Global Obesity, Planet Fitness

09/22 GIB Asset management

Global Obesity, Planet Fitness

Today we observe National Fitness Day. A day which highlights the role physical activity plays in assisting society to lead healthier lifestyles. The challenge we see around healthy living is obesity, a global issue that is increasing exponentially around the world. In 2017, it was estimated that over 40% of the US population was obese¹.

The solutions to tackle obesity are varied and complex, but one of the most straightforward is exercise. The WHO reports that globally 1 in 4 adults do not meet the recommended level of physical activity, and up to 5 million deaths a year could be avoided if we were more active².

Longer working days, increases in sedentary behaviour (e.g. screen-based entertainment) and cities designed to promote ‘passive transport’ all contribute.

Obesity-related health conditions include a range of non-communicable diseases such as heart disease, type 2 diabetes and certain types of cancer, all of which are amongst the leading causes of preventable and premature deaths³. Why does this matter? Apart from the emotional costs that accompany avoidable health conditions and premature deaths, there is also a significant financial cost borne by society. Indeed, the annual medical cost of obesity in the US is estimated at over $260bn, and individual medical costs for people who are obese are over $2,000 higher than the costs for people with a healthy weight⁴.

It is apparent obesity is a significant challenge. As an investment team, this is our starting point to search for companies that can deliver the most effective solutions to these challenges. We do this because we believe that companies whose products and services deliver these solutions will grow significantly faster than their peers and the economy. We believe that growth in fitness solutions could be >8% for many years to come⁵.

Studies suggest that participation in exercise is associated with a 20-40% reduction in all-cause mortality compared with non-participation⁶. This makes it an enabler of Sustainable Development Goal 3 to reduce premature mortality from non-communicable diseases by 1/3 by 2030^7. The pay-off from achieving this goal is striking. For example, the CDC estimates that increasing physical activity amongst the US population could prevent 1 in 8 cases of breast cancer and 1 in 12 cases of diabetes⁸.

One of our key opportunities in the space is Planet Fitness, the US's leading low-cost, high-value gym operator. Through their mission to democratise fitness and make it accessible to all, Planet Fitness target first-time gym members- a huge market in the US as 76% of the population have never had a gym membership (Planet Fitness). Some of the challenges they solve include cost, $10 a month; convenience, over two thousand sites across the US to be local to the whole population; and intimidation, they create a welcoming atmosphere under their "Judgement Free Zone" banner^9.

Typically, 40% of new members at Planet are first-time gym members¹⁰. We estimate that since 2012 the business has been responsible for bringing c.4.5 million people into the gym system and helping them to get fitter¹¹. This has contributed to attractive margins and returns on capital, averaging above 30% since listing. Membership numbers passed their pre-Covid peak levels earlier this year, and the CEO recently commented that members are visiting the gyms more frequently than they did in the past. Planet Fitness is stepping up investment and recently became the first fitness brand to achieve the 'WELL Health-Safety rating', a global accreditation given to those companies who ensure their premises offer the highest level of health and safety standards in their industry¹².

We believe that Planet Fitness can emerge from the pandemic a stronger business, delivering attractive financial return and positive impact throughout this decade and beyond. We forecast a doubling of members to over 30 million by 2028 and 4x growth in profits, driven by the positive impact of attracting c.7m people to join a gym for the first time¹³.

The cleaner, fairer and safer world that we are investing to deliver requires healthy people to enjoy it. Therefore, we believe companies that positively impact our fitness can create attractive financial value.

"Planet Fitness sells a judgement-free fitness solution; our judgement is that this positive impact will deliver positive returns"¹⁴.

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