Builder of Ryan’s Abs Sees Beachbody Emulating Starbucks
(Corrects spelling of company name in 14th paragraph of story first published Aug. 31.)
Paul Ryan’s abs have helped sell a bunch of P90X workout DVDs.
Yet while orders of Beachbody LLC’s exercise program doubled in the week after Republican presidential candidate Mitt Romney chose him as his running mate, the company isn’t counting on the Ryan bounce to last.
“I don’t think your average American is more inclined to buy the program now,” said Jon Congdon, Beachbody’s president and co-founder.
He has other plans to turn the $600 million company into the Starbucks of health and fitness, and it doesn’t include capitalizing on Ryan’s widely reported devotion to the workout mashup of martial arts, yoga and other sports. Reversing a strategy that has persuaded millions of people to exercise at home on their own, the company is now trying to colonize the gym by starting a P90X certification program for trainers.
Pushing into gyms will win more exposure and boost sales of the DVDs and other offerings, including a vitamin drink mix called Shakeology that costs $120 a month and has become Beachbody’s top seller, Congdon said.
Beachbody is going after a U.S. fitness, training and weight-loss industry that generated $34 billion of revenue last year, according to IBISWorld. There’s plenty of room for growth with rising obesity rates and a Baby Boomer generation that’s more active and focused on their looks than previous retirees, according to the Los Angeles-based researcher.
“The world of fitness is very fragmented, and there is certainly an opportunity for a brand to become a standard,” said Tim Calkins, a marketing professor at Northwestern University’s Kellogg School of Management in Evanston, Illinois. “The challenge is that it’s difficult and will take a lot of money and time to become a leading brand.”
Congdon, 49, and Chief Executive Officer Carl Daikeler, 48, founded Santa Monica, California-based Beachbody in 1998. They had their first hit in 2005 with Power 90 Extreme, or P90X, a cross-training workout combining several disciplines, including resistance training and kickboxing. Adherents are supposed to see results in 90 days. Since its debut, P90X has sold about 4 million units worth $600 million.
Infomercials featuring chiseled creator Tony Horton and before-and-after shots of satisfied customers fueled sales and such later workouts as Insanity, which now outsells P90X.
Along the way, Beachbody benefited from unsolicited celebrity endorsements from the likes of singer Sheryl Crow and First Lady Michelle Obama. The resulting sales bounce faded quickly, as it will in Ryan’s case, according to Congdon.
“While curiosity behind the program has gotten some extra sales, it isn’t going to affect us on a monumental scale,” said Congdon, who’s more bullish on the new gym strategy.
So far, 1,200 people have been certified in P90X training and thousands more will follow, he says. A certification for teaching classes patterned after Beachbody’s Brazil Butt Lift and Insanity workouts are also in the works.
In June, Beachbody signed a revenue-sharing partnership with the National Academy of Sports Medicine, a for-profit fitness educator, to help create the $500 program and market it to its 150,000 customers, including 40,000 certified trainers.
This month Beachbody also acquired Powder Blue Productions, which already has certified more than 60,000 instructors to date in its Turbo Kick, Hip Hop Hustle and PiYo workouts. Classes based on its programs are already being conducted in health clubs, including chain 24 Hour Fitness.
“If you can take the power of a brand like P90X and use it as a vehicle to drive people back into clubs and working with a personal trainer, then it’s a phenomenal marriage,” said Andrew Wyant, president of the Chandler, Arizona-based NASM. “You’d be hard-pressed to find a trainer who isn’t familiar with P90X.”
It’s not hard to see why. At any one time, Beachbody is running a half-dozen infomercials. This year the company will spend $120 million on advertising, including $100 million for television. That’s 20 percent of Beachbody’s $600 million in projected annual revenue, almost double the 11 percent of sales that Nike Inc. (NKE) spends on marketing.
Buying air time for 30-minute infomercials mostly during weekend mornings was the core of Beachbody’s business model until 2007 when it created a multilevel marketing network called Team Beachbody, run by Daikeler.
The network works by assigning what the company calls a coach to customers. The coach then introduces add-on products such as Shakeology drinks, which, like other Beachbody products, aren’t sold at third-party retailers.
People become coaches by paying $39.99 to join and a monthly fee of $15.95. They get discounts on products and receive a cut of what they sell to customers. They can also earn money by signing up coaches and getting commissions from their sales. The highest-paid coach made $1.42 million last year, according to the company’s website.
There are now more than 94,000 coaches, up from 50,000 a year ago, with many acting as another marketing arm of the company by promoting and selling Beachbody products on the Web. As a group, the coaches will generate a 70 percent increase in sales to about $240 million this year, according to the company. That accounts for 40 percent of revenue with the rest coming from phone and Web orders.
Customers spread word of mouth by posting an abundance of video testimonials on Google Inc.’s YouTube. That helps explain how a DVD set selling for for more than $100 and promises of intense workouts with exercises like prison cell push-ups flourished during and after the downturn.
Congdon acknowledges the push into gyms is a bit awkward given the infomercials pitching Beachbody workouts as a cheaper, better alternative to a health-club membership.
“Although we sell against the gym in our advertisements, we realize some people are social and just want to go to the gym,” Congdon said. “We don’t want to leave them out.”
Beachbody still sees growth opportunities in home workouts. It’s going after senior citizens with Tai Cheng, a $120 DVD set that teaches the health benefits of Tai Chi movements. Beachbody plans to release a program for kids, too. The company, which generates about 95 percent of its sales in the U.S., also has set its sights abroad.
Beachbody’s sales growth and the increased focus on wellness and fighting obesity in the U.S. has garnered plenty of interest from potential acquirers, Congdon said. At this point, though, the company has declined because it believes it can reach “multi-billion” sales on its own, he said. An initial public offering hasn’t seriously been discussed either.
“There is a huge epidemic of obesity in this country,” Congdon said. “There over 200 million people who are overweight, or obese, and do not know what to do about it. We believe we are the solution.”
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