SOULCYCLE BRAZIL

MIND + BODY + CARDIO = SOULCYCLE

Take your journey. Change your body. Find your soul.

SOULCYCLE has done more than revolutionize indoor cycling and become the most popular cycling fitness trend to date.
Each SOULCYCLE ride delivers a FULL-BODY workout that is fun, energized atmospherically and mentally inspiring as well. Riders using the SOULCYCLE Method work their core and lift hand weights to tone their upper body. While in select studios, SoulBands are offered in their revolutionary class that challenges the whole body through the use of resistance training where bands hang above the bikes. So that each rider gets a full 60 minutes of toning key upper body muscles while minting fatburning cardio intervals. SOULCYCLE combines a killer card and anaerobic workout fused with a transcendental atmosphere, motivational music and inspirational coaching.

Brazil accounts for only around 5% of the Americas gym, health & fitness club market, but it is growing more rapidly than the large, mature market in the US.

CAGR* 2008-2012

IHRSA ESTIMATES

MARKET SIZE 2012

$1,189m

15.8%

$2,358m

$16,725m

1.3%

$2,290m

5.7%

The Brazilian market is immature, with low penetration rates of gym membership. It is nevertheless one of the largest in the world.

COMPOUND ANNUAL GROWTH RATE SOURCE: MARKETLINE | IHRSA LATIN AMERICAN REPORT 2012

BRAZIL ECONOMIC INDICATORS

2004
GDP (US$ Billion) Real GDP Growth (%) Unemployment Rate (% Labor Force) General Price Index - IGP-DI (%) Consumer Price Index - IPCA (%) Exchange Rate at Years End (R$/US$) 664 5.7 11.5 12.1 7.6 2.9

2005
882 3.2 9.9 1.2 5.7 2.4

2006
1,089 4.0 10.0 3.8 3.1 2.2

2007
1,336 5.7 7.5 7.9 4.5 1.8

2008
1,636 5.1 6.8 9.1 5.9 2.4

2009
1,577 (0.6) 6.8 (1.4) 4.3 1.8

2010
2,144 7.5 5.3 11.3 5.9 1.7

2011
2,475 2.7 4.7 5.0 6.5 1.8

2012
2,253 0.9 4.6 8.1 5.8 2.0

Goods Exported (US$ Billion)

Goods Imported (US$ Billion) Trade Balance (US$ Billion) Current-Account Balance (US$ Billion)

96.5
62.8 33.7 11.7

118.3
73.6 44.7 14.0

137.5
91.4 46.1 13.6

160.6
120.6 40.0 1.5

197.9
173.0 25.0 (28.3)

153.0
127.7 25.2 (24.3)

201.9
181.9 20.3 (47.5)

256.0
226.2 27.0 (53.0)

242.6
223.1 19.4 (54.2)

International Reserves (US$ Billion)

Foreign Direct Investment (US$ Billion)

52.9
18.1

53.8
15.1

85.8
18.8

180.3
34.6

206.8
45.0

239.0
25.9

288.6
48.5

352.9
66.6

373.1
65.3

SOURCES: BANCO CENTRAL DO BRASIL (BRAZILIAN CENTRAL BANK) at http://www.bcb.gov.br/?indeco. FUNDAO IBGE

BRAZIL DEMOGRAPHICS

A/B (more than USD 40k/year) C (USD 10-40k/year)

5.4%
32.5%

+ 7 million

11.0% 50.8%
38.2%
Population in 2010: 194 million

D/E (less than USD 10k/year)

62.1%

1992

2010

SOURCE: FGV (US$ = R$ 2.00)

BRAZIL AGE DISTRIBUTION 2010

above 49 years old

11,10% 9,50%

35 to 49 years old

10,40% 9,80%

Women Men

20 to 34 years old

13,20% 12,90%

0 to 19 years old

16,30% 16,80%

SOURCE: IBGE

BRAZIL GDP PER CAPITA

> R$ 50,000
Manaus Recife

> R$ 25,000 > R$ 20,000

Salvador Braslia Belo Horizonte So Paulo Curitiba Florianpolis Porto Alegre Rio de Janeiro

> R$ 15,000 > R$ 10,000 > R$ 5,000

SOURCE: IBGE

BRAZIL MARKET VALUE

Market growth has been steadily growing above Brazilian GDP

MARKET GROWTH (Y/Y)

YEAR 2008 2009 2010 2011 2012 $ MILLION 661.3 737.3 863.0 1,023.8 1.189.2 BRL MILLION 1,291.9 1,440.4 1,685.8 2,000.0 2,323.2 % GROWTH 11.5% 17.0% 18.6% 16.2%
Br GDP Gym Mkt
17,0% 18,6% 16,2%

11,5%
7,5% -0,6% 2009 2010 2,7%

0,9% 2012

2011

SOURCE: MARKETLINE and IBGE

BRAZIL MARKET NUMBER OF GYMS

2nd largest of the World

NUMBER OF GYMS / STORES

46.000 30.500

24.000 7.800

6.600

7.000

Brazil

Arg

Mexico

Latam

EUA

Germany

SOURCE: IHRSA

BRAZIL MARKET ENROLLMENT

still a lot to grow

GYM ENROLLMENT (MM PEOPLE)

50,0

GYM ENROLLMENT (% POPULATION)

17%

10%
15,0 7,0 2,3 Arg 2,7 Mexico Latam EUA 7,9 3,5%

6,0%
2,4% Arg Mexico 2,5%

Brazil

Germany

Brazil

Latam

EUA

Germany

SOURCE: IHRSA

10

MARKET HIGHLIGHTS
The market is highly fragmented. There are more than 23,000 gyms and fitness clubs in Brazil, but even leading players such as BodyTech have fewer than 100 locations, equating to a market share by volume of less than 0.5%. The Brazilian market is expanding rapidly in value, which means that it is quite possible for one player to increase revenue without encroaching on its rivals market share. This weakens rivalry. Also, exit costs are low, which should tend to ease rivalry as companies (or franchise locations) that are unprofitable can leave the market rather than struggle in an unprofitable business. However, players tend to be highly focused on their core business, with little diversification of revenue streams, which tends to boost rivalry.

SOURCE: MARKETLINE

11

MARKET HIGHLIGHTS
The average enrollment number is 300 people / Gym. This number can reach 2,500 in the most famous brands and locations; In Brazil 90% of Gyms are considered small in terms of size; Average revenue per Gym is R$ 205,000 / year, although the larger ones can generate R$ 8 million / year; GYM SIZE IN BRAZIL
10%

90%

Small (500sqm)

Big (500sqm +)

SOURCE: VEJASP

12

MARKET HIGHLIGHTS
So Paulo is the state with the largest number of fitness centers in Brazil: over 6,400 establishments, one for every 6,445 inhabitants; Santa Catarina is state with the second largest density of fitness centers; over 1,700 of them, one for every 3,487 people. INHABITANTS / GYMS

14.359 8.333

13.043 9.836

11.714

5.808

Brazil

Arg

Mexico

Latam

EUA

Germany

SOURCE: IHRSA

13

BRAZIL NEW ENTRANTS

The Brazilian fitness market is expanding rapidly, which will attract new players, including foreign companies wishing to expand beyond their domestic markets.

Capital barriers to market entry are low.

It is common for fitness centers to expand by franchising, and the investment required is within the reach of many individuals with some savings available. Furthermore, factors such as regulation and intellectual property have little impact on the ease of entrance. Fitness centers operate as self-contained units, and there are limited opportunities for scale economies in this market, beyond perhaps some back-office functions in the larger chains.

SOURCE: IBGE

14

LEADING COMPANIES

Average monthly fee in Brazil is R$ 60 R$ 85, but numbers can be much higher
company units
40+14

members
105,000

founded in
2005

monthly fee
> R$ 280

company

units
105

members
n.a

founded in
2004 in Brazil

monthly fee
R$ 179

74+30

250,000

1996

> R$ 250 > R$ 50

230

68,000 women

n.a

> R$ 80

24

42,000

1983

~ R$ 150

8,000

1984

R$ 450

16

32,000

1985

> 265

3,000

2000

R$ 440

SOURCE: IHRSA LATIN AMERICAN REPORT 2012 & COMPANIES WEBSITES

15

GYM FRANCHISES
company initial capex
R$ 890,000 ~ 1,100,000 R$ 550,000 ~ 1,500,000 R$ 260,000 ~ 280,000 R$ 140,000 R$ 210,000 ~ 310,000

area
500 m2

monthly fees
Royalties: 6% of GR Advert.: 2% of GR Royalties: up to 10% Advert.: 4.5% of GR Royalties: R$28 Advert.: R$790 n.i

800 m2

250 m2

n.i

120 m2

Advert.: 2% of GR

SOURCE: www.franquiaagora.com.br

16

SERVICE OFFERING
Gyms usually have a very broad collective class offering

GYM OFFERING: COLLECTIVE CLASSES

62,30% 44,70% 31,60%

56,10% 37,70%

Step

Abs

Jump

Spinning

Stretching

SOURCE: GINSTICA COLETIVA NAS ACADEMIAS DE BELO HORIZONTE E O PERFIL DOS PROFISSIONAIS

17

CUSTOMER PROFILE INCOME

For much of the talk of the growing middle class in Brazil, 60% of gym members still come from the higher income class; With the offering of low cost gyms, the share of the middle class is expected to grow rapidly. This class is responsible for a good share of the rise in the market; now that their incomes are higher, they can afford fitness centers something that used to be a luxury , aiming at a better quality of life; Big groups of the sector are opening low cost establishments to attend these new people interested in exercising. In 2009, Bio Ritmo launched Smart Fit, which offers a monthly plan with prices ranging from BRL 50,00 to BRL 60,00 and Bodytech group also started a new line to attend people with lower incomes. Frmula offers plans from BRL 89,00 to BRL 180,00
SOURCE: VEJASP

GYM ENROLLMENT: INCOME

40% 60%

A/B

C/D

18

CUSTOMER PROFILE WHY GO TO THE GYM

The reasons why Brazilians go to the Gym are predominantly Health and Beauty

45,6%

23,4%

9,1%

7,9%

6,0%

4,8%

3,2% Others

Health

Beauty

Muscle Strengthening

Well Being

Conditioning

Weight Loss

SOURCE: MOTIVAO PARA A PRTICA DE MUSCULAO DE ADERENTES E DESISTENTES DE ACADEMIAS - FLORIANOPOLIS2011

19

CUSTOMER PROFILE AGE

As the Brazilian population is growing older fast, so are the average member of Gyms; Specialized Gyms are spreading through Sao Paulo and Rio. Focusing on older people or only women are the most common.
23%

AGE DISTRIBUTION AT GYMS

2002
60% 2012

51%

29% 20%

17%

0-20

21-39

40+

SOURCE: VEJA SO PAULO

20

CUSTOMER PROFILE ASPECTS WHEN CHOOSING YOUR GYM

Globally, the most important aspect when choosing your gym is Access; Brazilian cities are famous for not having adequate pubic transportation and traffic jams. Location is also very important.

70%

30%

28%

24%

12%

11%

6% promotions

6% others

easy access and proximity

equipment quality and variety

price

quality

reference

many units

SOURCE: DELLOITE

21

CUSTOMER PROFILE GREAT CONSUMER EXPERIENCE

ASPECTS RELATED WITH GREAT CONSUMER EXPERIENCE

56%
62% 51% 57% women men 44% 38% 40% 31% 16% 15%

45%

48%

10%

10%

equipment avaiability

gym size

equipment quality

gym environment

professionals

personal trainer

others

SOURCE: DELLOITE

22

CUSTOMER PROFILE TIME SPENT IN THE GYM

Most people spend 31 to 90 minutes in the gym and go 1 to 3 times a week

PROFILE: TIMES A WEEK

37.9%

PROFILE: PERIOD IN THE GYM

48.9%

34.6%

45.1%

1-2

31-60min

61-91min

SOURCE: PERFIL DOS USURIOS DE MUSCULAO DA UNISC: UM OLHAR SOBRE A FREQUNCIA E PERMANNCIA NA ACADEMIA

23

CUSTOMER PROFILE ENROLLMENT PERIOD

Most people stay in the same gym for only 18 months

ENROLLMENT PERIOD IN THE SAME GYM

89,0% 94,0% 100,0%

19,0%

37,0%

57,0%

76,0%

1-3

3-6

6-12

12-18
Months

24

36

>48

SOURCE: ANLISE DO PERFIL DOS CLIENTES DE ACADEMIAS DE GINSTICA - POA 2003

24

CUSTOMER PROFILE ABANDONMENT CURVE

One study found that 60% of Brazilians leave the gym during the first six months; However the rate falls to 30% when the members practice spinning; According to ACAD, approximately 50 to 60% of members give up in the first 45 days: The main reason is the relationship with the professors.
10,0%

ABANDONMENT CURVE
Total

Spinning Practice
41,3% 31,3% 20,0% 10,0% 10,0% 47,6%

56,3%

63,8%

30,0% 20,0%

3 Months

SOURCE: ADERNCIA AOS PROGRAMAS DE EXERCCIOS FSICOS EM ACADEMIAS DE GINSTICA NA CIDADE DE CURITIBA PR

25

BRAZIL OBESITY SNAPSHOT

51% are overweight (more than 100 million people) 17% are obese (around 34m people). In 2006, it was 11.6% 33.5% exercises regularly (39.6% men and 22.4% women) 10% uses some sort of medicine to loose weight (among the highest rates of the world) Porto Alegre is the city with higher percentage of overweight people

SOURCE: HEALTH MINISTRY

26

BRAZIL OBESITY SNAPSHOT CUSTOMER PROFILE

Few Brazilians engage in physical activity

DO NOT ENGAGE IN PHYSICAL ACTIVITY

50% 39%

53%

57%

18-24

25-44 Age

45-59

60-70

SOURCE: IHRSA

27

EMPLOYEES PROFILE
Brazil has a complex payroll legislation with taxes that can range from 60% to 100% over salary; An IHRSA survey with the largest gyms in LatAm found that on average there are 29 members per employee; Brazilian Gyms: generally 80% of workers are directly employed, and 20% are independent and provide services or are employed by an external supplier for the club; Average salary has strong correlation with time in the market of the employee.

Average Salary
Initial
Intermediary Experienced

monthly (R$)
R$ 1,000 - R$ 2,000
R$ 2,500 - R$ 5,000 R$ 5,500 - R$ 8,000

SOURCE: IHRSA and IG GUIA DE PROFISSES

28