COLOGNE BUSINESS SCHOOL (CBS)

Strategic Analysis of the German Fitness

Market

Term Paper for "Fundamentals of Consulting"

Winter/ Semester 2015
Lecturer:

Prof. Dr. Magorzata muda

Student's Name:

Christine Heitmann

Master of Arts in

International Business / Consulting

Student-No.

1155500032

Table of Contents
Table of Figure................................................................................................. iii
1.

Introduction to the German Fitness Market......................................................1

2.

Theoretical Framework................................................................................2
2.1.

External Business Environment...............................................................2

2.2.

Macro Environment Analysis...................................................................2

2.2.1.

PESTLE Analysis............................................................................2

2.2.2.

Scenario Analysis...........................................................................3

2.3.

3.

2.3.1.

Competitors: Porters Five Forces.....................................................3

2.3.2.

Competitive Strategic Group Analysis................................................4

Data Analysis.............................................................................................. 5
3.1.

Macro Environment Analysis...................................................................6

3.1.1.

PESTLE Analysis............................................................................6

3.1.2.

Scenario Analysis...........................................................................7

3.2.

4.

Industry Environment Analysis................................................................3

Industry Environment Analysis................................................................8

3.2.1.

Competitors: Porters Five Forces.....................................................8

3.2.2.

Competitive Strategic Group Analysis..............................................10

Conclusion............................................................................................... 10

Bibliography.................................................................................................... 12

Table of Figure
Figure 1- Porters Five Forces.............................................................................. 4
Figure 2- Sport Activities in Germany on the Numbers of Members...........................8
Figure 3- Strategic Groups................................................................................10

1. Introduction to the German Fitness Market

The German fitness industry is booming. The fitness industry is one of the fastest
growing sport segments in Germany. By end of 2014, Germany counted 9.08 million
members in over 8000 studios spread in Germany, generating overall revenue of 4.7
billion . The German fitness industry includes various markets. One of the most
popular markets is the fitness studio market. The German fitness studio market is
basically differentiated into chains, branches and single fitness studios. A further
differentiation can be made between high, medium and low priced studios, offering a
broad range of programs.
The awareness of a healthy and fitness is getting stronger, more and more people
enroll in fitness programs, permanently new studios are started all over in Germany.
But at the same time, the market is very saturated, market entry barriers are high and
only a small number of German fitness studios generate a major amount of the overall
turnover.
Therefore the question arises: Is the German fitness market attractive for potential
investments?
The conducted analysis yields that the market is attractive enough for further
investments, even though it is recommended to invest in already existing studios.
This paper examines various meaningful techniques that were used to analyze the
macro environment as well as the industry environment of the German fitness market.
On the basis of these analyzing tools, the given data have been analyzed. Finally
follows a detailed evaluation of the findings.

2. Theoretical Framework
In this part of the paper, various theories are presented that are meaningful for an
efficient analysis of the German fitness market.
2.1. External Business Environment
The external environment is a set of conditions outside the firm that affect the
companys ability to function. External environmental factors are events that take place
outside of the organization. It is hard to predict, steer or control them. An external
analysis identifies strategic opportunities and threats in an organizations operating
environment that will affect the daily business. Thereby it emphasizes opportunities,
which are conditions in the environment a company can take advantage of to become
more profitable. But it also considers threats, which are the conditions in the
environment that endanger the integrity and profitability of the companys business.
(Kennerley & Neely, 2003, p.214)
2.2. Macro Environment Analysis
The macro environment analysis examines exactly that factors that are influencing the
external business environment. Appropriate tools for this investigation are presented in
the following chapter.
2.2.1. PESTLE Analysis
The PESTLE analysis is a standard, generic way of scanning the environment and it is
a useful tool for understanding the big picture of the environment you are operating in.
It is important to understand this environment in order to detect and benefit from your
opportunities and as well as identifying potential threats.
The origin of the PESTLE analysis is difficult to determine, the first steps did Francis J.
Agiular, who discussed in one of his publications determining factors that affect a
business. Based on this finding, many people edited and defined by the second half of
the 20th century finally the term PESTLE, standing for political, economic, social,
technological, legal and environmental factors that affect the business. (Dcosta, 2011)
When applying this analysis, the main question that should be asked is what are the
major (political, economic) factors that currently affect my business, and what impact
and influence are they likely to have upon my business? By examining the market
according to these six parameters, answers to the questions will be given. There are
many different versions of the analysis, but the underlying method is the same in all

cases. PESTLE is often used when launching a new product, exploring a new route to
a market or selling into new countries or regions.
2.2.2. Scenario Analysis
A scenario analysis is a process to ascertain and analyze possible events that can
happen

in

the

future.

Conducted

correctly,

the

analysis

presents

various

outcomes/scenarios for future developments (Aaker, 2001, p.110). Crucial factors for
the scenario analysis are the key drivers which are derived from the PESTLE analysis.
These key drivers are those determining factors that have a very significant influence
and a high impact on the success or failure of the business, strategy or market. Of
course, these drivers may vary by industry or sector. As soon as the impact of each
scenario is identified, stories can be developed and future strategies can be
evaluated in the light of the anticipated scenarios.
It is useful to generate a combination of an best case, a pessimistic, and a most likely
scenario.
2.3. Industry Environment Analysis
According to Volberda, et al. (2011, p.67) an industry is a group of firms producing
products that are close substitutes. Regarding the competition in an industry, in
general, it is very high; firms/markets influence one another. Compared with the
external environment, the industry environment has a stronger direct influence on
firms/markets strategic competitiveness and the ability to operate profitable.
2.3.1. Competitors: Porters Five Forces
Michael E. Porters, the father of modern business strategy and professor at the
Harvard University in Boston, originally identified and designed the Porters Five
Forces analysis in 1979, while he was searching for a theory how to develop
strategies in the area of competitive advantage. With his advanced knowledge of
microeconomics and various business strategies, he came up with a model which is
indispensable for todays analyses of industry environments; it fundamentally shaped
[the] generation of academic research and business practice. (Porter, 2008, p.78)
Porters five forces is a framework that supports the analysis of the level of competition
within an industry. Simultaneously it helps to identify the attractiveness of the
industry/market. Porters Five Forces is based on the theory that competition in any
industry/market is depended on five basic forces: potential entrants, internal rivalry,
suppliers, buyers and substitutes. (Tang, 2014)

These forces are closely related to most industries/markets and affect their ability to
serve its customers and to make profit.
Figure 1- Porters Five Forces
Bargaining Power of Suppliers

Threat of New Entrnants

Industry Rivalry

Threat of Substitutes

Bargaining Power of Buyers

Source: own illustration, content from Michael E. Porters (1979)

As presented in Error: Reference source not found, Porter's five forces contains out of
three forces from 'horizontal' competition: the threat of substitutes, the threat of
established rivals and the threat of new entrants. The bargaining power of suppliers
and the bargaining power of buyers are the two forces from 'vertical' competition.
Porters five forces is a popular tool regarding a qualitative evaluation of a firms/
markets strategic position.
Analyzing these five forces enables you to identify the attractiveness of the market.
Moreover, with the results of the analysis, strategies can be developed with which you
can influence the impact of the forces. (Tang, 2014)
The overall goal of conducting this analysis, is to determine whether it is economically
reasonable to enter the industry/market or not. And if yes, how a strategy should look
like that leads to a successful operation, ideally to a sustainable competitive
advantage.
2.3.2. Competitive Strategic Group Analysis
According to Volberda, et al. (2011, p.76), a strategic group is a set of firms
emphasizing similar strategic dimensions to use a similar strategy. Michael S. Hunt
introduced the idea of strategic groups for the first time in 1972, Michael E. Porter
further developed this concept in 1980. (Czepiel & Kerin, 2012, p.48)

The rivalry between organizations within one specific strategic group is stronger than
the competition between one member of a strategic group and another organizations
outside this specific strategic group. This causes a higher intra-strategic group
competition in comparison to the competition of inter-strategic groups. (Volberda, et al.,
2011, p. 76) Considering the positioning of the different strategic groups in a market,
can be useful for analyzing an industrys or markets competitive structure.

This

examination diagnoses competition and profitability of organizations within an market.

Furthermore it helps you to identify attractive strategic niches within an industry. In
order to analyze this data, it is important to examine all market or industry players.
Thereby, it is essential to consider the extent to which organizations differs or not. By
doing so, comparable characteristics are the respective scope of activities, like the
extent of product diversity, size of the company/market, the extent of geographical
coverage, number of market segment served, as well as the resource commitment,
which could be the extent of number of branding and marketing effort, the extent of
vertical/horizontal integration, as well as the product or service quality. (MuellerStewens & Lechner, 2005). Richard E. Caves and Michael E. Porter proposed the
term mobility barriers in 1977. Mobility barriers are defined as barriers that inhibit the
movement of firms between strategic groups. For a strategic group analysis also these
barriers should be considered. (Caves & Ghemawar, 1992, p.2) Strategic groups can
be shown on two dimensional grids. After positioning the firms or markets on the map,
the companies/markets which are closest to each other, form a strategic group. This
visualization is another useful tool of the competitive analysis.

3. Data Analysis
The above explained theories and tools have been applied to the German fitness
market in order to analyze the attractiveness of this market.
The German fitness industry is a major business in Germany which supplies space and
location for the studios, various machines as well as appropriate equipment. The
general German fitness market includes next to studios, also fitness equipment, fitness
clothing, accessories as well as fitness nutrition and supplements.
The project focusses on the market of normal fitness studios comprising courses for
cardio and strengthening, training machines, personal training, and other extra
additional offerings as drinks, nutrition, and wellness, tanning bed, swimming pools and
courts for tennis, basket-ball or squash. This market consists of different types of

studios, physical as well as virtual offering a broad range of all different kind of sport
activities.
3.1. Macro Environment Analysis
The macro environment of German fitness studios has been analyzed on the basis of
the PESTLE analysis.
3.1.1. PESTLE Analysis
Germany is a federal parliamentary republic, and with around 81 million inhabitants
(Destatis, n.d.) the most populous member state in the European Union. The
government is respected by the population; the overall situation is stable and peaceful.
Nevertheless, government policies have the potential to influence the fitness market.
The 81 million1 citizens are living in 16 different federal states. Researches have shown
that people are getting older, the life expectancy has been increased in the last years to
80.57 years. Simultaneously the population growth rate is declining by -0.17%, which
concludes in a shift of the major population group, rated by the mean age, which is
46.5 years (Destatis, n.d.). These numbers are also reflected in the membership
structure of German fitness studios. The biggest member group of German fitness
studios is 30-49 years old. (Statista, 2013) These numbers militate for the demand of
fitness studios.
Germany is the largest and therefore a very important economy in Europe. The gross
domestic product is 3.573 trillion, divided into composition, 68.4% of the overall GDP
is contributed by services (International Monetary Fund, 2015). In the beginning of
2015, Germany introduced a minimum wage of 8.50, the unemployment rate
decreased to 4.5% in September 2015 (Destatis, 2015). Overall, the German economy
is robust, healthy and predominately stable and offers, in comparison to other EU
memberstates, very pleasant working conditions.
Germany is a very developed country with a very high standard of living sustained by a
skilled and productive society. It upholds a social security and universal health care
system and an environmental protection. The awareness of a health and fitness is very
strong and even increasing. German fitness market counts 9.08 million members,
enrolled in more than 8000 studios 2014. The membership increases annually by 6.3%
(DSSV, Deloitte, & DHfPuG, 2014, p.1). Moreover, the fitness industry includes the

1 Effective 31.12.2014

most memberships, in comparison to other popular sport activities as soccer,

gymnastics or tennis (DSSV, Deloitte, & DHfPuG, 2014, p.2).
Regarding the technological development of Germany, it can be said that 74 million
people are yousing the internet, which corresponds approximately 86.8% of the overall
German population. Moreover, there are around 113.4 million mobile phone
subsriptions in Germany, which says that in average every citizen has 1.4 mobil
phones (Statista, 2015). More than half of the population already owns at least one
smartphone. Smartphones that can be used for fitness websites or the hundred fitness
apps that are available on the market. Online fitness is another segment of the German
fitness market which is recording a strong grwoth. But it is not only the online fitness,
there is also the offer of various equipment that can be linked to the smartphones that
enable to record nutrition, training and other daily activites.
Environmental factors can be neglected for the anaysis of the German fitness market.
They do not heavily influence the fitness market.
More significant are the legal factors that influence the German fitness market. German
fitness studios are legally bound to offer only certificated equipment as well as the
operator and also the personnel need to possess certain licenses. These regulations
give members a guarantee of reliable and health training possibilities (DFAV, n.d.).
Furthermore, the federal ministry of the interior supports the German sport in several
ways. They do sport funding and build cooperation with sport organizations. (Federal
Ministry of the Interior, n.d.)

3.1.2. Scenario Analysis

Taken the results of the PESTLE analysis into consideration, key drivers can be
identified.
For the first scenario, the key drivers are the population growth rate and the demand
for fitness.

Scenario 1: declining population growth rate& low demand for fitness

Scenario 2: increasing population growth rate& high demand for fitness
Scenario 3: declining population growth rate& high demand for fitness
Scenario 4:increasing population growth rate& low demand for fitness

Obviously, scenario 2 would be the best case scenario. A growing population and a
simultaneously higher demand for fitness would conclude in even more memberships,
more studios and wider range of programs for the members as well as higher turnover
for the studios.
For the second scenario, the key drivers are the awareness of health and the
technological progress.

Scenario 1: low technological progress & weak awareness of health

Scenario 2: high technological progress & strong awareness of health
Scenario 3: low technological progress & strong awareness of health
Scenario 4: high technological progress & weak awareness of health

In this case, scenario 3 would be the best case scenario. Further technological
progress would conclude in further application for fitness and these substitutes would
increase the competition. Strong awareness of health stimulates the demand for
fitness, and while technological progress is low, people prefer to train in fitness studios.

3.2. Industry Environment Analysis

The industry environment analysis has been conducted mainly on the basis of the
Porters five forces analysis.
3.2.1. Competitors: Porters Five Forces
The overall competition in the German fitness market is quiet high. The results of the
Porters five forces are presented in the following part:
The threat of substitutes is high. Even if fitness in Germany is the market with the most
members, there are other sports which are very attractive as well. As Error: Reference
source not found represents, the main substitutes are soccer with 6.85 million
members, gymnastic with 5.02 million members and tennis with 1.45 million members.
Figure 2- Sport Activities in Germany on the Numbers of Members

Furthermore the trend of online fitness, including the various fitness apps likes
Runtastic and Freeletics for example, attracts more and more new customers. The
performance is similar, the effect is the same, but the price is lower.
The threat of established rivals is also high. The three strongest fitness chains, McFit,
FitnessFirst and Clever Fit have a high market share in terms of number of studios and
memberships. Their very aggressive pricing strategy already opened a price war
between them, their competitors and smaller individual studios. The product
differentiation between these chains and normal individual studios is not very high;
they all offer a similar product. Furthermore, regarding the individual studios, there are
further thousands of them, all equal sized, also offering a similar program for more or
less equal prices.
The threat of new entrants is rather low. The biggest chains, McFit, Fitness First and
Clever Fit have an average annual turnover of 950.000 despite low member fees,
whereas individual studios generate an average annual turnover of 606.000. (DSSV,
Deloitte, & DHfPuG, 2014) These chains have a very aggressive pricing strategy which
allows them to offer these very inexpensive memberships. Furthermore, entering the
market is expensive: high capital is required for high initial fixed costs for location and
equipment, insurances, trade certification, IT costs, staff wages etc.
In comparison to the other forces, the bargaining power of suppliers is moderate. The
suppliers of the German fitness market are many hundreds of different sized
companies that offer similar equipment, machines, clothes and nutrition. Switching the
current supplier should be able without further complications. But the forward
integration may be high. One of the dominating suppliers could start their own fitness
studio, offering their products exclusively for own members.
The bargaining power of buyers is also high. As already mentioned, in Germany are
more than 8000 different fitness studios, offering a various range of programs in all
price segments. Buyers, the customer/members, are price sensitive. They are looking
for the best cost-benefit ratio. As long as the customers are not bound by contractual
durations, switching costs are very low.

3.2.2. Competitive Strategic Group Analysis

The results of analyzing the strategic groups are visualized in Figure 1- Strategic
Groups. The main group builds fitness studios that are offering a middle range of
programs on a moderate price level around 45.00. The second largest group is
formed by the so called low cost fitness studios, as McFit. They are offering only few
programs, but on a low price level. Offering the lowest price and a very similar product,
this group is characterized by high internal rivalry. Niche markets would be studios, that
offer a small range of products on a high level or vice versa and studios that offer a
broad range of programs on a very low price level. But these markets are definitely not
attractive because they are either for the customer or for the operator of the fitness
studio economically not reasonable.
Figure 1- Strategic Groups

Source: own illustration

4. Conclusion
After applying the presented methods and theories, the results clearly show that the
German fitness market is attractive for further potential investments. The attractiveness
results from the growth of the market in terms of membership development, turnover
development and an increasing number of annual opened studios. This market growth
is even stronger than the growth of the overall German economy (GDP).

Furthermore the German fitness industry is highly interesting. The PESTLE analysis
showed that there are many opportunities for further diversification. The aging
populations, the shift of social trends, the increased awareness of fitness and health as
well as the overall stable economic development, are just the most important ones.
But on the other hand, as the Porters five forces-analysis size, this market is also
highly competitive. Market entry barriers are high and the industry rivalry is intense.
Summarizing and evaluating all these data, it can be conclude that the German fitness
market is still attractive for further investments, but having in mind the highly
competitive industry, it is recommended to invest in an existing fitness studio. This
opens the opportunity to avoid the risk of entry barriers and to benefit right from the
beginning from the economics of scale and the already established assets.

WORD COUNT:3.279 words

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Affidavit
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use of materials other than those cited.

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