FA Alpha Daily

Finally, people can cancel their Planet Fitness memberships

The rise of new obesity drugs is expected to significantly disrupt the fitness industry. A low-cost, high-volume chain like Planet Fitness, which primarily caters to casual gym-goers, may face a critical juncture as more individuals potentially opt for weight loss medication over exercise. In today’s FA Alpha Daily, we delve into how the rise of obesity drugs could reshape the fitness industry and impact the profitability and dominance of Planet Fitness.

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Weight loss drugs are already in huge demand, and 13 new obesity drugs are expected to hit the market by 2029.

This indicates that pharmaceutical solutions for weight management will continue gaining popularity over the next years.

While the food and beverage industry will likely see changes to adapt to consumers’ evolving preferences with new obesity drug prescriptions becoming commonplace, the industry that could face major challenges is the fitness industry.

One of the largest fitness chains in the United States is Planet Fitness (PLNT). Planet Fitness has grown to become a highly profitable company over the past few decades with a simple and effective business model. The company currently operates over 2,400 locations in the U.S.

Planet Fitness’ business model focuses on attracting a large volume of members through very low monthly membership fees starting at only $10.

While the facilities and services offered are subpar to keep costs low, the goal is to sign up as many members as possible, hoping many end up being “passive members” who visit infrequently or not at all.

The bulk of Planet Fitness’ revenues come from membership dues collected every month. This high-volume, low-price model has proven highly lucrative for the company so far.

However, as prescription obesity drug options become more prevalent and effective at helping people lose weight without exercise, it stands to reason that fewer individuals may feel compelled to join gyms.

This problem could be more severe for Planet Fitness because the company focuses on casual gym-goers who infrequently work out.

If more people can achieve and maintain weight loss goals primarily through medication rather than exercise-based regimens, the total addressable market and potential member base that Planet Fitness targets could shrink over the long run.

Fewer new members signing up would negatively impact the company’s top and bottom lines.

Additionally, some existing Planet Fitness gym-goers may feel less motivated to continue their memberships if they can control their weight effectively using drugs alone.

This could increase the member cancellation rate for Planet Fitness.

If obesity drug usage grows substantially as expected, Planet Fitness will likely need to make meaningful business model changes to remain competitive in the weight loss industry.

Failure to adapt proactively could threaten the company’s dominance and profitability over time.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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