Getting localized search results all over the country

There are a couple of websites that I've noticed cropping up in metro/city searches where they don't actually have a presence. One of these is [fit w oma n][c 0m ] - for example:

"weight loss camp phoenix" returns f i t woman.
"fat camp for adults chicago" does as well.

I can't see any on-site SEO designed to latch onto city / metro areas like this - but they're showing up anyway. My site isn't doing that, despite the fact that I'm beating them directly on most of the more important keyword searches without any local references.

Any ideas A - what could cause it,
B - how to make my site do it, and
C - how far I'd have to fly into the grey-hat side of SEO to get there?

Since I'm working on my money site here, the one thing i absolutely have to avoid is getting penalized - as I expect might happen if I plugged a couple hundred unique location pages into the site overnight.

Thanks!

Have you checked their backlink footprint?

Yes... It's pretty massive. Should I be looking for something in particular through their stack?