THE SITUATION: THE NEED FOR NEW REVENUE STREAMS

Spectrum Athletic Clubs is the 10th largest operator of athletic clubs in the US with 20 locations in San Antonio, Texas and Southern California, 130,000 members and $90 million in revenue.

Like any athletic club, Spectrum was seeking new ways to increase its revenue growth. “Once a club gets to the 10 year mark it’s pretty much mature and is going to have slow, steady, one to five percent annual growth,” said Matthew Stevens, Spectrum’s President and CEO. “If it doesn’t figure out a way to sell more memberships or increase top line profitability in some other way, it will continually have to invest capital in order to grow. The ideal situation is to create new revenue streams by leveraging existing fixed expenses.”

Spectrum had been seeking out value-added products and services as a way to attract new members and retain existing members. In addition, the company was exploring unique ways to support partnerships between health care and fitness. “We realized that one way we could increase our revenue was to expand beyond our fitness service offerings to become a provider of health management solutions,” said Stevens. Spectrum had offered fitness assessments to members in the past but never had the capacity to facilitate these types of offerings on a larger, more profitable scale.

THE SOLUTION: A UNIQUE PARTNERSHIP

Virgin chose San Antonio as a test market and began laying the groundwork for a HealthMiles pilot program with a local employer, Hospital Corporation of America (HCA). They partnered with Spectrum to offer HCA employees discounted health club memberships and a place where they could measure their progress on the HealthZone measurement kiosk.

WARMING UP: HEALTHZONE

In early 2006, Spectrum Athletic Clubs deployed the HealthZone measurement kiosks across its San Antonio clubs. The HealthZones enabled Spectrum to offer its members quick, easy and effective fitness assessments on a broad scale in a way that leveraged its existing labor dollars.

The benefits of this initial partnership were soon evident. The HealthZones had given Spectrum a competitive advantage over area clubs by bringing new members into the clubs and keeping them there. Members loved being able to take their measurements when they wanted and as often as they wanted. By September 2006, Spectrum had over 16,000 registered HealthZone users who totaled 72,000 HealthZone visits and 360,000 HealthZone measurements.

STEPPING IT UP: THE COMPLETE PACKAGE

Based on the success of its initial partnership with Virgin, Spectrum stepped up its San Antonio HealthMiles offerings in mid-2006. Spectrum began offering its club employees the complete HealthMiles program as part of their benefits package with the goal of reducing its own escalating health care costs.

Spectrum also began selling the HealthMiles program directly to club members and to the general public. Club members can upgrade their memberships by adding HealthMiles for a nominal monthly fee. Non-members can purchase a HealthMiles package from Spectrum that includes all of the HealthMiles benefits - LifeZone, GoZone, HealthZone, rewards, etc. - plus one visit per month to a Spectrum club.

Spectrum has customized Virgin’s HealthMiles program to meet the specific needs of its members. Individuals who sign on for the combined HealthMiles and Spectrum membership earn Miles toward products from Virgin HealthMiles’ national retail partners plus they can earn Miles toward Spectrum services and merchandise – from Spectrum apparel to personal training sessions.

Breaking from the Pack: Corporate Clients and California

In Fall 2006, Spectrum and Virgin HealthMiles began selling directly to San Antonio corporations. The six-month HCA pilot program results proved that HealthMiles featured the right mix of tools, incentives and rewards to motivate employees to get active and improve their health.

“Health care costs are cannibalizing profits for employers,” said Stevens. “While there are a broad range of wellness offerings on the market it’s difficult for employers to evaluate their impact since most don’t provide any sort of tracking mechanism. We saw HealthMiles as a preventative health care solution that would empower consumers to take control of their health and give employers the information they need to combat rising costs.”

With the pilot results in hand, Virgin HealthMiles and Spectrum approached local employers with a HealthMiles and Spectrum membership package. One of their first clients was the Northside Independent School District of San Antonio where over 9,500 employees gained access to HealthMiles and a Spectrum club membership as part of their health care benefits package.

“Bundling our memberships with HealthMiles gives us a highly sought after employee benefit while also profiting our clubs,” said Stevens.

In January 2007, Virgin HealthMiles officially launched the program nationwide and Spectrum expanded its offerings as well, rolling out HealthMiles to its Southern California club employees, club members and the general public.

THE RESULTS: INCREASED REVENUES AND DECREASED COSTS

As of June 2007, Spectrum Athletic Clubs has 22,000 HealthMiles members, including Spectrum employees, club members and corporate employees. 10,000 existing Spectrum club members have upgraded their memberships to include HealthMiles.

Ten corporate clients in San Antonio and Southern California have purchased the combined HealthMiles and Spectrum membership package totaling nearly 12,000 employees.

“We are aggressively expanding every month and hope to be at 35,000 HealthMiles members by the end of summer,” said Stevens.

Not only has Spectrum’s partnership with Virgin enabled the company to increase its revenue base, it has also dramatically reduced its health care costs. By leveraging its own aggregated HealthMiles employee data, Spectrum was able to decrease its 2007 health care insurance premium renewal by $250,000.

NEXT STEPS: NEW INITIATIVES

Spectrum and Virgin HealthMiles are continuing to expand their partnership through a variety of new initiatives. “Our partnership with Virgin HealthMiles has enabled us to accomplish things that no athletic club operator could do on their own,” said Stevens. “Since consumers want a way to take control of their health and employers need a way to control costs we are uncovering new opportunities every day. This thing is about to explode.”