It depends on the niche. For gyms, most people are looking for something within a 3 mile radius of their home or work. It's a non-negotiable factor, so it makes sense that proximity is a ranking factor. But I don't care about a plumber or drain tech's location. I just want someone who is respectful of my home, can get there quickly, and doesn't charge me a college tuition to repair a leak. Proximity for that type of business doesn't make sense, but Google has made proximity a ranking factor for local search, and it is what it is.
You may find it interesting that in most cases, adding "best" to a local search will return results in the local pack that have at least 4 star reviews, and the proximity factor seems to be dampened somewhat. That could be due to closer businesses being filtered out, but I've noticed the range changes somewhat so I'm assuming Google's algorithm has identified that people are looking for slightly different criteria when they want the best, and reviews may be weighted differently in that instance.