It was the year 2016 and I was deeply excited about the start-up space in India. As I sat in the NASSCOM warehouse in Kolkata and flush with everything ‘start-up’ around me, there was something strikingly odd that I read.
Accel Partners, IDG Ventures India, and Kalaari Capital have participated in a USD 15 Mn round, which includes an investment of USD 3 Mn by Bansal himself. The deal values the health and wellness start-up at about USD 50 Mn. CureFit will open for business in 2017.
A USD 15 Mn funding at a valuation of USD 50 Mn for a start-up that shall commence operations after a year.
Let that sink in for a moment.
Where is the MVP?
Has the product market fit been tested?
What if the business does not work?
Clearly, all these apprehensions were put to rest when CureFit was launched and what an illustrious journey the company has had. From raising USD 15 Mn at a valuation of USD 50 Mn from 3 investors to finally being valued at USD 732 Mn, a 14x jump in valuation with fundraise of USD 404 Mn, CureFit has come a long way in 4 years.
Both Mukesh and Ankit are poster boys of the Indian startup ecosystem. To understand more about Curefit, I recently picked up ‘No Limits‘ – the book written by Mukesh on his journey of achieving high performance.
(I haven’t completed the book yet but if you wish to get a sneak peek into how entrepreneurs and athletes prepare for high performance, it’s a must-read. You can click here to access.)
An interesting fact about Mukesh is that before Myntra, he has worked and founded multiple startups in Silicon Valley. Ankit was associated with the senior management team at Flipkart before co-founding curefit.
Curefit aims to be a holistic provider of end-to-end preventive healthcare in India. They have four main verticals in their offering – cult.fit (fitness), eat.fit (meals now expanded to groceries), care.fit (healthcare) & mind.fit (meditation and mental health). It has also commenced selling merchandise under the ‘Cultgear’ / ‘Cultsport’ brand.
Breaking Down the P&L
CureFit is presently not making money. However, their unit economics clearly separates the wheat from the chaff. We shall delve on this deeper later in this post.
In a recent interview with YourStory, Ankit Nagori was quoted stating that for 2020 their monthly Revenue run rate was ~USD 10 Mn before Covid-19. This would have translated to an annual revenue run rate of USD 120 Mn for 2020 under base-case scenario.
Decoding Cultfit (Cult.Fit)
Think of any gym that you’ve ever been to in your life.
A local gym close to your house, tries really hard to sell you an annual membership, a guy always trying to pester you to take his personal training services, shabby locker rooms, no flexibility to ‘pause’ your membership if you travel or get sick.
From the gym’s perspective, huge upfront capex, uncertain payback period, bad center economics, cash flow uncertainty, high maintenance costs around equipment breakdown etc.
Enter Cult. Cultfit.
The ‘CULT’ brand of fitness centers that has a count of 200+ was initially a two outlet chain based out of Bengaluru and run by Rishab Telang, a fitness trainer and a former executive at Wipro Ltd and Reckitt Benckiser India Ltd. CureFit acquired controlling stake of CULT at USD 3 Mn, a valuation of ~USD 1.5 Mn per center.
After Cult’s acquisition, CureFit acquired ‘The Tribe’ chain of fitness centers which followed a similar training format as CULT – no equipment, functional training spread across various formats. Tribe’s co-founder Shwetambari Shetty went on to join CureFit’s management team. Both Rishab and Shwetambari would lead on to be amongst the biggest influencers for CultFit.
Taking a leaf out of Starbucks’ playbook, Cult initially started with the hyperdense concentration of fitness centers which has worked truly well for them. In a 2017 interview with The Mint, Bansal was quoted stating a monthly run rate of USD 10,000 per center and a capex payback period of 15 months.
(There was a 10x premium at USD 1.5 Mn for the center capex initally on account of buying controlling rights to the ‘Cult’ brand)
This again was initial days. As per their website, in the franchise section, this cost has significantly come down by 89% to USD 162,000 (approximately 1 cr.), a great feat to achieve in itself to have a lean offering considering their aspiration to open 500 centers pan India by 2020. Due to the varying nature of purchasing power parity and income demographics across the country, the capex payback period is estimated at 24-36 months.
Until 2018, CultFit was fairly concentrated in Bengaluru before breaking into the national space. Cut to 2019, it is now present in 15+ cities, 2 countries and has close to 200+ centers pan-India. (Although as per their recent announcement, they have shut their operations in UAE and a few small cities in India due to the Covid – 19 situation).
Cult initially was present in 3 cities – Bengaluru, Gurgaon, and Hyderabad. It had a healthy run rate of USD 4 Mn and ~100K paid members providing them an average annual realization of USD 480 / customer.
However, in 2019 Cult took to aggressive expansion getting into 15+ cities with around 200 centers. Cult managed to scale up both its member count and center utilization. This, however, came at the cost of average realization. The realization dropped by almost 90%.
On average, Cult sells an annual membership for USD 300-400. The annual realization reflects the variation in member density and center economics which varies from city to city.
Despite the drastic fall in realization, Cult still has a CAC which is phenomenally low. Cult is always in the limelight with their massive celebrity endorsements, round the year fitness sale offers and multiple advertisements across various media sources.
Even after the big push towards brand building, Cult has managed to maintain a positive realization against it’s every sale (Realization – CAC).
With a healthy contribution margin of close to 30%+ across all offerings, the sight was on achieving USD 1 Bn in revenues (monthly run rate of ~USD 80 Mn) by 2022 on the back of global expansion.
You see, Cult had the entire road map figured out. Profitable centers, more members, better utilization and finally increased realization.
This however, now gets challenged due to the Covid – 19 situation.
Trainers at Cult
Cult’s Trainers are their biggest assets. Recently, due to scaling down of their operations they had to shut a few centers down in a few small cities. Cult had to lay off 10% of their trainers (~300).
Mukesh Bansal was quoted stating that they still have around 2400 to 2700 trainers on their payroll that have been moved to a fixed+variable model.
Being a member of Cult since 2017 I have had the opportunity to work out across Bengaluru, Delhi NCR and Kolkata.
Most of the trainers are ex-athletes, national-level players, licensed instructors, and have a basic level of understanding around sports science, psychology, and what is relevant around fitness. They have to undergo a rigorous training before they can start taking classes.
When the layoff news had been put out recently, there was some amount of backlash on social media which was later put to rest in a YourStory interview.
Rishab Telang put out a video stating how Cult gave an opportunity of livelihood to thousands of sports and fitness enthusiasts around the country who could look at building a reasonable career.
Based on primary research and interaction with multiple trainers, Cult pays their trainers way above the normal benchmark. (As seen above, it is no surprise that Employee Costs make up ~30% of their total costs). Most of the trainers have a really active social media presence and act as massive influencers for the brand. (possibly adding up to high NPS for the brand)
Since Employee Costs proportion are high, centers are non-operational and a few of them shut in small cities, Cult could have probably gone ahead and laid of all their trainers.
Instead, they’ve agreed to retain 90% of their workforce.
Taking a leaf again out of the Starbucks playbook, this is like the 2010 moment when Howard Schultz (the CEO of Starbucks) spent ~USD 300 Mn in healthcare costs which was very unpopular with the investors.
Or this could be the 2008 Costco moment where Galanti refused to make employees pay more than 10% for healthcare to save USD 10 – 20 Mn / year.
As the saying goes,
Happy employees take care of their customers. Happy customers take care of the shareholders by coming back.
Mother of all Pivots
Back in 2018, Ankit Nagori was quoted stating that they expect average realization from each member to go up to as high as USD 1,000 and have 80% of their offering on the digital platform.
You see, even after the lock down is lifted, members would not be working out in the gyms wearing masks. While Nagori did quote that they’re looking at various iterations of what can work, it would be worthwhile to see how this pans out.
Cult has brought the digital pivot at a break neck speed.
Right from conducting live classes with activity tracker that gives you the ultimate virtual reality feeling, to having celebrities make you dance to foot tapping numbers, they have pivoted fast.
Their latest pivot, paid personal training.
While this has been started for limited workout formats, it does show Cult’s willingness to get their trainers back to optimum utilization levels.
Eat.Fit
Most of the people who try following a fitness regime – either to lose weight, bulk up or just stay fit find a tough time sticking to a meal plan.
Eat.Fit was made to plug that gap. Members paying USD 400 a year could afford paying USD 10-20 for a weekly meal plan.
Eat.Fit went for a full-stack approach to keep control over the product rather than aiming to be just another aggregator.
Right from sourcing raw materials to having it delivered, Eat.Fit takes care of the entire value chain. They’ve now started being available with food aggregators too but bulk of their business is indigenous.
EatFit also has a lot of indigenous blends of juices and snack offerings alongside selling brands such as Raw.pressery, Epigamia etc.
Their latest pivot has taken around supplying groceries to households.
Mind Fit, Care Fit and CultSport
Mind Fit started off as a chain of yoga and meditation centers after the acquisition of ‘a100yoga’ for an undisclosed sum.
Care Fit is still under a nascent stage and is present in Bangalore. However, they have ramped up their digital offering through teleconsultation, video call etc.
Cult also started selling sports apparel on it’s platform under it’s own brand. It also has Nike and Under Armour products featured for which it charges platform fees and commission.
Acquisitions & Looking Ahead
As per Crunchbase, CureFit has done 6 acquisitions between 2017 to 2019. All of these were made to strengthen the existing product offering.
One of the interesting acquisitions was buying the Indian arm of the premium fitness chain ‘Fitness First’ which is backed by Oaktree Capital. This also made OakTree Capital invest in CureFit in their USD 120 Mn Series D round.
As early as yesterday, Interglobe Aviation, the parent of Indigo Airlines has expressed interest in buying Virgin Australia.
Can we see Cure.Fit consolidate the fitness space in the world and buy out Gold’s Gym? We will have to wait and see.
Gold’s Gym has presently filed for bankruptcy.
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DISCLAIMER: No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.
Kartik
A nice write up Saket.
Few facts or events I believe will help decoding the future of this business-
1) Cult is already earning an average membership fee in line with the industry/market – which is $350-400. This actually raises a question on future potential to increase the fees for better margins.
So the focus would have to shift to lean cost structure which may be a tough thing considering the major cost is towards employee (excessive pressure on trainers to take more classes may not be possible and next is rent which is pretty high considering the location of the fitness centers are at prime locations for better accessibility).
2) The current market size in terms of number if active paying users is 6mn member base. Of which 500k is capture rate despite being present in the highly dense locations (Delhi/gurgaon/bangalore/hyderabad). Though it will be interesting to see how many of these 500k are the ones who already were already a member of some kind of fitness centre. I have always been an advocate of induced demand generators. The scope is still huge as the expectations are an addition of 5-6mn paying users in next 3-4 years as per an industry report.
3) A commendable part is that they have been able to raise funds as recent as April 2020 through CCPS at a valuation +20% from the previous valuation. This should have further fueled their online fitness stream faster as their promoter Ankit Nagori spoke recently.
Hence the investors have backed them during the time of need, the interesting situation would be how well they are able to monitise this segment where already big players like NIKE, ADIDAS, FITTR etc are working pretty well.
Their strength has been an offering of vibrant workout regimes in one basket, physical training they have been able to be one of the first movers(by the speed at which they scaled up), but online may not be the same story.
4) A very CA kind of a comment. Basis their business model where a majority of fees is recovered upfront, the investment methodology or operations need to be very strong. Though as a corporate they have been able to leverage it well, i say this basis on the fact that they were able to earn around INR 231mn through interests in 2018-19.
But the point to be seen is that will the franchise model owners be able to leverage these kind of investment earnings? Which would be very critical. Their financial knowledge support could help lure such small time investors.
5) One area open to tap is corporate wellness, specially after a post Covid era wellness will surely become a necessity. Like the west and their counterparts in India, corporates have been creating funds to sponsor their employees to join fitness centres. In a country like a India this can be a game changer, purely basing my thought of the working population. These companies would surely prefer established brands where brands like cult can leverage.
Irrespective of the above views as a customer i believe they have cracked my personal fitness needs (who know better than you).
Saket Mehrotra
Great set of perspectives, Kartik.
I shall aim at incorporating a few in my article. Well, on the opportunity cost of utilizing funds received from franchises to earn interest income – I would rather have them do that than recklessly spend on going for higher CAC.
In a space where most of the startups struggle with getting their CAC right, Curefit has done a tremendous job in flattening the curve and staying consistent.
I am in total agreement with having induced demand generators and how they have an impressive capture rate which can be rapidly scaled up.
It can either be done through a better suite of offerings – since they are always known to push the envelope thereby resulting in increased conversions or getting more MAU on their app.
Corporate Wellness is big – The corporate space has been tricky to crack. Zomato recently started with ‘Zomato@work’, Curefit has also started with ‘eat.fit@work’; let’s see how this space evolves in the future.