Fitness & Wellness Market Healthy Despite Post-Pandemic Woes, Investors Say
Three top fitness and wellness investors share their thoughts on the industry’s financial health now and in the future
This article is part of ATN’s DISRUPT 2023 video series, which features key conversations with executives from the most successful brands in fitness and wellness. To watch more videos, click here
The general appetite for investing in fitness and wellness companies has cooled off quite a bit from its pandemic-era high, although the long-term prognosis for the space remains strong, according to industry experts.
Speaking during Athletech News’ DISRUPT 2023 video series, three leaders in the private equity and venture capital spaces – Jon Canarick of North Castle Partners, Mark Grabowski of Snapdragon Capital Partners and Lance Dietz of KB Partners – gave their thoughts on the current landscape of the fitness and wellness market, including which sectors are best poised for growth despite a cloudy macroeconomic environment.
The Fall of At-Home Fitness
Overall, the investors agreed there was too much buying in the fitness and wellness space during COVID, especially of at-home fitness companies, which has caused a lot of financial tumult and sent valuations tumbling in recent months.
“There was way too much investing in the space by a factor of five, or something to that effect, particularly, of course, in the home fitness category,” Canarick said, noting that pandemic-era investments “were probably beyond the scale and scope of what was economically feasible for the category. As a result, you have billions and billions of dollars of burned capital that are underwater all throughout the home fitness part of the space.”
Confidence in at-home fitness companies during the pandemic likely reflected many investors’ predictions about what the long-term effects of the pandemic would be on people’s workout preferences.
“I think there was overconfidence that this (was) a whole new world, people are all going to be working from home, there’s going to be more remote work, (and) people are going to want to now work out at home and not go back to the gym,” Grabowski said.
Brick-and-Mortar Fitness Is Back
It’s certainly not all bad for the fitness and wellness industry post-pandemic. The flip side of the at-home fitness debacle is that in-person experiences are booming as people seek social interaction in gyms and studios.
“People had habits that they’re going back to,” Dietz said. “We think in-person experiences are very valuable to human nature so you see a lot of people going back to brick-and-mortar.”
Canarick agreed that we’re witnessing a “really strong recovery of brick-and-mortar fitness,” but he noted that hybrid fitness is likely here to stay as many consumers now prefer a blend of working out in person and at home.
“Peloton has had their fair share of challenges but they still have gained an enormous market share of monthly workouts,” Canarick said by way of example.
As people return to in-person activities, the concept of “community” is more important than ever, Dietz believes. Fitness and wellness businesses that are able to build products and services that foster connection are more likely to be attractive to investment firms in the current environment.
“It’s a buzzword at times, but it’s also one that I think has a meaningful impact on long-term value for the user experience,” Dietz said of the power of community.
“Where community can address loneliness and the ability to be a bit healthier because you have people around you I think is a really interesting opportunity,” he added.
The Newcomers: Recovery, Fitness Trackers & Preventative Wellness
As for what areas of fitness and wellness could be targets for increased investment moving forward, the investors identified three sectors: recovery, health and fitness trackers, and preventative wellness.
Recovery tools are moving from the niche to the mainstream thanks to the direct-to-consumer success of companies like Hyperice and Therabody and the proliferation of modalities like cold plunge, infrared sauna and cryotherapy.
Canarick expressed excitement about the growth potential of the recovery sector as tools once only available for professional athletes find their way into the hands of the masses, although he said there may be a cap on how big the market can get.
“There’s still a question as to the size of that market from a profitability standpoint,” Canarick said of the recovery space.
Another hot category figures to be health and fitness trackers, driven by the sudden popularity of companies like Oura, Whoop and others. However, Canarick again urged some caution since it’s unclear whether trackers will be able to gain market share with non-fitness enthusiasts, which is still most of the population.
Grabowski believes the market for health and fitness trackers could really take off, especially as consumers increasingly embrace what he calls “preventative wellness” over traditional healthcare or sickcare.
Trackers have the ability to reach consumers outside the athlete or weekend warrior population if they’re used to help everyday people track important health metrics, Grabowski noted.
“When you think of everything from blood testing to stool samples, there you’re actually addressing some different issues,” he said. “It’s not about, ‘Am I optimizing my workout performance?’ It’s about allergies, chronic issues, immune responses and other things that people are dealing with.”
Long-Term Outlook Is Positive
Overall, while the market isn’t what it was pre-COVID or during the pandemic thanks to macroeconomic conditions and general global uncertainty, there’s still reason to be optimistic about the financial “health” of health, fitness and wellness, the investors believe.
“I think almost universally there’s growth in consumer expenditure in health and wellness across multiple categories,” Grabowski said, noting that the industry as a whole is on an “upward trajectory” and most sectors are at or are approaching pre-COVID levels.
That’s not to say growth capital will be easy to come by, at least in the short term. To make themselves attractive investment candidates in the current fraught economic environment, fitness and wellness businesses will need to show they have executive teams who can adapt to change.
“If it’s not the pandemic, then it’s inflation. If it’s not inflation, you’ve got what’s going on geopolitically,” Grabowski noted. “So I think seeing senior management teams who have proven adaptability, there’s an even bigger premium. One-note players are not as backable.”