A top investor sees ClassPass winning the 'scrum for the fitness dollar' in a market booming by up to 30% a year

• ClassPass recently raised $285 million in a round of funding that secured its place as a billion-dollar company.
• Private-equity firm L Catterton was one of the leading investors in the round; a managing partner at the company explained to Business Insider why it chose to invest.
• He said ClassPass is in prime position to benefit from the fitness boom as more studios open and supply outstrips demand.
• He also expects it to become one of the "great wellness names of the future" as it continues to offer more wellness services in its membership program.
• Visit Business Insider's homepage for more stories.

Last month, ClassPass propelled its way into the unicorn club of startups after raising $285 million in a round of funding that secured its $1 billion company valuation.

Among the leading investors in the round was L Catterton, the consumer-focused private equity firm that has garnered a reputation for picking and investing in some of the hottest consumer brands in the market, especially in the fitness space where it counts Peloton, Equinox, and Pure Barre among its investments.

Marc Magliacano, one of L Catterton's managing partners who spearheaded the deal and has since joined ClassPass' board of directors, recently spoke to Business Insider about why the company chose to invest in this round.

'There is going to be a scrum for the fitness dollar'

The fitness industry is experiencing a boom at present as new concepts continue to crop up. Magliacano estimated that there is in the realm of 60,000 boutique studios in the US, and the market is growing at somewhere between 20% to 30% a year.

"There is an ever-increasing amount of studio inventory on the market and that will continue for the foreseeable future," he said in a recent phone conversation with Business Insider. "There is going to be a scrum for the fitness dollar."

But ClassPass is in prime position to capitalize on this, he said.

The ClassPass "business model is all about revenue optimization through utilization" - it's "there to provide a dual service for the provider and for the consumer," he said.

Its membership program provides users access to an array of classes across different studios and gyms - it means that customers can mix and match their workout and boutique studios are able to fill more spaces.

Jason Kelly, an expert on the fitness market and the author of "Sweat Equity," described ClassPass as the "go-to option for the fickle, budget-conscious urban exercise addict," in his book. Its "appeal is the ability to mix it up, to avoid getting into a virtual rut by gorging yourself on a single form of exercise."

Customers want to "snack" on different fitness routines, Magliacano said.

"Doing the same thing over and over again gets mundane and people lose interest and stop working out. ClassPass provides you with this enormous variety such that it's nearly impossible to get bored of working out; there's always something new and different for you to be doing."

But this idea that customers want to mix and match, poses a serious threat to some of the other brands in L Catterton's portfolio - Peloton and SoulCycle, to name a few, who rely on customer loyalty.

Magliacano stressed that there's room for both, and a giant and growing pool of consumers means both concepts can be successful.

In 2018, more than 71.5 million consumers visited a gym in the US, which was a record high - revenues in the fitness market are growing at about 9% a year and expected to reach $106 billion in 2020.

"It's not a zero-sum game. One doesn't either join ClassPass or buy a membership to SoulCycle - the market doesn't work like that. There are plenty of people who want a direct membership to SoulCycle, Rumble, and Pure Barre, but millions of others who would like to use those workouts as part of a broader regime that includes other fitness programs," he said.

His theory is that ClassPass is cashing in on the pool of customers who aren't using boutique fitness studios at all and this provides the perfect introduction for them.

These consumers "now have the opportunity to spread their fitness dollars across a variety of concepts and that is value for them," he said.

'One of the great wellness names of the future'

In the past 18 months, ClassPass has grown its reach from four to 28 countries, partnering with more than 30,000 boutique studios, gyms, and wellness providers.

ClassPass CEO Fritz Lanman said in a press statement, announcing its recent round of funding, that the cash injection will aid its global expansion. It "will allow us to expand more rapidly within existing geographies, add more countries to our network, and scale our corporate program globally," he said.

Magliacano also said there's also an opportunity to broaden its customer base in existing areas by offering new services. ClassPass recently added wellness services to its platform, and he's expecting this to become a bigger part of the pie, for example.

"This whole concept of self-care is just growing and is not going away," he said, and ClassPass has the potential to become a one-stop-shop for all our fitness and wellness needs.

"It will be a seamless experience and when you start seeing the rich content and education, customized solutions, and all the incremental benefits ClassPass will provide, undeniably, this is going to be one of the great wellness names of the future," he added.