Ecogym - Rethinking Energy

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To start the operations the company needs € 421.909,83. € 321.909,83 will be used to cover the initial investment and will be provided by the four founders, by the Corporate Venture

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Capital Vulcano and by one business angel. The remaining € 100.000 needed the company will get through a medium-term bank loan.

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BUSINESS DESCRIPTION

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PROBLEM

A real problem that gyms deal every day is the highly operational costs coming from the energy that is necessary to make the gym fully functional for its customers. These energy costs are originated by the large amount of machines that make a fully equipped gym and an ideal place to make exercise.

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SOLUTION

In order to overcome the present problem, our idea is to reduce the operational costs with energy increasing simultaneously our profits. The ideal solution is to take advantage from the exercise made by our future customers and use that energy produced in the cardio machines for our internal needs of energy in the gym. This way we can save in costs and make our profits bigger with these savings.

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INDUSTRY ANALYSIS

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MACRO LEVEL: PORTER’S FIVE FORCES ANALYSIS

- Threat of Potential Entrants: MEDIUM HIGH

After an analysis about the gyms and fitness/health clubs in Portugal we consider that the threat of potential entrants is medium high due to several reasons. In the first place, there are not any legal barriers to the entrance of new firms in the market. Although they have to obtain specific licenses and obey to a large number of legal requirements, regarding their construction, installation and operations, the all bureaucracy underlying has reduced in the last years. Therefore, nowadays it is easier to set up and run a gym than it was some years ago.

In addition, despite the considerable level of market saturation and the current economical crisis, this is a young industry and has growth potential, mainly considering new concepts and formats. The chiefly issue that has a negative impact concerning the attractiveness of the industry is the potential high investment costs. The success of a fitness centre depends in a large scale of its location. As a result, finding a well-located place that is suitable to implement all the necessary requirements for the establishment of a new fitness facility, regardless the decision of renting an existing space or building one from the scratch, is expensive.

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- Threat of Indirect Substitutes: HIGH

Considering the threat of indirect substitutes there are three large categories that excel: non- organized recreational outdoor activities, organized sports clubs and home exercise equipment.

Non-organized recreational activities, such as running and biking are getting really popular regarding the current scenario of financial crisis. The reason underlying its growth is the fact that these activities are the cheapest way of practising physical exercise. However, they have two weaknesses. Firstly they are dependent on the weather conditions and it takes longer to achieve the desired physical results.

The organized sports clubs’ target is not exactly the same of the gyms, since the consumers who look for a club of this type are usually interested in practising a specific sport. Furthermore, they can have a positive impact in the fitness centres segments due to the fact that a lot of athletes complement their practises with gym workout. Nevertheless, the real threat consists in the small neighbourhood organized sports clubs, which charge low prices and are extending their offer, including specialized group classes typically provided by gyms.

Thirdly there is the increasing threat of the home exercise equipment. Besides the traditional equipment consumers can buy to workout at home, the technological development has revolutionized this sector by introducing in the market devices like the Wii Fit. This is a really attractive option to higher-income consumers with a limited free time. Moreover, the cost in medium-long term is lower than fitness clubs, since it corresponds to a unique initial cost of equipment acquisition.

- Bargaining Power of Buyers: HIGH

Regarding the bargaining power of buyers we considered it as being high for this industry. This occurs because of two major reasons. Firstly, the majority fitness centres’ primary source of income is the membership revenues, which includes the monthly tuition and in some cases an enrolment fee, as well. Secondly, the switching costs are low, which is translated into low member retention. Therefore, the companies’ wealth is strongly dependent on members’ number variations. The readiness that consumers have of changing gyms has heavy implications in the pricing policy, since it raises their influence on price setting.

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In this point is important to highlight that one the key competitive advantages of EcoGym’s business model relies on the fact that its primary source of income will be the energy sold to the EDP1. As a result, the dependency of the demand variation will be lower compared to the existing fitness clubs.

- Bargaining Power of Suppliers: MEDIUM LOW

The bargaining power of suppliers is medium low, because this type of business requires a few number of suppliers and companies are able to find multiple options to choose from in this context. The major concern is ensuring that the gym is adequately furnished with the workout equipment that satisfies the customers' needs.

We identify three main categories of needed equipment:

- Physical training equipment: this includes a great number of items, such as treadmills, elliptic and static bikes, oar and bodybuilding machines and dumbbells;

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