Thomas Fitzgerald: Yes. So it is a target, Chris, and it is not a one and done, right? We want to continue to challenge ourselves to now and going forward. As we have historically, maybe a little more urgency for lack of a better term, given the higher cost of everything now to build. The way we have modeled it, we think the returns move up pretty nicely. It depends on obviously the store and how many members they project and so on and so forth. But on average, it is an improvement that we think may take folks from thinking about, should I get ahead of my schedule again and maybe saying no historically with the current environment. But now in this new model, this new growth model, maybe that no turns to a yes. And that is really the intent that we are after. And I think once we work through all these changes and so on, I think folks will do the math themselves and hopefully come to that same conclusion.
Christopher O’Cull: And then Craig, we saw The Flynn Group’s recent announcement that had made a significant investment in the system. Can you help us understand how much interest you are filling from experienced franchise operators from other industries, and whether there is a meaningful opportunity to bring in new franchisees with scale and kind of desire to grow into the system?
Craig Benson: I mean, as you know, I have interest in Dunkin’ Donuts as well. And we have about 2,000 franchisees at Dunkin’ Donuts, and we have just about 100 here. So many of our franchisees have scale and they are big operators. We are excited the Flynn Group wants to participate with us. I think they can be helpful to the system is all because of their experience in other franchise models. But clearly, we have had interest from a number of different sources over the past, and this brings a different dynamic. So anxious to see what it brings for us and the opportunities to learn from somebody else that comes in the system. But we have some pretty strong large operators in the system right now.
Thomas Fitzgerald: And Chris, just one thing on that, too. They are investing in the operators rolling in the case of the Flynn Group like in other situations.
Operator: Our next question comes from the line of Sharon Zackfia from William Blair. Please go ahead with your questions.
Sharon Zackfia: I guess kind of going back to development and appreciating all the challenges there. I’m just curious, what you can do to maybe bring more into the top of funnel to help buffer against the kind of delays that are not within anyone’s control? I mean, is that anything that you can do for that top of funnel? And then secondarily, if these changes to franchisee capital requirements do free up more capital to develop, what would be a logical lag time there? I guess I’m just these will be adopted theoretically in the not-too-distant future by franchisees. Is it too late for that to really impact 2024? Just given the time frame that now is extended to open a club?
Craig Benson: Yes, it is a good question. Again, we don’t know all the answers because our franchisees just got this information less than a month ago now. But there is a few other issues associated with development and Tom mentioned one, which is real estate availability. And so you heard me talk about leverage earlier. Again, we have an employed leverage for our scale in the way we should have years ago. And I think we need to work the real estate industry just as hard with the scale that we bring. We are the third largest retail consumer of space, TJX and all their concepts is $1 generals two and we are three. But I don’t think that we have employed that leverage and scale to be able to take advantage of that. So the first thing is finding a site.
And from then on, it is all the other things you have to go through in order to do it. And so Tom also mentioned that CBRE said that the amount of development has gone down consistently over the last 4 years. So we are finding a few different dynamics. But our scale should help us, and we are trying to really push that to help us get into places that maybe in the past we wouldn’t have got into. And then the permitting, I mean, we can learn from each other and find better ways to try and get through the process, and I think we need to do that. But at the end of the day, bureaucracy’s bureaucracy in some of these towns and Tom mentioned the expeditor. I had an expeditor in Jersey City. It took me three-years to open that club. And so it was unbelievable.
And sometimes it is what it is and you just have to cope with it.
Thomas Fitzgerald: Yes. And Sharon, maybe to add to that, back to your top of funnel point, some of the big brands like Bed Bath & Beyond, more recently, Rite Aid, we do come at those folks to try to get a number of sites to be able to come our way. We are actually opening a couple of stores in our corporate segment that are former Bed Bath & Beyond over time here. So I think that is another opportunity, but it is trickier given the vacancy rates are tougher. The other thing I would say, in some cases, we have exclusionary clauses where people don’t allow fitness centers into the space. Another retailer will block it. And so our real estate team and the leadership team there are doing top to tops with some of those brands, to see if we can get around those exclusions because as you have heard us say, we are very different than the typical gym or fitness center in that our traffic patterns are flipped from what the center usually experiences.
Our busiest days are Monday and Tuesday, not Saturday. So it is a lot of work and a lot of activity, but we are fighting the fight on all fronts.
Sharon Zackfia: Okay. And then you mentioned playing with the White Card membership that you are doing some tests there. Are there other ways you are looking at monetizing the membership base beyond just changing price points of members? I mean, you have been very disciplined in the past about kind of keeping the revenue just coming from equipment and really the dues and the royalties associated with that. I mean are there other ancillary streams of revenue that you could introduce that would it increase franchisee complexity?
Thomas Fitzgerald: So you heard me say earlier about innovation, and innovation includes price. And so we are getting a lot of information and using The Flynn Group as an example. They may be helpful in figuring out how to be even more creative and the way we go to market. And so we are going to be testing things, and I have got a lot of franchisees that have some experience here as well in looking at it, but our first foray is what we have already announced. But in the longer run, we are going to be constantly innovating in different areas, including price to see if we can’t find the sweet spots of places that we need to be. But at this point in time, there is no add-on service or something like that we are looking at.
Operator: Our final question comes from the line of Alex Perry from Bank of America. Please go ahead with your questions.
Alex Perry: Just first, how are you thinking about Black Card penetration from here, what gets that going in the right direction? Does the potential move to a higher pricing tier on Classic Card sort of help narrow the gap between the two pricing tiers? Just how are you thinking about Black Card?
Thomas Fitzgerald: Yes, I will start that, and maybe Craig will answer or add to it. So I think, Alex, you probably heard us talk about, we think the Black Card mix being down year-on-year is due to a couple of things. One is the Gen Z penetration. They have a lower Black Card mix. The second thing though, and we feel this may be actually bigger than the first part, is last year in Q1, Omicron was hitting. So our Classic Card sale was really muted. So our penetration or the mix of Black Card to Classic Card in the first half of Q2 was really unique in that Black Card was a bigger part of the mix. And that is what we have been up against and that carried through the rest of the year. So I think we will get a better gauge on all of that when we are in Q1 of next year, assuming everything is okay, and our January sale is not affected by anything like it was in 2022.
