The Gym Group's Premium Bet: A Risky Move in a Cost-of-Living Crisis

The Gym Group has posted a £10.6m pre-tax profit for 2024, up 194 per cent year-on-year, whilst simultaneously pushing ahead with an unusual strategic gamble: expanding into premium fitness sites during what remains a cost-of-living crisis. All 16 of the new sites it opened last year belonged to this higher-end format, bringing its premium estate to 37 locations. The move upends conventional recession-era retail logic, with London's only listed gym operator betting that a segment of its 900,000-strong membership base wants—and can afford—something more expensive.

What makes the strategy particularly intriguing is who's paying for it. The Gym Group claims 44 per cent of its members are Gen-Z, a demographic facing stagnant real wages, soaring rents, and virtually no prospect of homeownership in major cities. This is the generation supposedly locked out of wealth accumulation, yet 73 per cent of them are exercising at least twice weekly at these facilities.

The premium puzzle

The company hasn't disclosed specific pricing for its "elevated, more premium design format" locations, which complicates any assessment of whether this represents a genuine tier shift or simply better lighting and marginally nicer changing rooms. Context matters here: premium London operators like Third Space charge £200-300 monthly, whilst mid-tier chains like David Lloyd sit around £100-150. If The Gym Group's premium offering slots in at £30-40, it's still a budget product with fancier fixtures.

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That ambiguity aside, the strategic direction reveals something about member behaviour that challenges assumptions about generational spending. Either Gen-Z gym-goers are trading down from genuinely premium brands—in which case The Gym Group's timing is shrewd—or they're demonstrating a willingness to stretch budgets for perceived lifestyle upgrades even as they cut back elsewhere.

The market appears bifurcated: consumers either want cheap and functional or premium and comprehensive, with the squeezed middle struggling.

The gym sector's post-pandemic trajectory supports the latter interpretation. Pure Gym, which operates a similar low-cost model, has steadily acquired former Fitness First locations and expanded to roughly 500 UK sites. David Lloyd, positioned in the premium segment, reported membership growth in its last financial update despite charging multiples of budget operators' fees.

Reading the Gen-Z data

The 44 per cent Gen-Z membership figure deserves scrutiny. Anyone born between 1997 and 2012 qualifies for this cohort, meaning the oldest are now 28 and likely represent the bulk of this demographic within The Gym Group's membership base. These aren't teenagers; they're early-career professionals, albeit ones facing structurally worse economic conditions than Millennials encountered at the same age.

What's interesting here is that gym membership—even budget gym membership—represents discretionary spending. Food, transport, and rent aren't optional. A £15 monthly direct debit is, particularly when bodyweight exercises and outdoor running cost nothing. That Gen-Z members are both joining in substantial numbers and exercising frequently suggests they're prioritising physical fitness as a non-negotiable budget item.

A gym membership delivers tangible utility—stress relief, social connection, visible fitness outcomes—in ways that discretionary purchases often don't.

This spending pattern aligns with documented shifts in Gen-Z consumer behaviour, particularly the prioritisation of health and wellness over material goods. Research published by McKinsey last year found that younger consumers consistently rank physical and mental wellbeing above traditional status purchases.

Strategic constraints and opportunities

The Gym Group's status as a listed operator—it sits on the FTSE All-Share with shares trading around 178p following a two per cent bump on Wednesday's open—creates both pressures and advantages that privately held competitors don't face. Public markets demand growth narratives. Simply maintaining 260 locations and steady membership doesn't satisfy institutional investors.

The company's £10m share buyback programme, which has already repurchased over one million shares, signals management's confidence in future cash generation. But it also reflects limited acquisition opportunities in a sector where the largest players are privately held and expansion via new site openings runs into the basic constraint of suitable property availability in target catchment areas.

Premium format locations offer a path to revenue growth without proportional cost increases. If the company can command even modest pricing premiums—say £25-30 versus £15-20—on largely similar operating costs, the margin expansion compounds quickly across dozens of sites. The risk, of course, is brand confusion. Customers associate The Gym Group with value.

The company plans 20 new openings this year, targeting roughly 75 additional locations over three years. Whether these skew premium or budget will indicate how seriously management takes this format shift versus treating it as a contained experiment. The membership data over the next 18 months will matter more than the profit figures.

However, this isn't the first time the company has navigated challenging market conditions. Just two years ago, the company faced a £10m surge in energy bills as post-Covid recovery proved slower than anticipated. The contrast between those struggles and today's strong profit performance demonstrates the operational improvements the company has implemented—though whether that momentum can sustain a dual-brand strategy remains the critical question.

Meanwhile, the low-cost gym sector has more than doubled its market share over the last decade to 19% of the total market, suggesting The Gym Group's move upmarket might be swimming against a powerful tide of consumer preference for value. The company's recent announcement that it's expanding access to popular workouts and fitness trends heading into 2025 adds another layer of complexity—is this premium expansion or value enhancement?

More articles by Ross Williams