The brands on the shelves are those you would expect to see in a Whole Foods Market: KIND Bar, Honest Tea, Late July Organics, Sahale Snacks. But this is no natural products store, and I’m miles away from my home in the health-obsessed Boulder bubble. This is Life Time Fitness in Westminster, Colorado, and the club is just one of 105 locations around the country undergoing what some might consider a radical transformation, as Life Time shifts from a health club operator to “The Healthy Way of Life Company.”
“Those products will all be gone from our LifeCafés by the end of the year,” says the Westminster club’s general manager, Miklos Horvath, pointing to the aseptic containers of Muscle Milk in the drink cooler. “Anything that doesn’t adhere to our standards is going.”
Every Life Time club is home to one of these LifeCafés—and up until recently, members could pick up a sandwich, Diet Coke and even bodybuilding supplements in the café on their way out of the club. Times are changing at Life Time, however, and now only food, beverage and supplement products that meet the company’s Good Food Rules will be sold by the company.
Along with advocating the avoidance of ingredients such as high fructose corn syrup and trans-fats, the rules specify that no products containing artificial ingredients of any kind will be sold within Life Time Fitness clubs. This means no more Diet Coke or other conventional soft drinks. No Gatorade or Powerade. No supplements or functional products containing synthetic ingredients—so bye-bye Muscle Milk.
“We have made it harder on our members by taking away some of the things that they want because many of them do want a Diet Coke,” says Life Time Fitness executive vice president Eric Buss. “But we’re no longer allowing those types of products in our clubs. We are staying true to our principles and our brand. In the long term, it is absolutely the right answer for us.”
Sean Naughton, a Piper Jaffray senior research analyst who follows publicly traded Life Time, is similarly enthusiastic about the changes happening within the company. “This is absolutely the right way for them to go to further connect with their core customer,” Naughton says.
Life Time began implementing its Good Food Rules in January of 2012. As of August, about 90% of all products containing artificial ingredients had been removed from its LifeCafés, Buss says. Extracting brands as large as Pepsi and Powerade takes time, but the company expects to have all products containing artificial ingredients out of its clubs by the end of 2012.
Moms vs. bodybuilders
If it’s true that club operators are happy if they can break even with their food service offerings—as Stuart Goldman, managing editor of Club Industry magazine, says—then Life Time must be ecstatic about the performance of its LifeCafés. Buss says the company generates about $75 million through its LifeCafés today—and this number is expected to continue expanding, even with the stepped-up product quality standards. “We are not seeing any noticeable reduction in revenue in any of our cafés,” Buss says.
That’s important because Life Time’s LifeCafés, along with its spa and personal training services, are integral to expanding the company’s revenues, which surpassed the $1 billion revenue mark last year. “The LifeSpas and LifeCafés have been a big part of Life Time’s growth story over the last few years,” Piper Jaffray’s Naughton says. “The further they can penetrate share of wallet with the member who comes into their doors, the more that is going to help them grow top line earnings.” Over the last 10 years, the average annual amount a Life Time member spends on spa services, personal training and café expenditures grew from $195 to nearly $500, Naughton says.
Life Time’s Good Food Rules align well with many of the Westminster club’s members, particularly parents. Kids are omnipresent at Life Time, which runs summer sports camps and afterschool programs and offers its members two hours of daycare daily. “I see kids everyday dragging their parents into the café,” Horvath says. “Although they don’t always want to spend more money, they at least are glad that the food we sell is healthy and that we’re providing their children with an opportunity to learn about healthy eating.”
The people who are proving the toughest to convince are the young, male members who come to Life Time to lift weights and buy the sports supplements that will accelerate their physical transformations. “These guys are here more for aesthetic reasons than for health reasons,” Horvath says. “We have to educate them on the long-term effects of taking something like a drink containing ephedrine.”
Naturally, the changes at Life Time Fitness are creating new distribution opportunities for natural and organic brands. Along with finding a spot on the shelf at Life Time’s Westminster club, brands such as Orgain and Boost are promoted through in-café signage that calls out the reasons why a member would want to purchase these natural products over conventional alternatives. The signs also feature money-back guarantees—just in case a member isn’t satisfied.
Buss says Life Time will often test a brand regionally before rolling it out to the 25 markets where its 105 clubs are located. “We look for partners that are nimble and quick,” Buss says. “We try not to carry too much because we are not in the business of managing a bunch of inventory.”
Life Time’s Good Food Rules have also brought about a number of difficult conversations. “It’s been tough,” Buss says. “We’ve shaken out a lot of different brands.”
One brand being shaken out is sports supplement maker Abbott Laboratories’ EAS. “I spent a whole day recently telling EAS that this is the end of our relationship because they don’t have products that meet our Good Food Rules and requirements,” Buss says. “I wasn’t there to tell them that they have terrible products—I know their products are scientifically tested and backed by incredible rigor. But we are pretty hardcore now about what we will carry, and we are supported by a groundswell in the marketplace.”
That’s good news for the natural, organic and “clean” brands able to jump on Life Time’s wellness coattails. “My hope,” says Buss, “is that five years from now someone will be interviewing one of our new brands and say, ‘How did you get to scale?’ That company will then explain that getting into Life Time Fitness generated $10 million in annual revenue for them. That’s a story I would be happy to hear.”
A top-down shift
As Piper Jaffray’s Naughton notes, Life Time’s new Good Food Rules are a natural extension of its positioning as The Healthy Way of Life Company. But listen to Life Time employees and read what the media has to say about the company and it becomes clear that the changes occurring within this organization are about far more than just branding.
The hard decisions (who wants to fire lucrative, long-time vendors like Coca-Cola?) and commitments all stem from the vision of Life Time’s founder and CEO, Bahram Akradi. “My boss, our CEO, has been the driver behind all of this,” Buss says.
Just because Akradi is the CEO, however, doesn’t mean that his vision hasn’t been met without resistance. In fact, according to Buss, the Life Time executive who oversees all LifeCafé operations “butted heads” with Akradi for two years before agreeing to roll out the company’s Good Food Rules in earnest earlier this year.
Akradi’s next challenge will be implementing his healthy product vision within the realm of the more than 142 athletic events Life Time now owns and operates. That will mean no longer having Gatorade or other makers of popular sports recovery drinks as sponsors of its events, including the ultra endurance races such as the Leadville Trail 100. “We struggle with this,” Buss admits. “There aren’t a lot of natural isotonic drinks right now, and the truth is that after a 9-hour bike race at elevation, you can’t just drink water to refuel your body.”
Whether it’s Pepsi or Coca-Cola or a smaller beverage company, someone will come up with a workable natural isotonic alternative—and much of the impetus to do so will come from companies such as Life Time Fitness. Says Horvath: “Our new standards are putting a lot of pressure on our vendors to change—and to do so in ways that will make their products healthier.”