Planet Fitness wants to bulk up, but opening new locations has become a challenge. Consumers are demanding more convenient, low-cost gyms like Planet Fitness, according to the company, but persistent inflation, lack of suitable space and onerous construction costs are slowing openings.
Planet Fitness has 2,400 units and at this time last year anticipated opening another 600 by the end of 2025, based on franchise contracts. Headwinds have slowed that progress significantly, CEO Chris Rondeau told investors on a second-quarter earnings call, as franchisees are waiting for costs to decline before they move forward.
For 2023, Planet Fitness had expected 160 new locations to open, most of them franchised. But franchisees can’t build at the anticipated pace, according to Rondeau. In the second quarter, for example, Planet Fitness opened only 26 new locations, down from the 34 it opened in the second quarter of 2022.
“The cost to build a new gym remains 25% higher than pre-COVID, and we’re hearing from some franchisees that it’s still increasing slightly,” Rondeau said. The amount of capital required to build six stores per year in 2019 will only build four or five now, depending on the situation, he said.
The rapid increase in interest rates over the past year also has hurt some franchisees’ ability to invest in growth, especially those backed by private equity funds with aggressive capital structures, he added. More franchisees are asking for grace periods before meeting their contracted store opening commitments.
Another woe for franchisees is the HVAC supply chain, and the company doesn’t expect the lead time on new systems to get any shorter this year.
Additionally, it’s also hard to find the right real estate, he said. “We’re seeing that 16% decline in the vacancy rate of retail space versus pre-pandemic, making it slightly more difficult for our franchisees to find the right space in the right location.”
In the meantime, Planet Fitness is not slowing plans to sell memberships. The company is spending $250,000 marketing to new members in 2023. Sales at locations that have been open at least one year climbed 8.7% in the second quarter. Gen Z customers are signing up in large numbers, according to the firm.
8 Food-and-Beverage Tenants Making Headlines
The Cheesecake Factory Inc. is intent on opening locations in 2023, despite permitting and construction challenges that continue to delay dates. The company is working on 20 new restaurants in fiscal 2023, including as many as six Cheesecake Factory restaurants, five North Italia restaurants, and as many as nine small-format concepts from its Fox Restaurant Concepts incubation division, including three Blanco Cocina + Cantina locations, three Flower Child locations and one Culinary Dropout location.
Breakfast and lunch brand First Watch wants to more than quadruple in the coming years to 2,200 owned and operated restaurants in the U.S., starting with 45 to 51 this year, according to Nation’s Restaurant News. Some will be franchises bought back from franchisees. Sales at First Watch units that have been open for at least one year climbed 7.8% year over year in the second quarter.
McDonald’s franchisees saying dining rooms no longer make for a profitable use of space. Before the pandemic, dine-in customers accounted for a quarter of all sales at McDonald’s restaurants, but they’ve accounted for just 10% in recent months. Across all U.S. fast-food chains, dining-in represented 14% of orders through the first five months of 2023, down from 21% just before the pandemic and 22% in 2015, The Wall Street Journal reported, citing data from Circana. The chain also announced a small-format, retro-inspired concept called CosMc’s that it’ll test in early 2024.
Olive Garden achieved the highest sales day and sales week in the chain’s history during the week of Mother’s Day this May, according to owner Darden.
Authentic Restaurant Brands is acquiring Fiesta Restaurant Group, the parent company of the 137-unit Caribbean-chicken chain Pollo Tropical, for $225 million. ARB’s private equity investors want more exposure to the growing Latin American dining market.
Consumers’ interest in home delivery of quick-service food orders is waning, according to some operators. More diners are placing their orders on-site or are picking up their orders at restaurants. Fewer Shake Shack customers, for example, ordered home delivery during the second quarter. Dine-in orders are more profitable, CFO Katherine Fogertey said during a second-quarter earnings call. Shake Shack wants to slash costs this year by directing more customers to use self-ordering kiosks in restaurants, she added.
Fat Brands will expand Twin Peaks to 200 locations in the next several years by taking the brand, known in part for scantily clad servers, public. Fat Brands also wants to purchase similar concepts and convert them to the Twin Peaks’ “sports lodge” concept. The company is opening 18 to 20 Twin Peaks locations this year, bringing the total number to 115.
Fast-casual dining chain Urban Plates plans to grow in 2024 thanks to $27 million in financing from Morgan Stanley Expansion Capital. The chain of 17 restaurants features a sustainably sourced menu and customizable meals. Urban Plates plans to open two locations in the second half of 2023.
Federal Is Banking Residential Entitlements
Federal, which just increased its yearly profit forecast, is keeping its development team busy getting residential space permits, even if the projects don’t pencil today. The REIT recently scored full entitlement to add apartments at its 249,000-square-foot, Trader Joe’s-anchored Federal Plaza in Rockville, Maryland. “We have 500 units shovel ready that we could do today, and we’re really looking hard at the numbers to see what we can underwrite,” CEO Donald Wood said on a second-quarter earnings call. The company is working on entitlements to add residential and other uses to 12 additional properties, he said. “We try to do it with our own capital so we can move the needle and make a higher return. Some of the projects don’t pencil today. So what? We have them ready for when it does.”
Simon and LVMH
LVMH now ranks among the 10 inline retailers paying the most in total base rent to Simon. The luxury conglomerate and parent of Fendi, Christian Dior and Louis Vuitton has 105 stores occupying 393,000 square feet in Simon properties. The REIT’s upscale malls continue to draw interest from luxury operators new and old, chair, president and CEO David Simon said on a second-quarter earnings call. “They build the best stores. They think longer term over any retailer that we’ve ever experienced. They have loyal customers. So we want to do as much business as we can with them.” Though some luxury sales growth has flattened in recent quarters, the numbers are still as much as 30% above where they were in 2019, Simon said. “Sales will flatten, they’ll go up, they’ll go down, but their commitment to their customer and what they do in the stores goes unabated.”
A Robot Security Guard in Cleveland
Crocker Park outside Cleveland in Westlake, Ohio, has deployed a security robot to ensure the safety and peace of mind of visitors, residents and tenants. SAM, which stands for Secret Agent Man, is a Knightscope K5 autonomous security robot that can stream and record video in 360 degrees and can do thermal imaging. SAM’s artificial intelligence detects anomalies and issues real-time alerts to the property’s on-site security team. SAM will patrol the 1.2 million-square-foot mixed-use property around the clock at 2 to 3 miles per hour looking for theft, car accidents, fires, vandalism and more.
SAM patrols Crocker Park.
By Brannon Boswell
Executive Editor, Commerce + Communities Today