A David and Goliath battle is brewing in the fitness industry. A small independent gym is taking on giants Virgin Active and Planet Fitness, as well as medical insurance companies that reward their members with discounted gym membership fees.
In its sights are Discovery Health’s Vitality, Sanlam Reality and Momentum’s Multiply wellness rewards programmes.
Antonio Iozzo, founder and CEO of Body Action Gym based in Bedfordview, east of Johannesburg, is alleging cartel-like behaviour, arguing the subsidised gym membership offered exclusively to members of the three insurers’ wellness rewards programmes who exercise at Virgin Active or Planet Fitness are anticompetitive and prevent independent gyms like his from growing members and expanding countrywide. He has taken his fight directly to the Competition Tribunal.
Body Action is described as a “six-star, 5,000 square metre megafacility” that cost R130m to start. It aims to become an effective competitor in the fitness market, with more premium clubs opening in other cities. The tribunal complaint defines premium gyms as facilities that have multiple offerings and charge more than R400 a month.
Virgin Active, the biggest player in the fitness industry, has 133 gyms across the country with more than 700,000 members. One of its gyms is located 300m from the Body Action gym, and another 3.2km away. Planet Fitness has 250,000 members and 32 gyms countrywide. One is situated 1.4km from Body Action.
Discovery Vitality has 1.9-million customers and is the largest health promotion programme in South Africa, accounting for 75.6% of the market. Momentum Multiply has 350,000 members and Sanlam Reality 265,000.
Iozzo said he had made numerous requests to Discovery, Sanlam and Momentum to include his gym in their wellness rewards schemes so their members can receive subsidised fees to exercise at Body Action. This, he said, would increase foot traffic substantially and allow the brand to expand nationally; but his pleas have fallen on deaf ears.
Body Action first challenged the arrangement through a complaint with the Competition Commission, but after investigations, the commission ruled against it. Iozzo then “self-referred” his complaint to the Competition Tribunal.
In a substantial complaint to the tribunal, he claims the relationship between the medical insurance groups and the two large gym companies has resulted in abuse of market dominance at the expense of smaller players.
The respondents in the matter all deny the claims.
Iozzo’s complaint lays out in detail how a non-subsidised customer at Virgin Active Bedfordview pays a monthly membership fee of R1,090 for a 12-month contract, while at Planet Fitness in the same suburb, a non-subsidised member pays R1,049 for a similar contract.
Virgin Active does not engage in any collusive or exclusionary behaviour with any of its rewards scheme partners, and any complaints to this effect have, on numerous occasions in the past, been found to be without merit
However, a subsidised Discovery Vitality member only pays R272.50 at Virgin Active, and R262 at Planet Fitness. This equates to a monthly saving of R817.50 at Virgin Active, and R787 at Planet Fitness.
“This results in distorted market prices for premium full-service gyms, considering that Vitality membership is only R329,” he argues.
Body Action sets monthly fees similar to those paid by non-subsidised members of the two big gym outlets.
“The extent of the subsidies to Virgin Active and Planet Fitness [is], accordingly, substantial and, without similar or equivalent subsidies, Body Action Gym is prevented or impeded from participating or expanding within the relevant market.”
A survey commissioned by Body Action Gym using market research firm Plus 94 found that in the Bedfordview area 56.6% of gym or fitness facility members work out at Virgin Active, and 36.7% are members of Planet Fitness.
Iozzo argues the agreements between the rewards schemes and the two large gym companies are restrictive and prevent competition in the fitness market.
“The wellness rewards discounts have a strong impact on consumer choices of gyms, resulting in the exclusion of Body Action Gym and similar gyms from premium gym markets. The price differential as a result of the subsidies is of a magnitude that cannot be matched or subsidised directly by Body Action Gym without making it uneconomical.
“As a result, the end price faced by Body Action Gym in competing for the Planet Fitness and Virgin Active customer makes them uncompetitive.”
He said premium gyms in a similar position were unable to attract premium customers due to the exclusive agreements the rewards schemes have with the two big gym outlets.
“The respondents’ relationship has rendered Body Action Gym a less effective competitor. This is borne out [in] the fact that the deciding factor regarding which gym to take up membership at is the discount or savings on membership fees offered by rewards schemes.”
Iozzo wants the commission to compel Vitality, Sanlam and Momentum to extend the rewards benefits to his and other independent gyms.
In response, Virgin Active dismissed the “self-referred” complaint as having no merit. It said all contractual agreements with rewards schemes partners were “prepared and reviewed by expert competition law practitioners who ensure that the contracts comply with all competition laws” which the Competition Commission had been given sight of.
“Virgin Active does not engage in any collusive or exclusionary behaviour with any of its rewards scheme partners, and any complaints to this effect have, on numerous occasions in the past, been found to be without merit.”
Lisa Short, on behalf of Planet Fitness, said they were aware of the complaint first laid with the Competition Commission and later self-referred to the tribunal.
“We are of the view that the complaint is without merit and fails at the level of fact and law. There is no basis to the contention that Planet Fitness is anticompetitive.”
Short said medical schemes chose which companies to associate with for the benefit of their members in the interest of encouraging healthier lifestyles.
“There are several medical schemes offering benefits to their members whose associations are not limited to Virgin Active and Planet Fitness. We have always offered affordable and flexible membership options, and the majority of Planet Fitness members are what we term ‘public’,” she added.
Discovery said Body Action Gym’s “accusations and narrative are misleading”, and that Vitality did not provide subsidies, merely “long-term mutually beneficial partnerships … likely to be attractive to Discovery Vitality members”.
It said these partnerships included marketing, systems integration, customer experience and commercial elements, as well as “hundreds of approved Discovery Vitality fitness facilities (including Body Action) where our members can earn Vitality points”.
“The integrity of our business practices is reflected in the [Competition] Commission’s decision. Discovery takes its obligations to comply with fair business practices and competition laws very seriously. Even though Body Action has chosen to litigate the same complaint that was dismissed by the commission, it is its legal right to do so, and we will respect the tribunal process. We are currently defending the matter.”
Sanlam told Business Times it was erroneously included in the proceedings and is engaging with the complainant.“Sanlam does not have any exclusive arrangements with any gyms or studios. Sanlam Reality had an agreement with a company running a national network of small independent gyms until 2019.” It said the agreement was ended due to low uptake. Momentum did not respond to questions.
The case is in the finding stages with the tribunal and will then move on to a hearing, pending any pre-trial proceedings needing to be finalised. The tribunal said a hearing alert would be issued ahead of time owing to public interest in the matter, with the outcomes published on its website.
Grant Austin, chair of Fit SA — a nonprofit industry body representing 450 small and independent gyms — said they believed Body Action had a legitimate case as Vitality’s offering being exclusive to Virgin Active and Planet Fitness was prejudicial to smaller outfits that were as compliant with Discovery’s requirements as the big chains.
