The Chomp #033

Hey Everyone,

Welcome back to The Chomp—your weekly dose of the best content from the internet and beyond, designed to expand your mind and get you thinking. Let’s dive into it.

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Quick Bite

• The In-Home and On-Demand Fitness Revolution: This is a new essay I put out yesterday. You can read it on a separate page by clicking the link. (5 Min)

  Last week, in-home fitness startup Mirror was acquired by Lululemon for $500M. Just under a month ago, Hydrow—a connected indoor rowing machine—announced $25M in new funding. A few weeks before that, reports surfaced that Tonal, a wall-mounted connected-exercise station, was in talks to raise additional funding at a $250M valuation. Over the last quarter, Peloton sales jumped 66%. To date in 2020, the entire in-home fitness market has been scorching hot. Much of the growth is due to COVID, however, this market was set to expand regardless of our current circumstances. What should have taken 5-10 years to unfold happened in 10 weeks. Now that we’re here, there’s no going back—the genie is out of the bottle. In-home fitness is having its moment, and I don’t expect it to end anytime soon.

  Despite the gradual re-opening of gyms across the globe, I don’t see the traditional usage of gyms or fitness studios ever fully returning. Don’t get me wrong, I’m beyond excited to get back into the gym once restrictions in NYC are lifted. Having been stuck at home doing bodyweight workouts for several months, I can’t wait to be back in the gym lifting weights again. But I’ll never go back to the same routine I had before COVID. As someone who has gone to the gym 5-6 days a week for the past decade, that realization had a profound impact on my future outlook for the fitness industry. It crystalized my view that in-home fitness isn’t just a trend—it’s the future.

  

  If someone like me—an incredibly sticky user for the traditional gym model—is willing to change habits, what does that mean for the millions of casual gym-goers? Those who have made the transition to working out at home are likely to continue doing so in the future, at least some of the time. It's incredibly convenient. Over the past two years, we've seen a Cambrian explosion of in-home fitness equipment and on-demand workouts. There have never been more options for working out without needing to go to a gym or studio. Classes at yoga and fitness studios typically range between $25-40 per class.

  Why pay that amount for a single class when you can pay $12.99 a month for unlimited access to on-demand and live classes on the Peloton app? If Peloton isn't your jam, there are a plethora of other options out there for any type of workout you can imagine. Sure, there is something different about attending a class in person. It's invigorating and you and feed off the energy of those around you. But what do you price that experience at?

  In-person classes also have a community component, sometimes even a cult-like following. Studios like Soul Cycle and Barry's Bootcamp have an army of die-hard followers. But the community aspect has translated well over to the digital world. Peloton has built a thriving community with over 2.6 million members. Soul Cycle is going digital as well with the launch of their in-home. Soul Cycle's in-home classes will live on the Variis app, which also includes on-demand classes from Equinox, Pure Yoga, and Precision Run. What this signals to me, is that in-person will become the luxury, and in-home/on-demand the norm.

  On the tech front, in-home and on-demand fitness products are rapidly innovating. The future of fitness technology will be like nothing we've ever experienced. We’re starting to see what’s possible with the use of AI and motion tracking in products like Zenia and Tempo. Zenia is a personal yoga assistant that leverages computer vision and motion tracking to analyze your movements. It's able to give you real-time feedback on your poses and recommend adjustments on the fly. Tempo is an AI-powered home gym that tracks your motion and improves your form. This article in The Verge gives a great explanation of how it works. We’re also seeing the potential for VR in the space with products like FitXR. They developed an immersive VR boxing game and plan to launch several new fitness games. These examples are just the tip of the iceberg of FitTech that we'll see in the future.

  Along with rapid advancements in tech, consumer sentiment is shifting towards working out at home. COVID has been a huge accelerator of this trend. With gyms closed, most people have had no choice but to workout at home. This led to mass demand for in-home fitness equipment as well as supply shortages. It also forced gyms and studios to create digital offerings. The number of Instagram and YouTube workouts have also skyrocketed. As a result, the transition to working out at home has been much easier than many folks anticipated. Somebody with no fitness knowledge at all can get started with just a few taps on their iPhone. Add in the convenience of working out at home, and it becomes clear this trend is likely to stick.

  Combining these trends with advancements in FitTech, I see the market for in-home and on-demand fitness overtaking brick and mortar gyms within the next decade. For context, the global health & fitness club industry is currently valued at nearly $100B. The International Health, Racquet & Sportsclub Association estimates that 20% of Americans have a membership to some type of fitness club. At the end of 2017, the ‘digital fitness’ market, which includes in-home equipment, was projected to grow to $27.4B by 2020. I’ve yet to see any concrete numbers following the onset of COVID, but I’d struggle to believe that valuation hasn’t been left in the dust. Peleton alone currently sits at a ~$18B market cap.

  In thinking about the potential market size for in-home fitness, I keep returning to comments I recently came across from Charlie Songhurst—a prolific investor and former Head of Strategy at Microsoft. In discussing East vs West Coast Investors, Charlie states that “West Coast investors do very well when you have a product leap that does not get evidenced in the numbers immediately but is such a tactile and visceral experience when you use it, that you have to make an imaginative leap to turn that into numbers.” He goes on to note the early iPhone as an example, “One of the things you realize is that there was a cohort of investors that thought Apple was overvalued at a $100-200B market cap because they took the TAM of Nokia and said even if they take all of their share, this business can’t be that big, because they couldn’t intuit the increase in pricing power you were going to get for turning the phone into a computer.”

  While it's silly to equate the in-home and on-demand fitness market to Apple and the launch of the iPhone, I do think you can draw parallels. Many smart and well-qualified investors made the easy mistake of using Nokia's TAM to gauge Apple’s prospects with the iPhone. I think folks using the TAM of the health & fitness club industry to define the market for in-home and on-demand fitness market will be making a similar mistake.

  

  The first half of 2020 opened my eyes to the possibilities of in-home and on-demand fitness. It's now clear to me that this market has the potential to be much larger than many people realize. I’ll be keeping close track of this market and am excited about the growth and innovation to come.

  If you’re working on something in this space I’d love to connect and discuss. Please reach out!

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Deeper Dive

• Our Ghost-Kitchen Future: “There is something utopian about Reef’s project, which inspires visions of greener, less congested, more accessible cities, in which delivery fleets zip around on electric bicycles and people congregate for cocktails in rooftop gardens, planted atop defunct parking structures. It is also a little sad. Decentralized, delivery-only restaurants—to say nothing of the WeWork-ification of restaurant kitchens—point to greater problems and complexities, like widening inequality, the high cost of living in coastal cities, the tenuous financial model of restaurants, and a culture in which, whether by preference or necessity, people prioritize convenience even in their leisure activities.” (21 Min)

  For those not familiar with the term, ghost-kitchens are delivery-only operated kitchens. While typically leveraged by restaurants with no physical location, they are also used as secondary kitchens or commissaries for delivery orders of brick and mortar restaurants. The market for ghost-kitchens, also known as cloud kitchens, has rapidly expanded and evolved over the past couple of years. It’s quite likely that you’ve eaten food from a ghost kitchen without even realizing it. Their demand has scaled linearly alongside the growth of food delivery platforms like DoorDash, Uber Eats, Grubhub, and Postmates. This demand has been further accelerated by COVID and it shows no signs of slowing down anytime soon.

  Prior to reading this excellent piece from Anna Wiener in The New Yorker, I was super bullish on ghost-kitchens and failed to realize any of the negatives associated with them. I never gave thought to the reasons why ghost kitchens came into existence in the first place. As the article points out, this market was created as a result of a “certain degree of instability, or precariousness: underpaid gig-economy workers, prohibitive real-estate prices, desiccated public institutions and services, sclerotic local politics, a weary populace.” We wouldn’t need ghost-kitchens if the economics behind running a normal restaurant were more stable.

  That being said, our reality is what it is and ghost-kitchens are a viable solution for food and restaurant operators and entrepreneurs. They won’t be disappearing anytime soon, and for that reason, I remain bullish on the space. Approached with caution, and developed with the right interests in mind, our ghost-kitchen future should create a number of net positives for society. Ghost-kitchens create a lower barrier to entry into the restaurant business for up-and-coming chefs as well as entrepreneurs. They allow for testing a proof of concept before committing capital to build out a physical restaurant location. They also open up an additional revenue stream for capacity constrained restaurants that want to expand their takeout or delivery operations.

  As our new normal continues to be defined, ghost-kitchens will undoubtedly play a larger role in how we eat. As the market expands, it’s worth learning more about the business model and how ghost-kitchens operate. Anna Wiener’s article is a great place to start.

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Tweet of the Week

Elad Gil @eladgil

Overheard “SPACs are the new ICOs”

Song of the Week

Apple Music Link

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Books

Currently Reading

Recently Read

• Wool has received fantastic reviews and I was excited to dive into this as my next sci-fi series. My excitement quickly faded after I made the mistake of listening to it as an audiobook. This was the worst narrated audiobook that I’ve ever listened to. The voices used by the narrator for the male characters are beyond painful to listen to. Nonetheless, I persevered through as the story itself is fantastic. Wool is an excellent tale of survival set in a dystopian future that one can easily draw parallels with our current world. I’ll definitely continue the series and recommend this to all sci-fi fans—just make sure you avoid the audiobook version. (4/5)

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Parting Thoughts

This Week in History

• On July 7, 2019, the U.S. women’s national team won their record fourth FIFA World Cup title. It was also their second in a row. (Source)

“When you get huge numbers of people lining up to do something, in my view, you figure out how to take advantage of that"

—  Marc Andreeson

If you found something that piqued your interest this week, please help me out in expanding the reach of The Chomp by forwarding it along to a friend or sharing it with others in your network. Until next week.

-CM