Premium Facilities, Premium Prices?
The segmentation of the indoor climbing market
Whilst writing this, my Instagram feed aptly popped up with a link to a Climbing Magazine article titled “Can Climbing Outrun Its Own Elitism With Inclusive Gym Pricing?”, referring to how expensive climbing gyms are in the USA. The irony is that the article is stuck behind a paywall, but I can only imagine that the UK is heading in the same direction.
This week
Continuing on from last week in which we discussed single-site and chain climbing gyms, today I take a look at entry prices. In particular, I highlight the difference in prices charged by single-sites versus chains. Remember, correlation does not imply causation, and so the following analysis does not imply that the ownership structure is the sole cause of any price variation.
Economics 101
Before we get into the details, it’s worth briefly covering some economic theory on pricing (I promise I’ll keep it short!).
Supply and Demand
We often hear that price is determined by supply and demand, but what does this mean in the context of climbing gyms?
In the short run, the supply of indoor climbing is fixed - building a new gym or adding space to an existing gym takes time. Therefore, if more people develop the strange urge to pull on plastic holds, prices will increase in order to balance out the increased demand. Increase prices too much and you’ll have an empty gym, too little and you’ll have more climbers than holds to grab!
In the long run, this upwards pressure on price incentivises suppliers (climbing gym owners) to expand their gym space. This increase in supply creates a counteracting downwards pressure on price.
Cost-Plus Pricing
Of course gyms must also cover their costs. If the supply and demand conditions are such that the “going-price” is not sufficient to cover their costs, the gym will quickly go bankrupt. This is why gyms may calculate their price by adding a margin onto their per-climber cost to ensure that outgoings are taken care of.
This is a key reason why we may see variation in price between gyms across the UK. As is well known, real estate and wages are more expensive in London and the South-East meaning that prices must be pushed up to cover the bill.
Other factors
There are a multitude of other factors that influence price, including the number of firms in the market and various pricing strategies. We will get into those in later articles.
In the Real World
The data presented below is based on non-member, peak entry prices to climbing gyms. Note that I have selected the 5 regions with the highest total number of gyms.
There are a number of key observations we can take away from the chart below:
London gyms charge the highest average entry price in the UK.
Within regions, chains charge a higher average price than single-sites. Averaging the price differences across the five regions depicted below, chains charge £2.32 more per entry than single-sites.
In four out of the five regions, price dispersion (the highest price minus the lowest price) is significantly lower among chains. This is visualised below by the length of each of the bars.
Interpreting the findings
London gyms charge the highest entry price
As we saw last week, London is the most populous city in the UK and so naturally sees the highest demand for indoor climbing. London does also have the most climbing gyms, but with the city’s near to 9 million population, the number of gyms per capita still dwarfs that of other UK cities.¹
London gyms also face higher investment costs from purchasing or renting land as well as higher staff costs. In order to remain profitable, these costs are partially or entirely passed onto customers.
Chains charge a higher average price
The data shows us that the chains systematically charge higher prices on average than single-site operations. This is an interesting finding because, assuming supply, demand and cost factors are roughly the same for all gyms, you wouldn’t necessarily expect the price difference to be so stark.
In fact, one may even think that given the ability of chains to spread their costs over multiple gyms, and negotiate preferential prices with suppliers, they would be able to offer lower prices.
One theory, which still requires further research - most likely me heading out to a few of these gyms- is that we are seeing the emergence of different market segments within the industry (premium, mid-range and low-cost gyms).
For old-school climbers, the 10m wall housed in an artificially lit gymnasium is sufficient to quelch the weekly urge to pull on plastic. But for the young professional 20-to-30 somethings who use climbing as their post-work escape from the mundane, the climbing gym is so much more.
The latest gyms, often the chains, offer clean, bright and social media friendly environments. They boast cafes with woodfired pizza ovens, top of the range calisthenics gyms and training boards. Climbing gyms have become a place to network, to “work from home” and to hang out with colleagues in the evening. Where young businessmen used to hand out advice on the golf course, we now find them beta spraying as their mates test out the latest reset.²
These gyms offer exclusivity, and, let’s be honest, the demographic that has driven the growth of climbing in recent years are willing and able to pay for it.
What this means for climbing in terms of access to a wider audience is a discussion for another day, but I fear it could risk excluding those people who could benefit most from the sport.
Price dispersion is lower among chains
Of course we would expect gyms within the same chain to offer similar prices. At the end of the day, they face similar costs and are targeting a similar cohort of customers regardless of their geographical location.
What is more interesting is that we see “chain” gyms from competing brands offering similar prices (think The Hangar and LCC). This would suggest that these gyms are competing in the same market segment, an insight reinforced by last weeks findings that chains are generally concentrated in wealthy cities.
By contrast, single-site gyms come in all shapes and sizes. They may be climbing walls forming part of a leisure centre, small startup walls housed in abandoned buildings, or even top of the range spaces offering all those same services provided by the chains. Such variation in product offerings lends itself to higher price dispersion.
To Conclude
This week’s analysis delved into prices offered by chains and single-sites. We see geographical variation in price - gyms situated where costs are higher generally charge higher prices. We also saw that chains charge higher prices than single-sites, and generally have lower price dispersion among them. We then theorized that this could be due to a segmenting of the market, where chains offer a premium product at a premium price, while single-sites may fall into a whole range of segments.
As always, thanks for reading and I hope you’ve learned something from this article (even if it’s that economic theory on pricing really isn’t your thing!)
Footnotes
1 https://data.london.gov.uk/dataset/londons-population
2 Beta-spraying: Giving advice on how to climb a particular route. Reset: When a gym changes the routes on a section of wall.