Orangetheory Franchisees Form Independent Association to Address Low Membership Growth | Franchise Legal



The workout isn’t the problem.

“I’m 60 years old and I still do the workout two, three times per week,” said Jim Potesta. “The product is as strong as it’s ever been.”

Still, his Orangetheory Fitness locations are seeing membership declines. Potesta is CEO of Afterburn Holdings, an Orangetheory franchisee and area representative with 90 locations, including 56 it operates.

Afterburn, based in Houston and owned by private equity firm Brentwood Associates, is pausing new development and is “sitting idle” while it assesses Orangetheory’s recent merger with fellow fitness giant Self Esteem Brands and outcomes from the formation of an independent franchisee association seeking to address problems in the system.

“We continue to see declines, which is the reason for the pause in development,” said Potesta of membership levels in his studios, though he wouldn’t share specific numbers. “My opinion is, and I think many agree with me, is we’ve really struggled over the last few years with brand awareness. Some of our marketing efforts have been a miss.”

Those misses are translating into low membership gains and are impacting profitability at the studio level in a system with more than 1,300 locations in the United States.

In a letter May 16 to leadership and the board of directors at Woodbury, Minnesota-based Purpose Brands, the post-merger name for the multi-brand platform company that includes Orangetheory and Anytime Fitness, the Team Orange Independent Franchise Council said the challenges faced with membership growth are “clear and compelling.”

“Instead of addressing these issues, the responses we have received from OTF when we point this out have been deflective, defensive and lacked any urgency to solve short term and long-term pain points in a variety of areas,” according to a copy of the letter reviewed by Franchise Times.

The letter goes on to detail consistent underperformance of the franchisor’s net membership gain expectations. Orangetheory, the independent council noted, generated 32,000 net membership joins in January, “the strongest January performance in the past two years due to the $24 join promotion.” The system subsequently gave back 18,000, or 56 percent, of those members through April, resulting in the lowest year-to-date net membership gain since 2022.

“… we are gravely concerned with where the systems will be at the end of 2024,” Team Orange wrote. Operators, it goes on to say, “are not able to generate the new membership joins required to drive sufficient levels of profitability at the studio level.”

Four-wall EBITDA, or cash flow, averaged about $300,000 systemwide in 2019, the council wrote, citing collective records after a poll of large multi-unit professional operators representing 376 owned studios. The figured has fallen by more than 50 percent in 2023, the letter stated, and it went on to note that as of March 2024, for the 376 owned studios polled, “19.4 percent of these studios are losing money at the 4-wall level.”

“This level of performance is not sustainable for franchisee operators or the brand, nor will it attract new capital,” the council wrote.

In response to requests for comment on the formation of the independent council and its concerns, Orangetheory Fitness sent this statement:

“Orangetheory Fitness is, and has always been, unwavering in our commitment to the long-term success of our franchise partners. We regularly collaborate through our Franchise Advisory Council, as well as personalized business reviews, field visits, roundtables, webinars and direct dialogue with senior leadership. Throughout our fourteen-year history of providing a best-in-class franchise platform and Orangetheory operating system, we have continually worked to evolve the concept and enhance our franchisees’ studio performance, operational efficiency and financial health.”

In an “Owners Only Q2 Update” sent to franchisees May 31 and reviewed by Franchise Times, Orangetheory noted it is “tracking well below” the goal of plus-50 net members per studio, “driven by low intro conversion.” It also said intro booking were down, which the company attributed to a “relatively new workforce that could benefit from greater training and integration into OTF” and to low membership close performance “driven by studio staff skill and execution coupled with consumer apprehension.”

The company announced in the update a “reset” goal of plus-10 percent net recurring growth versus the plus-50 member goal. It also highlighted new initiatives, including a series of experiments to “test the impact of changes to the media mix, content strategy and executional details” in local, regional and national marketing. Orangetheory is also in the middle of a pricing study, it noted, and in July plans to start testing pricing adjustments.

Kelly Lohr, who was Orangetheory’s chief marketing officer since August 2022, departed in February. Instead of a replacement, the company in its owner update said it is “going bigger,” working to hire an Orangetheory brand president “to drive our daily business operations and work with our existing leadership team to drive member growth.”

Looking for ‘win-win solutions’

Orangetheory is known for its high-intensity interval training workouts and use of heart rate monitors connected to leaderboards that encourage users to stay in the “orange zone” to burn fat and calories. The brand’s swift growth put it at No. 1 on the Franchise Times Fast & Serious list in 2018.

Unit growth slowed in recent years, hampered in part by the coronavirus pandemic’s major impact on the fitness industry, with studios such as those owned by Afterburn in Seattle shut down for 13 months between early 2020 and April 2021.

In 2020, systemwide sales at Orangetheory fell 16 percent, according to Franchise Times Top 400 data. In 2021, total system sales dropped again, by 12.5 percent. The brand regained some ground in 2022 as it finished with $1.25 billion in systemwide sales, though still $110 million below its 2019 high of $1.36 billion.

Orangetheory in April completed its merger with Anytime Fitness parent Self Esteem Brands, now Purpose Brands. The brand closed 22 locations in 2023, as reported in its new franchise disclosure document dated June 4. It finished the year with 1,333 total studios—1,311 of them franchised—a net increase of 31 units.        

The Team Orange Independent Franchise Council “sprang to life within a few weeks of the merger,” said Ron Gardner, a partner at Minneapolis-based Dady & Gardner who was announced May 31 as the franchisee association’s general counsel.

While Gardner would not share member specifics, he said the association represents more than 50 percent of all domestic units. Orangetheory disputes that percentage.

Franchise Times was able to confirm several of Orangetheory’s largest multi-unit franchisees are members of the association, including: Honors Holdings (140-plus studios), Austin Fitness Group (130-plus), L5 Fitness (100-plus), OT Growth Partners (59), West Coast Fitness (49) and Maverick Fitness Holdings (35).

“I was contacted late last year by a group of franchisees who were concerned the franchisee voice wasn’t being heard in decision-making and wanted to bring that voice to the front in the spirit of collaboration and wanting to work together,” said Gardner. The group, he stressed, “is not out to sue” the franchisor, or “start a war.”

“We’re looking to work with the franchisor on some short-term initiatives to amp up franchisee profitability,” he continued. “They’d like to find win-win solutions that come through collaborative discussion and decision making.”

Justin Kelly leads Blue Sky Management, which operates 15 Orangetheory studios in Minnesota and as an area representative has another 24 in that state and the Dakotas. He described himself as the “original franchisee” who bought the first territory in 2010 and opened three units in 2011.

The root of the studio membership declines, he believes, is a departure in the brand’s position and marketing from a focus on weight loss to more general “personal transformation” and “experiencing life” messaging.

“The marketing department was allowed to make decisions based on anecdotal market analysis that people didn’t want to focus on weight loss,” he said. But Orangetheory’s success has come from its ability, he continued, to say, “Hey, we’re the brand that’s going to get that weight off of you and that healthy muscle onto you.”

A former Massage Envy franchisee and also now a European Wax Center operator with five locations in Florida, Kelly said he’s been through rapid growth cycles in those brands and has seen what can happen when a franchise later drifts from its core value proposition. He wants to see Orangetheory lean back into its “science-backed, technology-tracked” brand position and focus on emphasizing the results its workouts help members achieve.

What was once promoted as a weight-loss challenge in studios is now a “transformation challenge,” he noted, and while his studios are “about 85 percent back” in membership levels post-pandemic, the brand’s marketing isn’t driving enough new prospects.

“They’re so concerned with fat-shaming or just this aesthetic-based weight loss, but we’ve always been a health-based concept,” he added of the shift.

Kelly, though, is confident Orangetheory can work through the challenges and is positioned to be “the dominate player in fitness.” Franchisees, he continued, “are focused on a common goal to grow the brand. To be adversarial doesn’t really serve anybody.”



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