Aug 1, 2008 12:00 PM

Some older Gold's Gym franchisees have been voicing concerns to the parent company, and executives at Gold's Gym International say they hear them loud and clear.

After two sales of the company in the past 10 years, Gold's Gym International (GGI), Dallas, has become like a parent of children from three marriages. Some of the children, in this case the franchisees, are from a first marriage created when a group of investors owned the company from 1979 to 1999. Some of the children are franchisees who were born when Brockway Moran & Partners owned Gold's Gym from 1999 to 2004. Yet even more children came after the current owner, TRT Holdings, took over in 2004.

Both Brockway Moran and TRT Holdings are private equity firms, and their ownership has produced a lot of unrest among their “children” over the past 10 years. The older franchisees have vocalized their displeasure with the company, its direction, its changes to franchisee agreements and its attention to new franchisees and corporate-owned clubs.

Their concern that their complaints were falling on deaf ears was one reason the franchisees formed the Gold's Gym Franchisee Association (GGFA) in 2001. That group was to offer one loud voice to let corporate know that the franchisees who had been with the company before private equity firms entered the family picture want to run their clubs much the same way they've always run their clubs. They don't want to pay increased franchisee fees, and they say they're not getting a good return on their investment.

All the grumblings and disenchantment led GGFA President Blair McHaney to write a letter to his members. In the letter dated July 7, McHaney asserts that GGI does not see the value that franchisees bring to the Gold's Gym system.

“GGI's philosophy is that the franchisor should have the answers and will hand them downstream for franchisees to employ,” McHaney writes in the letter. “I suppose they see themselves as having diminished value if the answers are coming from franchisees. I have news — most every great innovation in other franchise organizations came from franchisees, and great franchisors recognize that.”

Rather than calling the letter a cry for help, McHaney says his intentions were to formally let GGI know of the GGFA's concerns, minus any name-calling. McHaney and the GGFA requested that GGI outline its strategy for franchising, marketing and corporate operations at the annual Gold's Gym convention, which was held the week of July 21 in Las Vegas.

Gold's Gym CEO David Schnabel did unveil a few initiatives during the convention that the company plans to roll out in the near future. But was that enough to satisfy the disenfranchised franchisees?

That Family Feeling

Gold's Gym started as a single club opened by Joe Gold in 1965 in Venice, CA. That club still brings warm fuzzies to those who remember the popularity of Gold's Gym in the 1970s, highlighted by appearances by Arnold Schwarzenegger and Lou Ferrigno, and the club's appearance in the cult classic documentary film “Pumping Iron.”

Gold sold the club to a pair of owners in 1970. The company was later sold to bodybuilder and fitness expert Ken Sprague in 1977. Two years later, Pete Grymkowski, Tim Kimber and Ed Connors bought Gold's Gym, and in 1980 began licensing clubs all over the country. By the time the Grymkowski group sold Gold's Gym to Brockway Moran for more than $50 million in 1999, there were 538 Gold's Gyms around the world.

Paul Grymkowski, Pete's brother, joined the group in 1980 and was the international director and president of Gold's Gym Franchising Inc., a division of Gold's Gym Enterprises. He remembers how licensees would call his office in Southern California to discuss their problems. They would sometimes travel to see Grymkowski in person, and if needed, he would put them up in his house.

“We spoiled them,” Grymkowski says. “Whenever we had a dispute with the gym operator, we'd talk it out. It's more of an East Coast way of doing business.”

Rich Minzer, who worked under Paul Grymkowski as the assistant franchising director, adds, “The key was the visibility of who we were. Anybody could call us 24 hours a day. There was no hiding. If you had a disagreement, you'd work that out. There was always a way to work it out. We were in the customer service business, and that's forgotten.”

Paul Grymkowski says one of the mistakes Brockway Moran made after buying Gold's Gym was not continuing to build the brand and involving franchisees more with the company, which Grymkowski says could have been worth $1 billion today had Brockway Moran continued growing the company like it had been growing before the purchase. Instead, Brockway Moran was more concerned about making a return on its investment.

“They were looking at the small picture,” Grymkowski says.

Back in the early days, when the Grymkowski group owned the company, the first Gold's Gym convention attracted about 12 franchisees. As the company grew, so did the conventions, which provided a chance for licensees and company staff to meet and greet. Gold's Gym paid for up to a three-night stay for attendees. If the Grymkowskis walked by a restaurant and saw a bunch of Gold's Gym club owners, “We'd pick up the tab,” Grymkowski says.

Some Gold's Gym franchisees who remember those convention days have not felt the same parent-child vibes when franchisees and corporate staff have met at recent conventions. Jerry McCall says he almost didn't go to this year's convention. McCall, the former president of the GGFA, is the longest continuous owner of a Gold's Gym in the United States, dating back to 1982. He has five clubs in the Silicon Valley, CA, area.

McCall, who ended up attending this year's convention, says communication is a problem between franchisees and the corporate office.

“We feel like foster children,” McCall says. “We're waiting to run away from home. I'm still one of the children, but I'm not one of the resilient ones. I still like being at Gold's Gym.”

Some franchisees have run away from home. John Grossi was a Gold's Gym franchisee until two years ago when he branched out with a new brand, Latitude Sports Clubs. Grossi runs four clubs and is building a fifth club, all in the state of Massachusetts.

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