23 Dec Episode #304: Frank Ancharski, Promotion Vault, COO
Pete Moore: This is Pete Moore on HALO Talks, on location, IHRSA, in person, Dallas, Texas. Frank is joining us again for his second podcast. Only a couple of people have had the second podcast. So, so welcome to the show. No pressure got a new job at promotion vault. So give us an update on, on your personal and professional life. And I will ask you some questions about what the near term future looks
Frank Ancharski: Like. Yeah, thank you. It’s great to be back again, Pete, appreciate you having me. And now as the chief operating officer for promotion vault and I get to work from home and nothing’s really changed other than my wife hasn’t kicked me out yet and we’ve been married now 41 years knew each other since 1979. Some people weren’t even a twinkle in anyone’s eye back then. <Laugh> but I’ve been in the industry since 83 and, and as I Kidd around before, since dirt was invented, but it’s great to be back in person with AA.
Pete Moore: Yeah, definitely. So, you know, you’ve, you’ve got a really interesting background from an operation side and understand how processing work and how to kind of sell or get people on boarded onto a system. Yeah. So how has the, the relationship that you now have with promotion vault and going to these clubs and saying, look, these gift cards are being used in other industries very successfully. You see it on TV all the time. You get a survey, it says, take this survey and get a $25 gift card. So on, so on and so forth. So do you feel like we’re at a tipping point now where people get it where it’s not as much of an evangelist sale?
Frank Ancharski: That’s a great question. I do think that they’re starting to get it, what they really still don’t get. Honestly, Pete is that free and discounted dues don’t work. It erodes your revenue stream and it erodes EBITDA. And so we’re on a mission really to educate, to let them know that there’s other options and better options than discounting memberships and discounting. Your, and, and we think that it’s, it’s a better solution. We know that e-gift cards, high value E e-gift cards like places from Amazon, Nike all of these bigger players under armor under armor that really give us an opportunity to help associate a brand of a club. So like a mountain side mm-hmm <affirmative> or matrix in New York to be able to associate with gift cards that everybody would rather use and try to E emote from people, an emotional reaction for a gift card versus free or discount,
Pete Moore: You know, it was one of the things, and we’re obviously an investor in promotion vaults. I’ll give that little disclaimer there. Or one of the things I found shocking when Bryan started the company is that you were allowed to actually do that. Yeah. Like under Armor was like, yeah, I’ll I could partner up with mountainside, New York sports clubs you know, Pete’s fitness and, and like, you didn’t have to go some kind of go through some kind of sponsorship, you know, quality control on the name. So the ability to go and say, Hey, I want to do a cross promotion between us and Lululemon. Yeah. Without having actually talked to anybody at Lululemon seems like a no brainer from a brand affinity standpoint,
Frank Ancharski: Brand affinity is, is huge for us. And I, I would also tell you versus going to a grocery store and hitting the end caps and actually buying gift card that you have to pay. And there is waste because what happens to that gift card? Where does it go? And so now you have an opportunity to be able to have breakage, and that’s a term that not everybody understands, but our ability to be able to have that kind of brand affinity in the re reaction that somebody has to a Lulu lemon, to an Amazon, to a Nike, all of those things matter to people. And they’d rather that than anything free or discounted.
Pete Moore: Yeah. So on, on average, and this isn’t, you know, the primary reason to use it, but you know, you’re not, you don’t have any inventory. I don’t know, argument one time with someone about, well, the club should just, you know, continue just giving out t-shirts and I’m like, well, there’s a cost to the t-shirt. Right? Yeah. And there’s no cost to the gift card until it’s activated and, and you guys have set up this mouse trap basically that doesn’t have the gift card liability. Mm-Hmm, <affirmative>, that’s something that’s inter perpetuity. It’s basically a valid of a promotional period. So I think people need to understand that versus if you’re selling and you’re giving away points, you know, if you come to integrity square, and you want to sell your company, like that point balance is a liability right on your, on your balance sheet, that someone’s going to, you know, deduct purchase price
Frank Ancharski: From. Right. And, and reality is that those do have an endpoint it’s decided by the client and that it’s not going to be in perpetuity where you have that liability caring. So the club can decide that. And generally, if not past a year and sometimes it’s even if they don’t activate in 30 days, it’s also gone, right? So there is an opportunity for a club to really manage that. And I would encourage all the club operators out there that when you think of an expense, like an e-gift card as a true expense and not offset that with the revenue gained by the additional behaviors you’re trying to inspire, whether it be guest visits, whether it be joiners, whether it be referrals, whether it be upsell to personal training, upsell, to higher end memberships, all of that behavior is what gets incentivized. And there’s a revenue offshoot to that expense that a lot of times people don’t realize is an important Cal.
Pete Moore: Yeah. I was talking to the CEO of a, a big company that uses promotion vault, which I’ll keep nameless for now, but he is a good reference. He said, look, we were doing zero down. And now I do a $50 joint. You get a 25 to $50 gift card, but my cash that I’m generating on a monthly basis, which everyone wants to generate more cash right now, until we get to the end of this tunnel on the pandemic side, mm-hmm, <affirmative>, you’re actually changing the working capital of a business by using the gift card and being able to get this initiation fee up front. Right. Which not only the incentive is going to bring more people in, but there’s also like real cash impact. And also your revenue’s higher because now I’m booking $50. Mm-Hmm <affirmative> and my cost of the gift cards, probably $15 because of the, just the, the usage and the breakage. Yeah. So I feel like the math is simple to understand
Frank Ancharski: It is. And generally speaking the higher, the gift card, the higher the activation rate. So if you, you do 50 or 75 or a hundred dollars gift card, you’re going to see a higher activation rate that of course you have to pay for. Right. But it’s a lot less than a hundred if you bought it at a grocery store. The reality is though most are in that range of 50% are activated, right? It’s not like we don’t want that to happen. And a club operator doesn’t want to have not have that happen, but you’re trying to create an experience, an experience for a member who wants to be able to do something or prospective member who wants to become a member and, and incentivize that behavior. And then they get rewarded for it. And they see the tangible value cuz how can you explain free? How can you explain 50% off, 25% off? And so the gift card gives you that high Val high perceived
Pete Moore: Value. I mean, I was kind of hoping after the pandemic that people would stop selling price because of the, the, the value of going to a health club. And I kind of joke around about this, but you know, if you’re in New York city and you know, you go out to one dinner, it costs you a hundred bucks, right? And it’s like, I use this, you know, the bronen cost 28, right. <Laugh> to Val out like 12 minutes. So, you know, stop selling price and sell results, sell the, the community, sell the experience. And I feel like our industry had this unique opportunity and maybe IRSA will change that and say, Hey, look, let’s sell that. You could survive. Yeah. Right. That like, if you have a strong immune system, like you’re not dying from COVID right. I don’t care how old
Frank Ancharski: You are. Right. And now more than ever, we are a natural vaccine for everyone.
Pete Moore: I like that.
Frank Ancharski: I’m going to use that. It’s a natural vaccine. And I think what’s going to happen out of the pandemic is that we will, in fact, as an industry, be the answer and the antidote, if you will, to future illness, we already knew that, but now it’s hit so close to home in every walk of life. I, I really believe that that’s going to happen. And, and I think that our industry, when we come out of it, here’s what I would say. And we had this conversation last night with a bunch of us that have been around the industry. It’s still pretty sad for me that we have had 18 to 22% of the entire population be a part of clubs. What are we doing wrong? And I think part of a, it is to your point, we are selling on price. We’re not selling the experience, we’re not selling the value. And I believe in my heart, that promotion vault gives you a partial tool to be able to get ahead of that curve and move the needle in your own community.