is as clean as can be. Besides the mandatory Norwegian national sport of cross-country skiing, he enjoys running as well as kayaking during the summer. Also, he does strength exercises together with his personal trainer a couple of times a week. All of this alongside a job that most would define as being rather demanding, and (most importantly) his family life as a husband and a father of three.

Design by preference

Knowing that SATS ELIXIA was already the biggest player in the Nordics, Olav was challenged by the board on how to utilise the fitness chain’s scale to its full extent: “We realised that we needed to become more relevant to more segments by modifying our memberships. In order to fight more effectively against low-price competitors, we needed to offer a gym-only membership, while at the same time introducing new services and new niche products to become more relevant to the members who traditionally preferred niche clubs. This led to a new strategy, centred on the needs of individual consumers, enabling them to pick and choose services and thereby designing their own individual membership. Their deal should fit their needs, not the other way around. In addition to this, we developed new concepts for the niche club segment in order to retain and recruit members. Also, we invested heavily in digital services, with the aim of improving our web sale processes and services. This has resulted in an increased web sale – going from 5% to almost 30%”, Olav explains.

SATS ELIXIA has approximately 160 fitness centres across the Nordics, which offer a range of different fitness classes, online training, family training, PTs and more.

A top priority in SATS ELIXIA is that all members feel safe during their workout. Therefore, all SATS ELIXIA fitness centres have a defibrillator, and the staff receives CPR training.

In 2014, SATS and ELIXIA merged, creating Scandinavia’s largest chain of fitness centres. In Sweden, the fitness centres go under the name SATS, while in Norway and Finland, they continue to operate as two brands.

“Being stuck in the middle is not an optimal situation for those of us who have read Porter. But that was the situation we were in, and this created the basis for us to re-evaluate our strategy”.

Don’t bet on commodities

In times where we are exposed to target advertising based on our search history, and where Google can calculate your work and home addresses based on your geographical movements over time, the idea of customised memberships is not very far-fetched. To Olav, the idea came as a natural result of previous discussions: “Having a menu-based membership structure is something that we have discussed for years. The challenge was to turn it into reality. The amount of small details that had to fall into place was enormous: the digital solutions: what should the members be able to choose from, and how? What should the prices be? What pilot areas should we choose, and what about our current members, would they downgrade? The list of questions was long”. Olav continues: “We were afraid of reducing the margin on our generic products, since that was where we made our key profit. I believe this is a common challenge for premium players across industries. However, to succeed as a premium player, you have to make your money on what makes you unique, and not from taking a bigger premium on the commodities”.

And that’s exactly what SATS ELIXIA did. With the new business model, they found that their members were indeed willing to pay when offered the opportunity to choose what to pay for. As obvious as it may sound, creating the flexibility of customised solutions has induced a feeling of substantially increased value for money among their consumers. “People don’t want to pay for childcare if they don’t bring their children to the gym. But they have no problem paying for other things, as long as they feel that the value increases. Of course, there are some members who only want to use the studio, but a lot of our consumers actually upgrade, adding more services to their membership. Consequently, the average yield has not gone down with the launch of the new membership structure. We believe this is due to the fact that the opportunity to pick and choose according to the members’ personal needs gives an improved feeling of value for money”, Olav explains. The key finding for Olav has been that price is not the main obstacle for SATS ELIXIA’s members, it’s the established value. The members perceive the new membership structure as higher value for money, which is reflected not only in the financials, but also in a corresponding consumer satisfaction survey. A textbook win-win situation.

“You have to make your money on what makes you unique, and not from taking a bigger premium on the commodities”.

From ‘No, thanks’
to ‘Yes, please’

To SATS ELIXIA, the transformation of the value proposition has had an impact on the internal organisation as well. Quite significantly in fact. From selling a one-for-all solution, SATS ELIXIA now sells multiple products to both new and current members. “Our entire organisation now works with our core product. This means that every single member of this organisation has to know the product much better than they did before. This has created a great sense of pride throughout our organisation. The cultural effect has been extremely positive, and it was not something we anticipated when we started on this journey. Our people have become much more positive, much more competent, and that is our key product. This is something which our competitors cannot simply copy”.

In the past, SATS ELIXIA closed the deal with three out of ten potential new members who considered buying a membership. Today, they have doubled the figures, and are now closing six out of ten. “When you close three out of ten potential membership deals, seven are actually saying ‘No, thank you’ to what you have to offer. When the statistics take a turn and 60% suddenly say ‘Yes’, this has an important cultural impact. It makes people proud to work at a place where customers actually want the product you’re offering”.

Though the launch of the new SATS ELIXIA is still embryonic, the results are quite convincing. The numbers reveal increases in terms of both revenue and members. “In the pilot areas where we have pre-launched the product, we see an increase of 10-20% in terms of volume. These are the highest numbers I have ever seen in my nine years in the industry. We are of course very excited. However, it will be interesting to study the migration and retention effect over time. How will this affect the average lifetime of memberships? Our hypothesis is that when you can buy something that serves your needs more specifically, it will help on the retention rates as well”, Olav says.

Peer training is the future

“If our new approach becomes successful, I’m sure that our competitors will copy it as soon as possible. The next step for us is to continually develop new and better products and services for a broader range of members, by creating more relevant concepts such as weight loss and performance. Previously, we have been a bit too technical in terms of products, and we have to conceptualise much more in order to improve development”, Olav declares when asked about the future outlook for SATS ELIXIA.

In the early days of fitness, members went to their local gym, lifted some weights or went for a jog on the treadmill, and returned home with an eased conscience. Today, digital platforms such as Facebook enable peers to create online running groups, where the members can track each other’s progress and cheer each other on. It has become easy (at least in theory) to work out at home with the use of one of the countless apps coaching you through sit-ups and push-ups on the floor of your own living room. Accordingly, the borders between training at home, in the outdoors or at the gym are being erased. However, Olav wants SATS ELIXIA to become the starting point of all training, by providing the opportunity for their members to be part of a community. “I believe that in order to be a successful fitness provider in the future, you need to provide relevant training to your members wherever they are. Building a community is the key. We have 500,000 members – all with very specific goals – and they can find their peers among the remaining 499,999 members”, Olav explains. “For us to be successful in the future, we need to go beyond training at our clubs. We need to be present and relevant for our members, whenever and wherever they are. That is our ambition”.

By focusing on the social aspects of training, Olav also sees a potential of strengthening the public health, which is becoming increasingly important with the ageing of the population. “There’s a big potential for fitness clubs, which are distributed across all countries in the Nordics, to work together with the municipalities in creating programmes especially for the elderly. Everybody can do strength exercises at home, but nobody does it, because it has to be part of a social interaction. It is not easy to become stronger, and it is very boring if you have to do it yourself. I think that the role of fitness clubs as social centres that bring people together is extremely important in regard to the public health. And it is something I hope will develop going forward”.