ibisworld industry report od5594 child education...

WWW.IBISWORLD.COM Child Education & Developmental Center Franchises in the US September 2015 1

IBISWorld Industry Report OD5594Child Education & Developmental Center Franchises in the USSeptember 2015 Sally Lerman

Taking care: Declining unemployment will foster greater demand from working parents

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

6 Current Performance

8 Industry Outlook

10 Industry Life Cycle

12 Products & Markets12 Supply Chains

12 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

19 Competitive Landscape19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

22 Barriers to Entry

23 Industry Globalization

24 Major Companies24 Goddard Systems Inc.

25 Primrose School Franchising Company

26 Kiddie Academy Child Care Learning Centers

27 The Learning Experience

29 Operating Conditions29 Capital Intensity

30 Technology & Systems

30 Revenue Volatility

31 Regulation & Policy

31 Industry Assistance

33 Key Statistics33 Industry Data

33 Annual Change

33 Key Ratios

34 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


This industry provides educationally and developmentally focused child care, primarily for children under the age of six.

Reports in the Business Franchise collection focus solely on the operation of franchised outlets and exclude nonfranchise data.

The primary activities of this industry are

Providing education-oriented child care for infants

Providing education-oriented preschool programs

Providing education-oriented kindergarten programs

62441 Day Care in the USThis industry provides child care services outside of the home. These establishments generally care for preschool children, but may care for older children when they are not in school.

81411 Maids, Nannies & Gardeners in the USThis industry includes a range of household employees, such as nannies, maids, chefs and gardeners.

61111a Public Schools in the USThis industry supervises and educates school-age children. Many public schools also offer additional child-care services outside of school hours.

61111b Private Schools in the USThis industry provides elementary and secondary school education. Many private schools also offer early childhood education services.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

acei.org Association for Childhood Education International

www.crocus.georgetown.edu Center for Research on Children in the United States

childcareaware.org Child Care Aware of America

www.naeyc.org National Association for the Education of Young Children

www.nbcdi.org National Black Child Development Institute

nces.ed.gov National Center for Education Statistics

The major products and services in this industry are

Prekindergarten and kindergarten programs

Preschool programs

School-age program

Summer camp programs


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Labor force participation rate of women

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2015)

44.5%Prekindergarten and

kindergarten programs

34.4%Preschool programs

11.1%Summer camp programs

10.0%School-age program


Key Statistics Snapshot

Industry at a GlanceChild Education & Developmental Center Franchises in 2015

Industry Structure Life Cycle Stage Growth

Revenue Volatility Low

Capital Intensity Low

Industry Assistance Medium

Concentration Level Medium

Regulation Level Heavy

Technology Change Low

Barriers to Entry Medium

Industry Globalization Low

Competition Level High

Revenue

$1.8bnProfit

$240.4mWages

$795.1mBusinesses

1,733

Annual Growth 15-20

3.1%Annual Growth 10-15

2.1%

Key External DriversLabor force participation rate of womenPer capita disposable incomeNumber of children aged nine and youngerExternal competitionNational unemployment rate

Market ShareGoddard Systems Inc.

26.4%

Primrose School

Franchising Company 25.2%

Kiddie Academy Child Care

Learning Centers 9.4%

The Learning Experience

7.3%

p. 24

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33



Key External Drivers Labor force participation rate of womenThe workforce participation rate of mothers is a major factor affecting demand for child education and development centers. The participation rate itself is influenced by many factors, including social values and expectations relating to child care, the rate of growth in full- and part-time employment and child care costs. When the female workforce participation rate rises, there

is greater demand for day care services. The labor force participation rate of females is anticipated to decrease slightly in 2015.

Per capita disposable incomeTrends in per capita disposable income are positively correlated with demand for child education and development centers. When per capita disposable income is rising strongly, a greater number of

Executive Summary

The Child Education and Developmental Center Franchises industry has posted strong growth over the past decade. An increasing body of research supporting the benefits of early childhood education has fostered rising parental interest in education-based child care. Industry franchises provide center-based child care primarily for children under the age of six, with a focus on promoting mathematics, literacy and language-based skills. Increasing interest in early education combined with strong marketing has led the industry to

outperform the wider Day Care industry (IBISWorld report 62441) over the past five years, even following the economic downturn. Steadily rising child care costs and an expansion in the industry’s target market resulted in overall growth during the period. Over the five years to 2015, industry revenue is expected to grow at an average annual rate of 2.1%, topping $1.8 billion; this includes a 2.8% jump during 2015 as a result of slowly improving per capita disposable income.

According to the latest information from the US Census Bureau, there are currently 24.0 million children under the

age of six, of which 15.1 million require child care. Demand for industry operators has been fueled by the long-term shift in women’s workforce participation and support for early childhood development. Consequently, over the past five years, the number of industry establishments grew at an average annual rate of 0.2% to 2,066 locations. The industry’s largest players include The Goddard School and Primrose School, both of which have a national presence. Industry profitability has also improved, as disposable income increased following the recession. Parents became more willing to pay high child education fees, which bolstered industry profit margins. In 2015, profit is anticipated to total 13.5% of revenue, compared with 10.4% in 2010.

Over the five years to 2020, industry revenue is forecast to rise at an average annual rate of 3.1% to total $2.1 billion. The Child Education and Developmental Center Franchises industry will benefit from a decline in the unemployment rate, which will foster greater demand for child care from working parents and accelerate per capita disposable income growth. Over the next five years, industry franchises are expected to increasingly expand their array of technology-oriented activities for children, including using cameras, computers and the internet as interactive learning tools.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Rising interest in early education is growing demand for the industry’s services


Industry Performance

Key External Driverscontinued

households are better able to invest in education-focused child care, which is often priced at a premium. Per capita disposable income is anticipated to increase in 2015, representing a potential opportunity for the industry.

Number of children aged nine and youngerDemand for child education and development center franchises is positively correlated with the number of children, particularly those under the age of six. Changes in the industry’s target market affects demand, occupancy rates and the profitability of industry centers. The number of children aged 9 and younger is expected to increase slightly in 2015.

External competitionThe industry faces a high degree of competition from providers of home-

based child care, which is typically a less expensive option compared with center-based child care. According to the National Center for Education Statistics, 40.7% of children aged four years old received home-based care either through a parent, relative, nanny or other home-based provider. External competition is anticipated to increase in 2015, representing a potential threat for the industry.

National unemployment rateHeightened unemployment has a twofold effect upon industry performance. With high unemployment, households typically have less disposable income to spend on child care services. Moreover, with a greater number of parents and family members out of work, there is less demand for industry services. The national unemployment rate is expected to decrease in 2015.

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Per capita disposable income


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2107 09 11 13 15 17 19Year

Labor force participation rate of women



Growing interest in education grows demand

Over the past decade, there has been an increasing focus on the importance of early education, a factor that has positively affected enrollment at industry franchises. Rising interest has been prompted by a slew of research studies promoting the importance of early education on long-term child development. In fact, children with access to high-quality early childhood programs are more likely to earn higher test scores throughout their K-12 career, according to the Center for Research on Children. As a result of this ongoing focus, the number of child education and developmental center franchises has exhibited growth over the past five years. From 2010 to 2015, the number of industry establishments has grown at an average annual rate of 0.2% to 2,066 locations, outpacing the overall Day Care industry (IBISWorld report 62441), which declined on average 1.1% per year

during the same period. Industry employment also increased at an average annual rate of 1.5% to 41,513 employees over the period. Day care centers with an early education focus have benefited from higher enrollment. Franchise operators also benefit from brand-name recognition and marketing efforts, a factor that has led to their faster-than-average growth. The largest names in the industry include The Goddard School, which has 428 franchised schools, and Primrose School with 301 locations in the United States.

Demand for the Child Education and Developmental Center Franchises industry is primarily dependent on the number of children under the age of six, women’s participation in the labor force, per capita disposable income and the overall unemployment rate. According to the latest data from the US Census Bureau, there are currently 24.0 million children under the age of six, of which 15.1 million require child

Current Performance

Rising parental interest in early education has fueled demand for the Child Education and Developmental Center Franchises industry. In the five years to 2015, industry revenue is expected to grow at an average annual rate of 2.1%, topping $1.8 billion in revenue. Franchises in the industry provide center-based care primarily for children under the age of six, with a focus on early education extending from mathematics to literacy and language development to better prepare children for primary school. In spite of greater competition from more inexpensive forms of child care, the Child Education and Developmental Center Franchises industry managed to post continuous growth during the period. Steadily increasing child care costs coupled with an expanding target market and the necessary expense of child care managed to outweigh the effect of declining

disposable income and heightened unemployment following the recession. In 2015, the industry is expected to post 2.8% revenue gains as a result of improvement in per capita disposable income and ongoing investment in early education efforts.

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Industry revenue




Strong recovery from recession

Although child care is a necessary expense for parents, trends in the unemployment rate and per capita disposable income have a significant effect on industry revenue. With unemployment high during the recovery period, per capita disposable income growth has been slow. Consequently, with lower income, some families were more likely to choose more inexpensive child care options, such as home-based care with a friend or relative. Moreover, high levels of unemployment left a greater number of parents at home,

allowing them to take on the responsibility of child care. As more parents personally cared for children, demand for child care centers slowed. Nevertheless, revenue growth remained positive as a result of the expanding number of children in the target market and rising child care costs. The nationwide birth rate remained firm over the five-year period; however, has been steadily increasing over the past two years, which has expanded the industry’s core market of children under the age of six in recent years.

Rising child care costs Moreover, industry revenue has also benefited from a steady rise in child care costs. According to the latest data from Child Care Aware of America, the average annual cost of full-time, center-based child care for a 4-year-old ranged from $4,515 in Tennessee to $17,304 in Washington, DC in 2013. Comparatively, average prices for full-time child care ranged from $3,900 to $14,050 per year in 2010. Early child education often commands a high price, and many parents are willing to pay a premium for industry programs that promote linguistic development, language skills

and mathematics-oriented activities. The average franchisee in the industry records profit margins of 13.5%, measured by earnings before interest and taxes. This represents an increase from 10.4% in 2010 and is primarily the result of increasing child care costs.

care. Although there are a variety of different options when it comes to child care, 57.4% of children aged 4 years old were enrolled in center-based care, while 20.7% received home-base care and 20.0% had no regular nonparental arrangement, according information from the National Center for Education Statistics. Demand for industry operators has also been fueled by the long-term shift in women’s participation in the workforce. During the past 30 years, women have been entering the workforce at

increasing rates. This trend has contributed to women postponing marriage and having children until after they establish a professional career, a factor that has benefited demand for center-based care. However, while the number of women in the workforce has increased, overall labor force participation rates for women have been declining. According to the National Center for Education Statistics, there are an estimated 67.0% of mothers in the workforce with children under the age of six.

Growing interest in education grows demand continued

Rising annual child care costs have been helping widen industry profit margins



New kid on the block As a result of potential growth opportunities and improved access to credit, the number of industry franchise operators is forecast to rise at an average annual rate of 2.5% to 1,961 by the end of the five-year period. Franchises, such as The Learning Experience Academy of Early Education, have grown strongly in recent years and are anticipated to further expand over the next five years. Additionally, given that parents are typically concerned about the quality of care their children receive, industry operators typically keep

facilities relatively small, ensuring that children receive personal attention from instructors. As a result, to meet growing demand, the number of establishments is projected to grow an average of 2.7% per year to 2,361 in the five years to 2020. During the five-year period, average industry profit margins are expected to increase steadily to 14.1% of revenue in 2020, from a current 13.5% in 2015. Steadily rising prices for child care will be the primary factor benefiting profit margin growth during the period.

Building up demand Over the next five years, IBISWorld projects that the economy will gradually return to prerecessionary growth. During this time, the unemployment rate is forecast to fall to 4.8% by 2020, which is slightly above prerecession levels and is predominantly due to sector shifts during the recession that will cause the unemployment rate to lag in its recovery. As a greater number of parents return to the workforce, demand for child care services will likely increase. Employment gains will also favorably affect per capita disposable income growth, which is forecast to accelerate to 2.4% average annual growth, leading to greater household income to pursue high-quality early education efforts for children.

Industry growth will, however, be slightly mitigated by the previous decline in the birth rate during the recession and

slow recovery period. According to the latest data from the National Center for Health Statistics and IBISWorld, from 2007 to 2015, the number of births is expected to fall an average of 1.0% per year. The greatest contraction occurred during 2010, when the number of births fell 3.2%. This decline in the birth rate has slightly reversed in recent years and is anticipated to slowly recover over the next five years. Nevertheless, the industry’s target market of children under the age of six will be slightly limited due to the previous decline in the US birth rate.

Industry Outlook

The Child Education and Developmental Center Franchises industry is expected to continue its steady growth over the next five years as parents continue to invest in early education efforts for their children. From 2015 to 2020, industry revenue is forecast to rise at an average annual rate of 3.1% to $2.1 billion; this includes expected revenue gains of 3.8% during 2016. As the economy continues to gain momentum,

more parents will return to the workforce, leading to greater demand for child care services. Additionally, rising US employment will put more money into families’ pockets, allowing them to spend on higher priced child care options. However, industry growth will be mitigated slightly by declining birthrates during the recession, which will slightly limit the industry’s available target market.

As more parents return to the workforce, demand for child care services will rise



Shift to high-value offerings

Over the next five years, more franchise operators are expected to invest in greater technology integration within their centers. Child education and developmental centers will increasingly focus on incorporating early technology skills for children. This includes the use of digital cameras, computer exercises and the internet as interactive learning tools, according to the National Association for the Education of Young Children. Child care centers are also increasingly allowing parents to become more actively involved by providing streaming cameras so that parents with a secure access code can see their child throughout the day. This

technology offering is expected to become more common over the next five years; therefore, more instructors will be required to integrate this technology into child care services. As such, employment is anticipated to rise an average of 3.2% per year to 48,597 workers in the five years to 2020.

Operators are expected to invest in greater technology integration within their centers


Industry PerformanceIndustry value added is forecast to grow faster than the economy as a whole

The number of franchise operators is expanding steadily

There is increasing technological adoption

Life Cycle Stage

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-10 -5 0 5 10 15 20

DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Growth Industry

Revenue grows faster than the economyMany new companies enter the marketRapid technology & process changeGrowing customer acceptance of productRapid introduction of products & brands

Public Schools

Offi ce Stationery Manufacturing

Private Schools

Orphanages & Group Homes

Alarm, Horn & Traffi c Control Equipment Manufacturing

Child Education & Developmental Center Franchises



Industry Life Cycle The Child Education and Developmental Center Franchises industry is in the growth stage of its industry life cycle. Industry value added, which measures the industry’s overall contribution to the economy, is forecast to rise at an average annual rate of 2.9% over the 10 years to 2020, outpacing overall GDP growth. Over the same 10-year period, GDP is projected to rise at rate of 2.2% per year on average. Consequently, the industry’s share of the overall economy is expanding, a key indicator of its growing life cycle stage.

The industry has benefited from an increasing body of research promoting the importance of early education. According to the Center for Research on Children, children with access to high-quality early childhood programs are more likely to earn higher test scores

throughout their K-12 career. As a result of this ongoing research focus, demand for education-oriented child-care centers has experienced faster-than-average growth, providing significant opportunities for industry franchises. Over the 10 years to 2020, the number of franchise operators is forecast to rise at an average annual rate of 1.3% to 1,961 companies by the end of the period. Moreover, industry franchises are increasingly diversifying their educational programs by incorporating new technology. This includes providing a more interactive learning environment for children through the use of computer programs as well as providing online video streaming capabilities for parents to allow them to check in on their child throughout the day.

This industry is Growing


Products & Services About 12.5 million children under age five are enrolled in some type of child care every week, according to the US Census Bureau. Even with rising prices, early child education centers still have long waiting lists, with some centers requiring early applications and

interviews. Franchises in the industry earn revenue from membership dues, royalty fees, admission fees, tuition services, camps and other services. Generally, the industry can be divided into groups based on types of facilities and activities provided; however, this

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

54 Professional, Scientific and Technical Services in the US This sector includes businesses often utilizing child-education services to assist working parents.

62399 Orphanages & Group Homes in the US This industry often utilizes child-education services to provide a stable routine for disadvantaged children.

62419 Family Counseling & Crisis Intervention Services in the US This industry includes institutions that assist disadvantaged families often utilizing child-education services to assist parents.

62422 Community Housing & Homeless Shelters in the US This industry includes homeless shelters that assist disadvantaged families often utilizing child-education services to assist parents.

99 Consumers in the US Households with children under the age of six are the primary users of industry services.

KEY SELLING INDUSTRIES

32223 Office Stationery Manufacturing in the US This industry provides notebooks, drawing paper and other stationery to child education and developmental centers.

33429 Alarm, Horn & Traffic Control Equipment Manufacturing in the US This industry provides alarms and security systems to prevent accidents.

33993 Toy, Doll & Game Manufacturing in the US This industry provides toys, dolls and other games to occupy children enrolled in child education and developmental centers.

42441 Grocery Wholesaling in the US Industry operators purchase groceries to prepare meals and snacks for children.

44312 Computer Stores in the US This industry provides child education and developmental centers with computers to assist in children’s entertainment and education.

44611 Pharmacies & Drug Stores in the US This industry provides child education and developmental centers with medical supplies to treat emergencies.

51113 Book Publishing in the US This industry provides child education and developmental centers with different kinds of books to educate children.

51121 Software Publishing in the US This industry provides educational software which is becoming more prevalent in child education and developmental centers.

Supply Chain


Products & Markets

Products & Servicescontinued

breakdown varies depending on specific franchise operations.

Prekindergarten and kindergarten programsPrekindergarten and kindergarten programs are designed for four to five year olds and help them prepare for a transition to school. These programs provide students with cognitive, emotional, social and physical development that focuses on teaching letters and words, math concepts and valuable social skills. Children are encouraged by cooperative play and collaborative problem solving through classroom-appropriate lesson plans. Centers also offer enrichment programs that incorporate music appreciation, foreign languages and world cultures in addition to helping them develop multitasking skills and hand-eye coordination. IBISWorld estimates that 44.5% of industry revenue is derived from this segment.

Preschool programs Although, preschool education can start as early as age two, most preschool programs are tailored toward three or four year olds. However, this trend has been changing in the past five years as more parents look to

jump-start their children’s formal education at an early age. Child education and developmental learning centers offer both shared and independent learning experiences, providing kids with opportunities to gain knowledge and skills in math, science, dramatic play, music, creative art and computers. Preschoolers learn to communicate with others by writing letters and words, reading aloud and engaging in discussions. In addition, centers include a healthy dose of running, jumping and dancing activities to keep kids active and healthy. Teachers incorporate theme-related materials, individual attention and child-engagement techniques. This segment is expected to account for 34.4% of industry revenue.

School-age programsSchool-age programs provide before- and after-school education for kindergarten and school-age children to help them balance learning and fun through a variety of activities. This segment accounts for an expected 11.1% of industry revenue. Before-school programs offer children an opportunity to participate in small group activities, such as building blocks, readings books, playing games, designing artwork or solving math problems. After-school

Products and services segmentation (2015)

Total $1.8bn

44.5%Prekindergarten and

kindergarten programs

34.4%Preschool programs

11.1%Summer camp programs

10.0%School-age program



Products & Markets

Demand Determinants

A shift toward early child education began with a 2000 study by the National Research Council stating that the first three years of life are crucial in a child’s development. Attracted by the benefits of preschool programs that will help children to better socialize with their peers and develop verbal and motor skills, parents are fueling demand for early child education and developmental centers. The quality of child care has a long-lasting impact on a child’s development, behavior and cognitive abilities. A report by the National Institute of Child Health and Human Development (NICHD) found that even 10 years after children have left child care, quality child care is correlated with higher academic performance.

Demand for child education and developmental center franchises is primarily dependent on the number of children under age of six, women’s participation in the workforce, per capita disposable income and the unemployment rate. A boom in the population of children age five and younger and heightened focus on early child education will further underpin

demand for child education and developmental centers. According to projections from the US Census Bureau, there are currently 24.0 million children in the US aged five and younger, of which 15.1 million require child care.

The workforce participation rate of mothers is a major factor affecting demand for child education and developmental centers. During the past 30 years women have been entering the labor force at increasing rates, contributing to more women postponing marriage and having children until after they establish a professional career. However, while the number of women have been increasing, overall labor force participation rates for women have been declining. In spite of this, the workforce participation rate of mothers has benefited demand for center-based care.

Household income, which determines the amount of money households can spend on child care, is a key factor determining demand for the industry’s services. Increases in household income will result in increased demand for child care. Likewise, increases in consumer confidence leads to stronger demand

Products & Servicescontinued

activities can include homework assistance, research help, computer proficiency and other enrichment programs. Children also get to participate in games that focus on endurance, strength and balance to promote the link between physical activity and proper nutrition in creating healthy lifestyle.

Summer camp programsSummer camp programs offer preschool and school-age kids learning opportunities through fun, hands-on activities throughout the summer weeks and are estimated to account for 10.0% of industry revenue. Each week features different themes and corresponding

activities that allow campers to complete science experiments, learn sign language or create art projects while spending plenty of time outdoors. Summer programs include songs, stories, field trips, physical activities and learning adventures. For instance, The Goddard School offers the Leap into Literature program, which focuses on exploring several featured children’s books in fun new ways. Other programs include weeks of exploring line, shape, color and texture, or learning about graffiti art and doodles. To provide further entertainment, summer camps invite many exciting visitors over the course of the summer.


Products & Markets

Major Markets

About 60.0% of parents prefer center-based, full-day preschool instead of home-based care or other arrangements with friends or neighbors, according to the National Household Education Survey. On average, the children of working mothers spend about 35 hours a week in child care, and about one-third of these children are in multiple child-care arrangements so their parents can meet the need for child care during traditional and nontraditional working hours, according to US Census Bureau data.

Family income and maternal education levelFamily income and maternal education can serve as an indicator of children’s readiness for primary school. Children in more affluent families, which make more than $61,795 in annual income for a household of three, are more likely to be

enrolled in child education and developmental centers. This market accounts for an estimated 49.2% of industry revenue.

Children from families that make between $42,705 and $61,795 in annual income for a household of three, are expected to account for 29.6% of industry revenue. Children in families making less than $42,705 in annual income for a household of three are expected to constitute 21.2% of total revenue. These two household segments typically use government assistance to access child care and education services. Industry operators also access tax credits and other industry assistance to provide services to this segment.

Furthermore, mothers with higher levels of education are more likely to enroll their children in early care and education programs. Today, the gap

Demand Determinantscontinued

and willingness to spend on child education services.

Leisure time availability and the unemployment rate also influence industry demand. A rise in unemployment results in a higher number of parents staying home with their children, decreasing their

need for formal child education centers. However, as parents and other informal caregivers (e.g. relatives and friends) return to the workforce, they will have less leisure time available, increasing the likelihood that parents will turn to child education centers.

Major market segmentation (2015)

Total $1.8bn

49.2%Households with income

of more than $61,795

29.6%Households with income of more than

$42,705 and less than $61,795

21.2%Households with income

of less than $42,705



Products & Markets

International Trade Due to its service-based nature, the Child Education and Developmental Center Franchises industry operates solely within the domestic economy with no measurable imports and exports. Equipment and

supplies used by industry operators are recorded at the manufacturing or wholesale level. For more information on global operations, please refer to the Industry Globalization section.

Major Marketscontinued

between children of mothers who are the most educated and the children of mothers with the least education is the greatest it has ever been. According to a 2012 report by the Child Trends Data Bank (latest available data), 71.0% children aged between three and six whose mothers had a college degree were enrolled in early child education programs. Additionally, children aged three to six with mothers participating in the workforce are more likely to attend early childhood care and education programs.

Employer-based day care servicesIn addition, some parents can use employer-based day care services to pay for industry services. Employers in this segment provide child-care and education services as part of employee benefits packages. Employer-based day care services have increased over the past five years, as employers are increasingly providing this benefit for new employees. Employers are using this strategy to attract employees who are interested in staying with the same company for an extended period of time.


Products & Markets

Business Locations 2015

MO2.1

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

Great Lakes

VT0.4

MA2.8

RI0.4

NJ3.2

DE0.4

NH0.6

CT1.3

MD1.9

DC0.3

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.2

CA10.5

NV0.4

OR1.5

WA3.0

MT0.6

NE0.9

MN1.9

IA1.1

OH3.4 VA

2.5

FL5.6

KS0.8

CO1.5

UT0.6

ID0.5

TX7.2

OK1.4

NC3.5

AK0.2

WY0.3

TN1.9

KY1.4

GA3.0

IL3.7

ME0.8

ND0.3

WI2.3 MI

2.6 PA4.8

WV0.5

SD0.4

NM0.5

AR1.0

MS1.1

AL1.4

SC1.2

LA1.5

HI0.3

IN1.8

NY7.2 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more


Products & Markets

Business Locations The location of child education and developmental center franchises generally follows the distribution of the population in the United States. As such, more heavily populated regions constitute a larger number of industry establishments. The Southeast region makes up about 25.5% of total population and holds an estimated 24.7% of child education center franchises. The Plains region makes up only about 6.6% of the population and has 7.5% of total franchises. On a state level, California, New York, Texas, Florida and Pennsylvania capture the highest number of industry establishments, altogether accounting for about 35.3% of total franchises.

According to the 2014 Parents and the High Cost of Child Care Report (latest available data), in 2013, the least-affordable states for center-based full-time care for a four-year-old were New York, Vermont, Oregon, Nevada, Minnesota, Colorado, Wisconsin, Massachusetts, Rhode Island and Maine. The least-affordable state had the highest child-care costs compared to family income.

According to the same report, the average annual cost of full-time child care for a four-year old in a center ranged from $4,515 in Tennessee to nearly

$17,304 in Washington, DC, while the average annual cost of before- and after-school center-based care for a school-age child ranged from $1,086 in Louisiana to $11,352 in New York.

Urban child care is more expensive than rural care. Parents in rural areas have There are fewer child care centers and licensed-care providers in rural areas; therefore, parents in these areas rely more on informal child care from friends and neighbors.

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Distribution of establishments vs. population



Cost Structure Benchmarks

The Child Education and Developmental Center Franchises industry’s cost structure is mostly comprised of labor costs because operators provide services to consumers. However, like most industries, cost structure varies depending on the size, location, scale of operations and popularity of a franchise’s brand. For instance, larger franchises in the industry can typically afford to spend

more on marketing expenses, while small industry franchises often rely on word-of-mouth recommendations.

ProfitOperating profit for the average company in the industry, measured by earnings before interest and taxes, is estimated to account for 13.5% of industry revenue in 2015. As a result of increasing child-care

Key Success Factors Proximity to key markets Providing services in convenient locations (e.g. where density of working parents is high) is key to the success of industry establishments.

Recommendations/accreditation from authoritative sourceAccreditation promotes the center to parents and potential employees. It can also assist in identifying and correcting any areas that could compromise care.

Ability to vary services to suit different needsOperators that develop a range of basic and specialty services and expertise reduce the effects of price-based competition. Further, centers with flexible hours and able

to cater to the varied needs of working parents will be more appealing to consumers.

Business expertise of operatorsThe long-term success of the center depends on the skill of the operator in running a business profitably over time.

Having a loyal customer baseA satisfied client base will encourage repeat customers and word-of-mouth recommendations, which will help minimize revenue fluctuations.

Must comply with government regulationsCompliance with government regulations is essential to maintaining a center’s operating license.

Market Share Concentration

The Child Education and Developmental Center Franchises industry exhibits a moderate level of market share concentration, with the top four franchise operators constituting 68.3% of the industry’s revenue. Goddard Systems Inc., the industry’s major player, alone captures an estimated 26.4% of the market share and currently licenses 428 franchised schools. Primrose licenses 301 franchised schools throughout the United States. Since 2010, market share has increased

slightly as a result of the growing number of major companies’ franchises across the United States.

The industry is represented by many well-established franchises offering a variety of services, allowing the top companies to earn a significant share of revenue. However, all of the industry’s major players have franchise models that vary slightly in regard to royalty fees, start-up costs, training and marketing support, which makes them each suitable to certain potential franchisees.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Medium

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

costs, industry profitability has improved compared to 2010, when profit margins averaged 10.4%. During the economic downturn demand for center-based child care diminished slightly because higher unemployment caused more parents to stay home with their children. Lower revenue during this time ate into industry profit. Since then, as disposable income recovered, parents had greater discretionary funds to spend on child education centers, which bolstered profit and revenue growth.

In the next five years, profitability is expected to improve as per capita disposable income rises and unemployment decreases, with more mothers returning to the workforce. A continuing focus on early child education will further underpin demand for industry services and increase children’s enrollment in child education and developmental centers, boosting profitability.

WagesDue to the nature of industry services, which require a high interaction and communication between a caregiver or teacher and a child, labor costs make up the largest expense for a company, accounting for an expected 44.7% of industry revenue. Employees are required for childcare, education and administration purposes. For larger operators, effective employment of part-time workers can lead to efficient management of labor expenses. The ratio of employees to children is often a company’s largest selling point. Therefore, large agencies generally hire more staff to keep the employees-to-children ratio high. Over the past five years, wages as a share of revenue have decreased, because companies have been hiring more part-time workers. Although companies still aim to hire teachers with higher levels of education (e.g. college

Sector vs. Industry Costs

n Profi tn Wagesn Purchasesn Depreciationn Marketingn Rent & Utilitiesn Other

Average Costs of all Industries in sector (2015)

Industry Costs (2015)

0

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8.8 13.5

14.9

10.32.02.3

12.3

44.7

21.7

10.00.93.5

16.8

38.3



Basis of Competition The Child Education and Developmental Center Franchises industry’s level of competition has increased over the past five years. Adding to the level of competition, many companies with large amounts of capital have entered the industry, and existing regional and national operators have expanded their operations.

Internal competitionCompanies in the industry differentiate themselves based on superior staff, educational programs, staff-to-child ratios, the level and quality of facilities and aesthetic surroundings. Price is one of the major competitive advantages an industry player can boast. Despite rising child-care and education costs, many parents are willing to pay a premium for industry programs that promote linguistic

development, language skills and mathematics-oriented activities. Larger industry players can also compete on price by using economies of scale. The standardization of service and numerous locations can enable a large company to lower prices. However, parents may want a more personalized approach, and therefore, businesses must balance prices with the quality of child education services.

Major industry operators have created their own brand names and spent significant amounts on marketing to attract enrollments. A successful marketing campaign can improve perceived standards or override poorly perceived notions held by potential customers. Parents increasingly demand child-care arrangements that will adapt to their own schedules, particularly as

Cost Structure Benchmarkscontinued

and graduate degrees), as parents seek better-quality early education when considering a center.

PurchasesPurchases are another significant cost for the industry, representing an estimated 12.3% of revenue. Purchases are anything that is bought on a daily basis to keep the center running. These expenses include the cost of food, beverages, furniture, toys, books, computers and other supplies. To keep children active, operators also purchase playground equipment, mats and outdoor toys, which can be very expensive.

Franchise fees and marketingIndustry franchise fees and royalties are expected to account for 7.0% of industry revenue. Most franchise have an initial franchise fee, which typically range from $29,000 to $135,000. Due to increasing competition in the industry, marketing and advertising play a key role in operator’s success. On

average, a company invests 2.0% in marketing materials, including ads, posters, radio scripts or mail-outs. Larger companies generally spend more on advertising and marketing, while small businesses typically do not have large marketing budgets.

Other costsOther expenses include rent, utilities, depreciation, legal, insurance, administrative, recruiting and other related expenses. Insurance costs in the industry have been increasing over the past five years because the size of payouts in civil negligence cases has increased. This factor has increased the risk for insurers and, therefore, increased insurance premiums. Other costs, such as repair and maintenance fees have remained relatively stable. Repair and maintenance is anticipated to absorb 1.6% of industry revenue in 2015. Outsourced professional services is expected to account for 1.8% of revenue, while interest expenses total 1.0% of revenue.

Level & Trend Competition in this industry is High and the trend is Increasing



Barriers to Entry Overall, the Child Education and Developmental Center Franchises industry has moderate barriers to entry. Although there is not a significant capital investment involved in building a new establishment, hiring enough people to care for children will be a major expense. Additionally, the industry is highly regulated and, as a result, a new operator must obtain permits and comply with other rules to operate. One of the large barriers for new entrants is regulation: a license ensuring that the child education and developmental center is safe for children to occupy is required. Additionally, regulation ensures that the employees working in the center pass a strict background check.

Labor is also a potential barrier to entry. Child education centers are mandated to maintain a specific child-to-staff ratio, which varies depending on the state. On average, for children six months

Basis of Competitioncontinued

working shifts away from traditional business hours. Marketing to this segment will create competitive advantages for operators in this industry.

Location is another important point of difference for child education providers. Parents want to be able to drop their children off at a center and pick them up after work. However, this factor is not as important in determining the basis of competition as quality. Most families that seek high-quality child education will take their children to organizations that will be able to provide them with best services. In addition, reputation can be pivotal in attracting initial interest from prospective clients. A good reputation is an excellent way of standing out among competing institutions, but one high-profile case of incompetence can be a serious problem. It is often extremely difficult to rebuild a positive public image after these incidents.

External competitionIndustry operators face competition from facilities that provide child care in a home-like setting, usually the provider’s own residence. However, industry

operators have a competitive advantage over home-based care. According to research from the Administration for Children and Families, 81.0% of center-based care teachers have some college or graduate degree compared with a 53.0% of home-based providers. Furthermore, although the cost of home-based care is less expensive than center-based care, the quality of care received in many homes maybe unknown if the home is unlicensed. In fact, licensing requirements vary greatly by state, with 27 states not demanding a license for home providers until five or more children are cared for in the home.

In addition, child education centers face competition from informal child-care providers, such as family and friends. The vast majority of children aged five and younger are enrolled in some type of full- or part-time child-care center, while a nanny, relative, friend or neighbor continue to take care of many children. However, as parents return back to the workforce and can afford the rising costs of child education, demand for industry services is expected to surge over the next five years.

Level & Trend Barriers to Entry in this industry are Medium and Steady

Barriers to Entry checklist

Competition HighConcentration MediumLife Cycle Stage GrowthCapital Intensity LowTechnology Change LowRegulation & Policy HeavyIndustry Assistance Medium




Industry Globalization

There is a low level of globalization in this industry because most operators operate locally, are domestically owned and predominantly provide services to US residents. However, some companies operate international franchise

establishments. For instance, Drama Kids International has 1,500 locations throughout the United States, Australia, New Zealand, South Africa, Southeast Asia and Europe. Still, industry globalization is expected to remain low through 2020.

Barriers to Entrycontinued

and younger, there must be one staff member per four children. For children over four years old, one staff member is required per 10 children, according to Child Care Aware of America. Moreover, because this is an industry focused on caring for and educating children, it is crucial to hire people who are passionate about helping children develop. The costs to attract staff are a large portion of a new entrant’s expenses; therefore, these costs may deter new operators from entering the industry.

Start-up costs vary depending on the scale of operations. Typically, franchisees have an initial franchise fee that ranges from $29,000 to $135,000. Franchises are required to spend a specified amount in initial capital equipment (e.g. purchasing or leasing a building) and marketing expenses. Potential entrants are also required to have a certain amount in liquid cash and a net worth, in addition to paying an ongoing royalty fee, which typically constitutes 7.0% of total revenue.

Level & Trend Globalization in this industry is Low and the trend is Increasing


Player Performance Goddard Systems Inc. (GSI), founded in 1988, is the franchisor of the Goddard School franchises. Headquartered in King of Prussia, PA, Goddard Systems currently licenses 428 franchised schools in 35 states. The Goddard School franchises provide comprehensive early childhood development services, with a variety of programs that range from infant care to child care for school-age children. Each school is a licensed child care facility with an onsite owner, an education director and a faculty trained in early childhood education or childhood development. GSI provides continuing education for all teachers as well as a quality assurance program.

To open a Goddard School franchise, each franchisee must pay $135,000 in franchise fees and an ongoing royalty fee of 7.0%. In addition, franchisees are required to have $150,000 in liquid

cash and a net worth of $650,000. According to GSI, the minimum total investment for each franchise ranges from $704,700 to $880,000. GSI assists franchisees with real estate and site development, operations, information technology, marketing, quality assurance and training. GSI also facilitates an online community for franchises to communicate and share ideas with each other.

Financial performanceGoddard Systems Inc., alongside most other companies in this industry, is privately held. Financial performance is estimated using data from franchise disclosure documents, which provide average results of all franchises. In 2015, IBISWorld estimates that The Goddard School franchises will generate $470.8 million in revenue,

Major CompaniesGoddard Systems Inc. | Primrose School Franchising Company Kiddie Academy Child Care Learning Centers | The Learning Experience | Other Companies

31.7%Other

Goddard Systems Inc. 26.4%

Primrose School Franchising Company 25.2%

Kiddie Academy Child Care Learning Centers 9.4%

The Learning Experience 7.3%


Major players(Market share)

The Goddard Schools (child education franchises) - fi nancial performance*

YearRevenue

($ million) (% change)Operating Income

($ million) (% change)

2010 396.0 N/C 57.4 N/C

2011 424.6 7.2 65.9 14.8

2012 426.8 0.5 66.3 0.6

2013 440.0 3.1 68.4 3.2

2014 466.4 6.0 69.6 1.8

2015 470.8 0.9 70.9 1.9

*Estimates SOURCE: IBISWORLD

Goddard Systems Inc. Market share: 26.4%


Major Companies

Player Performance The first Primrose School educational child care facility was founded in 1992 in Atlanta, GA. Currently, the Primrose School Franchising Company licenses 301 franchised schools throughout the United States. Primrose Schools offer academic programs for infants to pre-kindergarteners. In addition, franchises offer private kindergarten and after-school programs for older kids. Primrose’s Balanced Learning curriculum is focused on literacy, hands-on learning, mathematics and the integration of technology. Primrose has an education team that develops the curriculum as well as an education advisory board that provides advice and recommendations for educational improvements.

Prospective franchisees are required to pay an initial franchise fee of $70,000, an ongoing royalty fee of 7.0% and marketing fee of 1.0%. In addition, franchisees are required to have at least $450,000 in liquid capital and a net worth of $700,000; total investment is estimated to range from $659,325 to

$5.5 million. The franchising company has also created the Primrose Development Incentive Royalty Program, which reduces royalty fees to 2.0% of revenue for the first 12 months for new locations in targeted markets. These markets include Illinois, Maryland, Washington and Pennsylvania. The franchising company also offers an Accelerated Opportunities program, providing relocation support of up to $35,000 in travel and moving expenses if franchisees move more than 100 miles to open a business.

Financial performancePrimrose Schools Franchising Company is privately held; financial performance is estimated using data from franchise disclosure documents. In the five years to 2015, IBISWorld estimates that revenue for Primrose School franchises will increase on average 7.5% per year to $449.5 million. Over the past five years, revenue growth was mostly bolstered by the growing number of

Player Performancecontinued

accounting for the largest market share out of all industry franchises. Revenue is expected to grow on average 3.5% per

year from 2010 to 2015, mostly due to the steady growth of the total number of franchises.

Primrose Schools (child education franchises) - fi nancial performance*

YearRevenue



2010 313.7 N/C 59.4 N/C

2011 342.0 9.0 75.4 26.9

2012 368.9 7.9 81.3 7.8

2013 407.7 10.5 90.2 10.9

2014 422.6 3.7 104.0 15.3

2015 449.5 6.4 113.3 8.9


Primrose School Franchising Company Market share: 25.2%


Major Companies

Player Performance The first Kiddie Academy was opened in Baltimore County, MD in 1981. The company has now grown to include 132 franchise locations. Franchises provide programs from infant day care to prekindergarten programs for kids under five. In addition, Kiddie Academy offers programs for school-age children, summer camps and special programs in sign language and Spanish. Kiddie Academy emphasizes a child-led learning style, where children are encouraged to learn at their own pace. The company seeks to provide degreed teachers for child care centers; staff members are also required to participate in ongoing professional development programs.

New franchises must pay an initial franchise fee of $120,000, one of the highest fees of all major players, and an ongoing royalty fee of 7.0%. Owners must have liquid cash of $175,000 and a net worth of $450,000. Total investment is estimated to range from $372,700 to $3.4 million. Franchises are also required to hire a state-qualified director and abide

by a set of education, training, business management, quality assurance and marketing standards. In return, the franchisor provides a full spectrum of support to its franchises, including site selection and academy design and development services. These also include regulatory approval for building, zoning and child care licensing throughout the construction process.

Financial performanceKiddie Academy’s more stringent requirements and higher franchise fees compared with other industry players have resulted in faster growth over the past five years. In the five years to 2015, IBISWorld estimates that total franchise revenue will increase on average 6.1% per year to $166.5 million. The number of franchises actually declined from 2010 to 2011, due to extensive rules and standards have made it difficult for some franchises to operate. Despite this, the decline did not further hinder growth for the company in recent years.

Player Performancecontinued

franchises, which increased from about 200 in 2010 to 301 in 2015. According to the franchising company, Primrose

franchises that are open for at least two years generate average annual revenue of $1.6 million.

Kiddie Academy (child education franchises) - fi nancial performance*

YearRevenue



2010 123.6 N/C 30.0 N/C

2011 121.1 -2.0 29.3 -2.3

2012 127.4 5.2 30.9 5.5

2013 147.6 15.9 35.8 15.9

2014 152.7 3.5 37.0 3.4

2015 166.5 9.0 40.3 8.9


Kiddie Academy Child Care Learning Centers Market share: 9.4%


Major Companies

Player Performance In 2001, the Weissman family opened The Learning Experience (TLE) child education center. The owners have significant experience in the child care business, having founded the Tutor Time franchises in 1980. Tutor Time grew to over 200 centers before it was sold to Childtime Learning Centers in 1999. TLE has designed a curriculum for six stages of development that the company has defined. These include infant, toddler, twaddler, prepper, preschooler and kindergartner. The curriculum includes academic education, sign language, Spanish, etiquette and physical fitness. In addition, TLE offers special programs in music, performing arts, science, math, dance and yoga.

Currently, TLE licenses 116 franchises across the country. To open a TLE franchise, prospective franchisees need to pay a franchise fee of $60,000 and an ongoing royalty fee of 7.0%. Owners are required to have liquidity of $150,000 and a net worth of $500,000. Estimated total investment ranges from $495,299 to

$3.6 million. TLE offers turnkey (ready-to-go) franchises, providing site selection, construction management, permits and licenses, training, marketing budgeting and expense control. TLE also offers absentee owner/franchisee options for individuals interested in investing in the child care business.

Financial performanceSimilar to other industry players, TLE is private and releases minimal financial information. In the five years to 2015, the number of franchises is expected increase. IBISWorld estimates that total franchise revenue will match this upward trend over the same period, increasing an average 5.9% each year to $130.2 million. However, new franchises are typically less profitable than established franchises. As a result, the number of franchises dipped from 2012 to 2014. Nevertheless, over the long-term, demand for the company is likely to increase due to positive industry-wide trends.

The Learning Experience (child education franchises) - fi nancial performance*

YearRevenue



2010 101.0 N/C 22.0 N/C

2011 110.0 8.9 21.6 -1.8

2012 139.2 26.5 29.5 36.6

2013 129.1 -7.3 27.5 -6.8

2014 122.3 -5.3 29.2 6.2

2015 130.2 6.5 32.1 9.9

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

The Learning Experience Market share: 7.3%


Major Companies

Other Companies Discovery Point Franchising Inc.Estimated market share: 2.9%In 1988, the first Discovery Point child development center opened, offering learning and enrichment programs. Franchise sales began in 1991. Currently, there are 51 Discovery Point franchises offering child care programs for infants up to age 12. Discovery Point Franchising Inc. charges an initial franchise fee of $60,000 and an ongoing royalty fee of $5,400 per month. Owners are required to have $350,000 in liquid cash and a net worth of $500,000. Total investment is estimated to range from $369,000 to $3.3 million. Discovery Point provides site selection, construction support, training and licensing assistance. In 2015, IBISWorld estimates that total revenue for all Discovery Point franchises will total $51.0 million.

Drama Kids International Estimated market share: less than 1.0%Drama Kids International was founded in 1985 by Helen O’Grady, an Australian actress. The program was expanded to other countries in 1989. Drama Kids franchises provide programs that teach kids speaking skills, social skills and creative learning. Franchises can be operated from home residences, schools, community centers and churches, resulting lower start-up fees compared to other industry franchises. Franchisees need to pay an initial franchise fee ranging from $28,500 to $46,500 and an ongoing royalty fee of 8.0%. Owners need to have $25,000 in liquid cash and a net worth of $50,000. Total investment is estimated to range from $28,500 to $46,500. In 2015, there are 54 Drama Kids franchises in the United States. IBISWorld estimates that the average franchise will generate $86,000 in revenue in 2015, amounting to total company revenue of $4.6 million.


Capital Intensity The Child Education and developmental Center Franchise industry has a low level of capital intensity. IBISWorld estimates that for every dollar spent on wages, industry operators will spend $0.05 on capital investments. The largest capital costs incurred by industry operators is the cost of maintaining the business’s central location. Over the past five years, capital intensity has decreased slightly; in 2010, for every dollar spent on wages, industry operators spent about $0.06 in capital investment. Rather, child education involves a high level of personal care and interaction, consequently wages constitute the largest expense for industry operators. Because the ratio of employees to children is often a

company’s largest selling point, large businesses generally hire more staff to keep the employee-to-child ratio high.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Public SchoolsOffi ce Stationery ManufacturingPrivate Schools

Orphanages & Group HomesAlarm, Horn & Traffi c Control Equipment Manufacturing


Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Child Education & Developmen-

tal Center Franchises

Healthcare and Social

Assistance

Economy

Level The level of capital intensity is Low


Operating Conditions

Revenue Volatility The Child Education and Developmental Center Franchises industry has a low level of revenue volatility. Demand for services in the industry is primarily driven by the number of women in the workforce, per capita disposable income and the unemployment rate. However, for most families, child care and education are a necessary expense, a

factor that minimizes revenue volatility for the industry. Government funding and tax measures (which reduce price and bolster demand) also tend to reduce volatility with more parents interested in placing their children in child education and developmental centers.

Female labor participation rates that affect demand are not significantly

Technology & Systems The Child Education and Developmental Center Franchises industry has a low level of technological change. Some child education centers are introducing computer-based educational tools for children. According to the National Association for the Education of Young Children, these include the use of digital cameras, computer exercises and the internet as interactive learning tools. More child education and developmental centers are also incorporating

technology in various aspects of child care. For instance, some centers have implemented streaming cameras to allow parents who have a secure access code to see their child. This technology offering is expected to become more common over the next five years. Additionally, several large franchise operators have instituted virtual private networks and company-wide management information systems to decrease administration costs.

Capital Intensitycontinued

In addition, there are significant costs involved in finding people who are suitable for child education. As parents look to provide their children with the best educational opportunities,

companies are hiring more teachers with some college or graduate degree to increase enrollment. IBISWorld expects capital intensity to remain low through 2020 while labor intensity remains high.

Level The level of Technology Change is Low


Volatility vs Growth

Reve

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* (%

)

1000

100

10

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Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.


Level The level of Volatility is Low



Industry Assistance In the United States, parents largely bear the cost of child care, which is supplemented by more than $10.0 billion in government money that states spend on child care annually. However, there is some financial assistance provided to families who use child day-care services. For instance, Section 21 of the IRS code provides a child and dependent care federal tax credit ranging from 25.0% to 35.0% of certain child day care expenses.

The amount of child care expenses is limited to $3,000 for one child and $6,000 for two or more children. The government also provides incentives for employers to offset costs related to employer-provided child care facilities. Costs related to acquiring or constructing property used as a qualified child care center, operating an existing child care center or contracting with an independent child care operator to care

Regulation & Policy Child education and developmental centers are subject to numerous regulations and licensing requirements. Government agencies regularly review the safety of buildings, educational qualifications and training of teachers, the dietary programs, the daily curriculum and hiring practices. Licenses must be renewed periodically and employee background checks are conducted. Repeated failures to comply with regulations can be subject to sanctions, including fines and even suspension of the operator’s license to operate.

In some states, child education and developmental centers affiliated with religious institutions are exempt from child-education licensing regulations. The National Child Care Information Center, within the US Department of Health and Human Services, provides detailed information on regulations by state and information on starting up a child-education center.

The National Association for the Education of Young Children (NAEYC) has established comprehensive criteria for providing quality early childhood education and care. NAEYC accreditation criteria cover a wide range of quantitative and qualitative factors including, among other things, teacher qualifications and development, staffing ratios, health and safety and physical environment. The criteria of accreditation are generally more stringent than state regulatory requirements.

The National Child Care Association represents private licensed child-education providers. Also, the National Association of Family Child Care is a national membership organization working with more than 400 state and local family child-care provider associations across the United States and has developed accreditation programs.

Revenue Volatilitycontinued

volatile, but are gradually and consistently decreasing. As the participation rate declines, demand for child care is set to decrease commensurately. A marked shift in the female participation rate will unlikely have a significant long-term effect on the industry revenue. However, the unemployment rate contributes to revenue volatility. When the

unemployment rate is high, families have less disposable income to spend on child care services and are more likely to rely on informal caregivers such as relatives and friends. Furthermore, during periods of high unemployment, a greater number of parents are at home during the day, further decreasing the need to formal child care services.

Level & Trend The level of Regulation is Heavy and the trend is Increasing

Level & Trend The level of Industry Assistance is Medium and the trend is Increasing



Industry Assistancecontinued

for children of the employees, will qualify for a tax credit.

Most of the funding for child care comes from the Child Care and Development Block Grant (CCDBG), the Temporary Assistance for Needy Families (TANF) program and the Social Services Block Grant (SSBG or Title XX). States use these funds to subsidize the monthly cost of child care for low-income families. In addition, state and local governments pay for a variety of child care programs, including pre-school initiatives.

Due to the nature of these funds that are issued as block grants, states have wide discretion over fund disbursement. CCDBG is the primary source of federal funds for child care, but requirements are subject to broad interpretation. As such, each state establishes its own standards

and oversight policies. However, according to the US Department of Health and Human Services (HHS), only about 17.0% of eligible children receive fee assistance. In reality, many states have low subsidy rates with most low-income families not being able to afford the difference between the monthly subsidy they receive and the cost of child care in their community.

About 41 states use Title XX funds to help meet the demand for child care assistance. The Child Nutrition and WIC Reauthorization Act of 2004 permitted for-profit child care centers to participate in the Child and Adult Care Food Program when 25.0% of the centers enrollment or licensed capacity receive either Title XX or are eligible for free or reduced-price meals.


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand

National unem-ployment rate

(%)2006 1,369.3 764.7 1,711 1,449 32,181 -- -- 596.3 N/A 4.62007 1,450.1 804.3 1,766 1,494 33,264 -- -- 618.7 N/A 4.62008 1,502.3 832.0 1,840 1,557 34,698 -- -- 659.2 N/A 5.82009 1,549.9 893.5 1,955 1,655 36,766 -- -- 710.7 N/A 9.32010 1,602.4 951.5 2,050 1,728 38,504 -- -- 743.1 N/A 9.62011 1,619.4 954.0 2,025 1,706 38,422 -- -- 730.5 N/A 9.02012 1,673.5 1,005.7 1,929 1,625 38,012 -- -- 739.6 N/A 8.12013 1,695.6 1,026.7 1,957 1,647 38,901 -- -- 765.6 N/A 7.42014 1,732.3 1,049.9 2,032 1,706 40,691 -- -- 780.5 N/A 6.22015 1,780.8 1,075.3 2,066 1,733 41,513 -- -- 795.1 N/A 5.62016 1,848.6 1,110.8 2,114 1,764 42,644 -- -- 817.5 N/A 5.22017 1,887.0 1,139.4 2,163 1,801 43,899 -- -- 838.1 N/A 5.02018 1,955.4 1,189.9 2,260 1,881 46,070 -- -- 874.4 N/A 4.92019 2,018.8 1,229.1 2,295 1,908 47,190 -- -- 899.9 N/A 4.92020 2,077.3 1,270.6 2,361 1,961 48,597 -- -- 929.2 N/A 4.8

IVA/Revenue (%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2006 55.85 N/A N/A 42.55 43.55 18.81 18,529.57 0.012007 55.47 N/A N/A 43.59 42.67 18.84 18,599.69 0.012008 55.38 N/A N/A 43.30 43.88 18.86 18,998.21 0.012009 57.65 N/A N/A 42.16 45.85 18.81 19,330.36 0.012010 59.38 N/A N/A 41.62 46.37 18.78 19,299.29 0.012011 58.91 N/A N/A 42.15 45.11 18.97 19,012.54 0.012012 60.10 N/A N/A 44.03 44.19 19.71 19,457.01 0.012013 60.55 N/A N/A 43.59 45.15 19.88 19,680.73 0.012014 60.61 N/A N/A 42.57 45.06 20.03 19,181.15 0.012015 60.38 N/A N/A 42.90 44.65 20.09 19,153.04 0.012016 60.09 N/A N/A 43.35 44.22 20.17 19,170.34 0.012017 60.38 N/A N/A 42.99 44.41 20.30 19,091.55 0.012018 60.85 N/A N/A 42.44 44.72 20.38 18,979.81 0.012019 60.88 N/A N/A 42.78 44.58 20.56 19,069.72 0.012020 61.17 N/A N/A 42.75 44.73 20.58 19,120.52 0.01

Figures are in inflation-adjusted 2015 dollars.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)

National unem-ployment rate

(%)2007 5.9 5.2 3.2 3.1 3.4 N/A N/A 3.8 N/A 0.02008 3.6 3.4 4.2 4.2 4.3 N/A N/A 6.5 N/A 26.12009 3.2 7.4 6.3 6.3 6.0 N/A N/A 7.8 N/A 60.32010 3.4 6.5 4.9 4.4 4.7 N/A N/A 4.6 N/A 3.22011 1.1 0.3 -1.2 -1.3 -0.2 N/A N/A -1.7 N/A -6.32012 3.3 5.4 -4.7 -4.7 -1.1 N/A N/A 1.2 N/A -10.02013 1.3 2.1 1.5 1.4 2.3 N/A N/A 3.5 N/A -8.62014 2.2 2.3 3.8 3.6 4.6 N/A N/A 1.9 N/A -16.22015 2.8 2.4 1.7 1.6 2.0 N/A N/A 1.9 N/A -9.72016 3.8 3.3 2.3 1.8 2.7 N/A N/A 2.8 N/A -7.12017 2.1 2.6 2.3 2.1 2.9 N/A N/A 2.5 N/A -3.82018 3.6 4.4 4.5 4.4 4.9 N/A N/A 4.3 N/A -2.02019 3.2 3.3 1.5 1.4 2.4 N/A N/A 2.9 N/A 0.02020 2.9 3.4 2.9 2.8 3.0 N/A N/A 3.3 N/A -2.0

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

Industry Jargon

IBISWorld Glossary

EMPLOYER-BASED DAY CARE A service that a company provides its workers through a contract with a local child-care center or facility.

OCCUPANCY RATE The rate of available spots at a child-care center that are filled

STAFF-TO-CHILD RATIO Legal ratio mandated under state law for child-care centers for the maximum number of children per staff member.

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