Day Care Industry Report
DayCareintheUS October 2012 1 Taking care: Parents will require child care again as employment rises, boosting revenue IBISWorld Industry Report 62441 Day Care in the US October2012 2 AboutthisIndustry 2 2 2 2 Industry Definition Main Activities Similar Industries Additional Resources 15 International Trade 16 Business Locations CaitlinMoldvay 29 KeyStatistics 29 Industry Data 29 Annual Change 29 Key Ratios 18 CompetitiveLandscape 18 Market Share Concentration 18 Key Success Factors 30 Jargon&Glossary 3 IndustryataGlance 4 IndustryPerformance 4 5 8 Executive Summary Key External Drivers Current Performance Industry Outlook 18 Cost Structure Benchmarks 20 Basis of Competition 21 Barriers to Entry 22 Industry Globalization 23 MajorCompanies 25 OperatingConditions 25 Capital Intensity 26 Technology & Systems 26 Revenue Volatility 27 Regulation & Policy 28 Industry Assistance 10 Industry Life Cycle 12 Products&Markets 12 Supply Chain 12 Products & Services 13 Demand Determinants 14 Major Markets www. ibisworld. com|1-800-330-3772|info @ibisworld. com WWW. IBISWORLD. COM DayCareintheUS October 2012 2
AboutthisIndustry IndustryDefinition This industry provides day care services for infants and children. These establishments generally care for preschool children, but may care for older children when they are not in school, such as during the summer or after school hours. Establishments may also offer some educational programs. MainActivities Theprimaryactivitiesofthisindustryare Providing babysitting services Providing child and infant day care Providing group day care Operating Head Start programs Operating prekindergarten facilities Operating preschool facilities
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Themajorproductsandservicesinthisindustryare Child care centers Family day care services Nanny and babysitting services SimilarIndustries 61111a PublicSchoolsintheUS Schools provide supervise and educate school-age children. Many schools offer day care services outside of school hours. 61111b PrivateSchoolsintheUS Private schools tend to offer more child care services than public schools. AdditionalResources Foradditionalinformationonthisindustry www. bls. gov Bureau of Labor Statistics www. census. gov US Census Bureau www. hildcare. gov US Department of Health and Human Services Administration for Children and Families I BISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www. ibisworld. com WWW. IBISWORLD. COM DayCareintheUS October 2012 3 IndustryataGlance DayCarein2012 KeyStatistics Snapshot Revenue $46. 8bn 2. 3% Profit AnnualGrowth07-12 $2. 8bn MarketShare 2. 8% $22. 4bn 832,782 Wages Businesses Per capita disposable income 4 2 AnnualGrowth12-17 Revenue vs. employment growth 8 6
There are no Major Players in this industry % change 4 2 0 % change 0 ? 2 ? 4 Year 04 Revenue p. 23 06 08 10 12 14 16 18 Year 06 08 10 12 14 16 18 Employment SOURCE: WWW. IBISWORLD. COM Products and services segmentation (2012) Family day care services KeyExternalDrivers Percapitadisposable income 15% Laborforceparticipation rateoffemales Numberofchildrenaged 9yearsandyounger National unemploymentrate Nanny and babysitting services 20% Child care centers 65% p. 4 SOURCE: WWW. IBISWORLD. COM SOURCE: WWW. IBISWORLD. COM IndustryStructure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level Mature Low Low High Low Regulation Level Technology Change Barriers to Entry Industry Globalization Competition Level Heavy Low Medium Low High FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 29 WWW. IBISWORLD. COM DayCareintheUS October 2012 4 IndustryPerformance Executive Summary In 2012, the Day Care industry is expected to generate $46. 8 billion in revenue. Day care services are often a necessary purchase for working families, a factor that mitigates revenue volatility for the industry.
Over the past five years, in spite of the economic recession, revenue growth has remained positive, supported by rising birthrates prior to the recession and the fact that child care represents a relatively nondiscretionary expense for households. From 2007 to ExecutiveSummary | KeyExternalDrivers | CurrentPerformance IndustryOutlook | LifeCycleStage As parents reenter the workforce, demand for child care services will rebound 2012, industry revenue is expected to rise at an average annual rate of 2. 3%.
Nevertheless, revenue growth slowed as a result of rising unemployment during the recession because newly jobless parents were able to provide child care themselves. This factor was mitigated by an ongoing focus on child development, however, with a greater number parents investing in day care that includes high-value services, such as personalized education. During 2012, industry revenue is projected to rise 3. 1% as parents begin to reenter the workforce and disposable income rises, which will result in greater usage of day care services.
The industry is largely composed of nonemploying industry operators; in fact, nonemployers make up over 90. 0% of operators in the industry. Over the past five years, the number of companies offering day care has continued to grow, supported by continuing demand for child care services and low barriers to entry. From 2007 to 2012, the number of enterprises is estimated to increase at an average annual rate of 2. 1%, reaching 832,782 operators. Beyond 2012, the industry will likely continue to prosper.
Decreasing unemployment will lead to more parents re-entering the workforce and thus raise the demand child care. Additionally, large players will likely benefit from parents’ increased focus on child development and education programs, a key growth area for the industry. Large players will therefore offer more personalized development services for children. Early education will be a strong marketing tool to attract new customers. IBISWorld forecasts that the industry will grow at an average annual rate of 2. 8% to $53. 8 billion over the five years to 2017. KeyExternalDrivers
Labor force participation rate of females The workforce participation rate of mothers is a major factor affecting demand for child care services. The participation rate itself is influenced by many factors, including community and social values and expectations relating to child care, the rate of growth in full- and part-time employment, after-tax wage levels and child care costs. When the female workforce participation rate rises, there is generally increased demand for day care services. This driver is expected to increase slowly during 2013, representing a potential opportunity for the industry.
Per capita disposable income Per capita disposable income growth influences demand for the Day Care industry’s services. Households with higher disposable income are more able to afford child care and more likely to demand higher-cost services. This driver is expected to increase slowly during 2013. Number of children aged 9 years and younger Demand for day care services is WWW. IBISWORLD. COM DayCareintheUS October 2012 5 IndustryPerformance KeyExternalDrivers continued positively correlated with the number of children under the age of 10.
Changes in the number of children younger than 10 years old, and particularly younger than five, affect the demand, occupancy rates and profitability of day care centers. This driver is expected to increase slowly during 2013. National unemployment rate Heightened unemployment has a Per capita disposable income 4 2 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 able to stay home during the day, there is less demand for day care services.
This driver is expected to decrease during 2013, but it will decline slowly, making it a potential threat to the industry. Labor force participation rate of females 60. 5 60. 0 59. 5 59. 0 58. 5 58. 0 % change 0 ? 2 ? 4 % 06 08 10 12 14 16 18 Year Year 03 57. 5 05 07 09 11 13 15 17 SOURCE: WWW. IBISWORLD. COM Current Performance The Day Care industry proved to be one of the few recession-resilient industries, posting positive revenue gains each year from 2007 to 2012. Over the five-year period, industry revenue grew at an average annual rate of 2. 3%.
Prior to the recession, the Day Care industry rode the high winds of a strong economy. In 2007, child care centers thrived because more households had two working parents and greater disposable income. During the recession and slow recovery period, although revenue growth remained positive, growth slowed as unemployment rose and disposable income dropped; revenue increased 1. 6% in 2008 and 1. 9% in 2009. Furthermore, a greater number of parents and family members were able to take over child care duties themselves due to widespread unemployment, mitigating demand for day care services.
Revenue growth was supported by the non-discretionary nature of childcare for the majority of households and a higherthan-average increase in the number of children under age 10, which expanded the industry’s target market. As the economy continues to strengthen slowly during 2012 and unemployment slowly declines, revenue growth is projected to accelerate. Per capita disposable income will also increase as more people return to the workforce. Consequently, the Day Care industry is expected to grow 3. 1% in 2012, reaching $46. 8 billion in revenue. Women’s participation in the labor force, per capita disposable income, and
WWW. IBISWORLD. COM DayCareintheUS October 2012 6 IndustryPerformance CurrentPerformance continued the number of children under age 10 are the primary factors affecting the Day Care industry’s performance. Higher rates of each of these factors tend to boost revenue. For instance, as more women enter the labor force, they have less time to take care of their children, and demand for child care services rises as a result. Per capita disposable income is also an important factor; higher levels of disposable income allow more people to afford child care services.
The segment of the population under 10 years old provides insight into how many young children there are in the country. More kids in the United States create greater potential demand for child care services. Unemployment also plays a role in industry performance. Higher unemployment leads to drops in disposable income, which directly influences the amount of money available for child care services. At the same time, this factor decreases the need for child care services because more parents are able to stay at home. Demand for day care has also been fueled by the long-term shift in women’s
Industry revenue 8 6 % change 4 2 0 Year 04 06 08 10 12 14 16 18 SOURCE: WWW. IBISWORLD. COM 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 day care services. 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. Demandcauses competition
For most families, child care services are a necessary cost of having children. In the past five years, there has been a continued shift toward dual-income families, and employers have been increasingly flexible in offering day care services within the workplace, a factor that has supported industry growth over the period. Demand for industry services is expected to rise with the declining unemployment rate. But as demand for child care rises, competition from substitutes is also expected to grow. The number of people who retired in the past five years has increased significantly.
In turn, there has been an increase in the availability of relatives who are able to watch children. During the recession these new retirees helped take care of family members, deterring industry demand. The recession did force some would-be retirees back into the workforce, however, which slightly offset the effect of competition from retirees taking care of children. The recession led to many people who were unemployed to take up babysitting jobs to generate income. While the income generated by babysitting did not replace full-time employment, many people took the opportunity to make extra money.
As a result of growing participation, industry employment is estimated to grow over the five years to 2012 at an average annual rate of 1. 7% to about 1. 7 million people. WWW. IBISWORLD. COM DayCareintheUS October 2012 7 IndustryPerformance Profitability:amixed story The growth in overall industry employment over the past five years should be analyzed in tandem with the drop in employment experienced by large day care centers. Large industry firms with significant real estate holdings financed their properties during the housing boom. After the recession, these holdings dropped in value sharply.
As a result, large firms had to cut employment to combat rising costs. While large firms offer the convenience of a location and various education programs, the higher cost proved too high for some parents to absorb. According to the latest data from Child Care Aware of America, the average annual cost of full-time centerbased child care for a 4-year-old ranged from about $3,900 in Mississippi to nearly $11,700 in Massachusetts in 2011. Comparatively, average prices for full-time child care ranged from $3,380 to $10,787 per year in 2007. Parents that needed child care often turned to nonemployers to lower the costs of child rearing.
Profit margins differ between employer and nonemployer firms. The recession caused large firms facing increasing cost pressures to leave the industry or consolidate operations. Nonemployers, which often face fewer fixed costs, expanded their margins because of increasing client volumes. Nevertheless, the net effect for the Parents that needed child care often turned to nonemployers to lower their costs industry was a drop in profit margins: larger firms’ margins fell significantly during the past five years because they held subprime mortgage loans amid falling customer volume.
In 2012, industry profit margins are expected to average 6. 0% of revenue. Lower profit margins led to increased consolidation among large players. Historically, the industry’s biggest players aggressively acquired smaller centers and rebranded them, which was best displayed by Australian-based ABC Learning Center, which previously had operations in the United States through its subsidiary Learning Care Group. During the credit boom, many companies followed ABC’s model and took on a significant amount of debt in order to expand.
This model broke down when the credit market slowed and companies were not able to borrow any more money. In addition, when the credit market deteriorated and revenue decreased, most of those acquisitions created few or no opportunities for growth. (For more information, please refer to Major Companies section. ) WWW. IBISWORLD. COM DayCareintheUS October 2012 8 IndustryPerformance Industry Outlook The Day Care industry is expected to show solid returns during the next five years. As the economy slowly gains strength, more parents will return to the workforce, leading to greater demand for child care services.
Additionally, economic growth is anticipated to put more money into families’ pockets and allow them to spend on necessary services such as child care. As a result of these trends, industry revenue is forecast to grow at an average annual rate of 2. 8% to $53. 8 billion in the five years to 2017. The industry’s strongest growth will likely occur from 2014 to 2016, coinciding with the largest declines in the unemployment rate. Although the economy is expected to slowly recover, due to sector shifts caused by the recession, employment gains are expected to lag behind economic growth. The recession changed the economic outlook for many families.
As more people enter the workforce, several trends will likely occur. People who planned to retire during the past five years have changed their outlook because of the lack of a steady income. As family caretakers enter the workforce to gain income lost during the recession, fewer caretakers will be available to provide child care. Therefore, demand will rise as older family members go back to work. Over the five years to People will feel more secure in having children, spurring birthrates and boosting demand 2017, as a result of more people reentering the workforce and the rising birthrate, industry employment is projected to increase 2. % per year on average to 1. 9 million. As people go back to work, they will be in a better financial position to support a child, and as a result the number of births is forecast to rise at an average annual rate of 0. 7% over the next five years, expanding the industry’s potential target market towards the end of the period. Industry growth will, however, be slightly mitigated by the previous decline in the birth rate during the recession and slow recovery period. Since 2007, the number of births steadily declined at an annualized rate of 2. 1%. The greatest contraction occurred during 2010 when the number of births fell 3. %. However, in 2011 the rate of decline slowed relative to prior years, with only a 1. 0% fall, according to the latest data from the Centers for Disease Control and Prevention and the National Center for Health Statistics. Childcareinthe workplace Employer-sponsored child care will continue to grow as employers increasingly offer these benefits to attract long-term workers. These types of benefits tend to increase staff retention and productivity because employees will be more comfortable staying with one employer for a significant period of time.
As the economy becomes stronger, more employers will use this tactic to attract talented employees. As a result, industry players that concentrate on addressing this market will experience strong growth in the next five years. The growth of employer-sponsored child care will create revenue opportunities for the industry as the US economy continues to gain steam in 2013; industry revenue is set to increase 2. 4% that year. The growth from the employersponsored segment will be more popular among large day care centers, which have more cost-effective programs for employers. Employers spend less on
WWW. IBISWORLD. COM DayCareintheUS October 2012 9 IndustryPerformance Childcareinthe workplace continued these types of centers because large day care service firms are increasingly interested in long-term contracts that can guarantee revenue for a period of time. These long-term contracts are often less expensive than providing day care on a child-by-child basis because employers provide a steady flow of children to these centers. Long-term contracts lower the cost of day care for employers and entice them to use large firms to provide these services to their employees.
Contracts with employers will provide revenue growth for firms that strike deals with companies, though they may lower profit margins in the short term for large day care centers. As more of these firms land deals, profit will rise over the next five years from an estimated 6. 0% in 2012 to 7. 1% by 2017. Steady revenue will provide more profit opportunities for large players to expand. Shifttohigh-value services Larger players will also benefit from additional revenue brought in from an upgraded service selection, which will include child development, care and education.
In light of recent research recognizing the importance of development in the early years, child development and education will be a strong marketing tool to attract new customers. 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 Large players will benefit from demand for child development and education to the Center for Research on Children. Early child education often commands a high price, and many parents are willing to pay for early education and day care.
Increased per capita disposable incomes will allow large players to command premiums for these types of services. WWW. IBISWORLD. COM DayCareintheUS October 2012 10 IndustryPerformance LifeCycleStage Industry value added has grown at a similar rate to GDP The broader public has increasingly accepted the industry’s services Consolidation among large players is becoming more prominent %Growthinshareofeconomy 20 Company consolidation; level of economic importance stable Maturity QualityGrowth High growth in economic importance; weaker companies close down; developed technology and markets
KeyFeaturesofaMatureIndustry Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands 15 10 QuantityGrowth 5 Many new companies; minor growth in economic importance; substantial technology change DayCare 0 PublicSchools ComputerStores FamilyCounseling&Crisis InterventionServices PrivateSchools –5 Decline Toy,Doll&GameManufacturing Shrinking economic importance –10 –10 –5 0 5 10 15 20 Growthinnumberofestablishments SOURCE: WWW. IBISWORLD. COM WWW. IBISWORLD. COM DayCareintheUS October 2012 11 IndustryPerformance IndustryLifeCycle T his industry is Mature After an explosion of growth in the 1990s, industry expansion has settled down over the past five years. Industry value added, which measures the industry’s contribution to the overall economy, is projected to grow at an average annual rate of 2. 7% over the 10 years to 2017. During the same time period, US GDP is anticipated to increase at an average annual rate of 1. 8%.
However, the rate of industry expansion will not reach the growth rate of the 1990s, having matured and consolidated after large players expanded rapidly before the recession. Needless to say, subprime mortgage holdings did force some players to quickly shed assets during the recession. As the economy gains stronger footing, increased industry consolidation is expected to continue. The public has become increasingly accepting of day care services. 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 enter-based care, while 20. 7% received home-base care and 20. 0% had no regular non-parental arrangement, according to 2012 information from the National Center for Education Statistics. A rise in the number of dual-income families will result in continued demand for day care centers. It is also expected that some employers will increasingly provide child care services as a benefit for working for the company. This will continue to create strong demand for the industry’s services. Part of the shift to the maturity phase is due to consolidation among for-profit day care center operators.
Although the industry is still dominated by nonemployers, large child day care centers are purchasing other day care centers in order to expand in the United States. This trend will likely continue. The number of sole proprietors will also continue to grow, however, because the industry has relatively low barriers to entry. WWW. IBISWORLD. COM DayCareintheUS October 2012 12 Products&Markets SupplyChain KEYBUYINGINDUSTRIES 62419 99 SupplyChain | Products&Services | DemandDeterminants MajorMarkets | InternationalTrade | BusinessLocations
FamilyCounseling&CrisisInterventionServicesintheUS Institutions that assist disadvantaged families may utilize child care services to assist parents. ConsumersintheUS Households are the primary users of day care centers. KEYSELLINGINDUSTRIES 33993 44312 Toy,Doll&GameManufacturingintheUS Child care facilities require toys to occupy children, particularly those in long-term care. ComputerStoresintheUS Increasingly, computers are being made available to assist in children’s entertainment and education. BookPublishingintheUS Books can be an effective means of keeping children entertained. 1113 Products&Services Products and services segmentation (2012) Family day care services 15% Nanny and babysitting services 20% Child care centers 65% Total $46. 8bn The main services offered by the industry are child care centers, family day care, nanny or babysitting services. Child care centers are licensed facilities that offer relatively large numbers of enrollments. These centers also offer a wide range of services, including educational programs. Child care centers are typically more inexpensive than nannying or babysitting services, making them more affordable to families.
According to the Children’s Defense Fund, nearly 30. 0% of children under the age of five with working mothers attend day care. While they do SOURCE: WWW. IBISWORLD. COM not account for the majority of establishments in this industry, they generate more revenue than the other segments. IBISWorld estimates that child care centers account for 65. 0% of industry revenue. This segment has declined over the past five years, as many child care centers were forced to close because of their exposure to the subprime mortgage market. Many players took out subprime loans to expand prior to the recession.
Nannies, live-in nannies and babysitters account for an estimated WWW. IBISWORLD. COM DayCareintheUS October 2012 13 Products&Markets Products&Services continued 20. 0% of the industry’s revenue. This figure is an estimate, since many transactions that take place are cash based and never taxed. Nevertheless, although this group of people does not generate a significant amount of revenue in this industry, they do contribute to a significant portion of establishments in the sector. This segment has increased over the past five years as many unemployed workers took to babysitting to supplement income.
Family day care services generate an estimated 15. 0% of the industry’s revenue. The definition and regulation of family day care varies from state to state. This type of care can be broadly defined as the care of one or more children on a regular basis for 12 or more hours per week in a residence other than in the child’s home. This can also be an individual who cares for children in his or her own home. In either case, a family day care must be licensed in order to operate in the United States. This segment has stayed relatively steady over the past five years.
Demand Determinants Workforce participation by women The rate of workforce participation by parents, particularly women aged 25 to 34 years, is one of the primary factors affecting the need for child care, because a greater number of working mothers will likely increase demand for industry services. The participation rate among these families is influenced by many factors including community and social values and expectations relating to child care, the rate of growth in fulland part-time employment, after-tax wages levels and child care costs.
The trend for women to have children later in life also promotes demand for formal child care services in some cases, particularly for women who have established careers. According to the latest data from the US Census Bureau, the average woman has her first child at age 25. 1, up from 25 in 2007. Disposable income Any increase in household disposable income is likely to have a positive impact on industry growth. An increase in income is likely the result of both parents in the household going to work. As a result, child day care centers will be more likely to be needed to take care of the children.
The availability (or supply) and cost of alternative informal child caring arrangements (e. g. grandparents) also has a profound impact on industry demand. Family members that do not charge for services might take demand away from baby-sitters and child care centers as parents feel more comfortable with family members taking care of children. US birth rate The steady decline in the US birth rate may appear to have a negative effect on the demand for child care. The number of births steadily increased from 1998 to an all-time high in 2007. Since 2007, the number of births has steadily declined at an annualized rate of 2. %. The greatest contraction occurred during 2010 when the number of births fell 3. 2%. However, in 2011 the rate of decline slowed relative to previous years, with only a 1. 0% fall, according to the latest data from the Centers for Disease Control and Prevention and the National Center for Health Statistics. However, there are other demographic trends that may have the opposite effect on demand. Birth rates for women aged older than 25 years have tended to increase, while birth rates for younger women have declined significantly, particularly for teenage WWW. IBISWORLD. COM
DayCareintheUS October 2012 14 Products&Markets Demand Determinants continued females. This trend shows that women are having children at an older age when they are more likely to have an established career. As such, there will be less time available to tend to children, increasing industry demand. Government assistance Demand can also be affected by government subsidies (fee relief for low-income families); the availability of tax credits for child care (for both families and employers who provide care); and the level of subsidies for child care services by employers.
Governments and employers have an interest in promoting and subsidizing child care to increase the pool of skilled labor and to increase family incomes. By making investments in work-site child care, employers create a partnership with employees that are parents. MajorMarkets Major market segmentation (2012) Employers 15% Parents with incomes up to $25,000 28. 2% Parents with incomes greater than $25,000 56. 8% Total $46. 8bn Employers and parents make up the major markets for this industry. Industry players market directly to families or to employers.
There are some players that cater to both market segments, although this does not constitute the typical firm in this industry. Households make up the largest market segment. Parents ultimately decide where to take their children for day care services. This market segment can be further analyzed by income. Customers whose yearly household income is $25,000 or less make up 28. 2% of the potential household market. These households typically use government assistance to access child day care services. The federal SOURCE: WWW. IBISWORLD. COM government provides grants to states through the Child Care and Development Block grant.
States use these funds to subsidize the monthly cost of child care for low-income families. About 1. 7 million children receive assistance according to Child Care Aware of America. The largest client segment includes households with incomes exceeding $25,000. Some households in this category use government assistance to access day care services, but the majority pays out of pocket. In general, this segment has declined over the past five years, as parents who were out of work took care of their children themselves or had a relative help out. WWW. IBISWORLD. COM DayCareintheUS October 2012 5 Products&Markets MajorMarkets continued Employer-sponsored day care services make up the rest of the major markets. Employers in this segment provide child day care services as part of the employee benefits package. The employer contracts with a local day care center or facility and pays for the service on behalf of the employee. This segment has increased over the past five years as employers are increasingly providing this benefit for new employees. Employers are using this strategy to attract employees that are interested in staying with the same company for an extended period of time.
InternationalTrade Being a service-based industry, there is no international trade within the industry. Child day care services are only provided to parents of children and employers that reside within the United States. WWW. IBISWORLD. COM DayCareintheUS October 2012 16 Products&Markets BusinessLocations2012 West AK 0. 2 New England Great Lakes MidAtlantic MI 2. 9 ME 0. 8 WA 3. 0 OR 1. 2 Rocky Mountains ID 0. 6 0. 5 MT ND 0. 3 MN SD 0. 4 Plains IA 1. 2 1. 8 1 2 3 NY 6. 5 5 4 6 7 8 WI 2. 6 PA 4. 5 WY 0. 3 West NV 0. 4 NE 0. 8 IL 3. 5 IN 1. OH 3. 4 9 UT 0. 6 CO 1. 5 KS 0. 8 MO 2. 5 KY 1. 5 WV VA 2. 6 0. 5 NC 3. 6 CA 10. 4 OK AZ 1. 3 1. 5 AR 1. 1 Southeast 2. 0 TN SC 1. 3 NM 0. 5 Southwest TX 7. 2 MS 1. 1 AL 1. 4 GA 3. 2 LA 1. 6 FL 5. 4 West HI 0. 3 AdditionalStates(as marked on map) 1 VT 0. 4 1. 4 Establishments(%) Lessthan3% 3%tolessthan10% 10%tolessthan20% 20%ormore SOURCE: WWW. IBISWORLD. COM 2 NH 0. 7 3 MA 2. 7 4 RI 0. 4 5 CT 6 NJ 3. 3 7 DE 0. 4 8 MD 1. 8 9 DC 0. 3 WWW. IBISWORLD. COM DayCareintheUS October 2012 17 Products&Markets BusinessLocations
The dispersion of industry operators largely reflects variations in the geographic distribution of children. Geographic distribution is also influenced by the cost and supply of child care; labor, income and housing affordability patterns; and child care subsidy policies. In addition, varying state and local regulations and licensing requirements affect employment in this industry. Government agencies generally review, among other things, the ratio of staff-to-enrolled children. In addition, the provision of family day care, which is provided in a residence other than the child’s home, varies from state to state.
Overall, however, the spread of establishments in the United States closely follows the national share of population. The West exhibits the greatest negative discrepancy between establishments and population, while the West has 17. 0% of the national population it has just 15. 5% of the nation’s day care centers. This is partly because the average family in the West region is among the smallest in the United States, at about one child per couple, according to the US Census Bureau. This explains why there is lower demand for services in this region. With 15. 6% of the US population, the Mid-Atlantic region contains 16. % of industry establishments, which is a negligible difference. However, these establishments are among the largest and highest earning in the United States. Additionally, staff in this region also earns the highest average wages. New York is the most notable state in the region, with a large number of privatized firms who are willing to spend money to Establishments vs. population 30 20 % 10 0 Rocky Mountains Great Lakes Mid-Atlantic New England Southeast Southwest Plains West Establishments Population SOURCE: WWW. IBISWORLD. COM provide employees with child day care centers.
New England has one of the highest discrepancies between population and establishments, with 6. 4% of industry establishments and only 4. 7% of US population. Both regions have larger families, and register lower unemployment levels. A higher rate of working mothers requires greater levels of professional supervision of children. The Southeast has more than a quarter of all establishments at 25. 3%, according to the latest data from the US Census Bureau. This is primarily due the larger family size in this region (two to three children per couple) and the prevalence of smaller industry establishments in the region.
The high level of demand for services has most likely encouraged more part-time employees to enter the industry. WWW. IBISWORLD. COM DayCareintheUS October 2012 18 CompetitiveLandscape MarketShare Concentration Level Concentration in The Day Care industry has a low level of concentration; the four largest firms in the industry account for less than 5. 0% of industry revenue in 2012. The industry is largely characterized by nonemployer firms, which make up an estimated 92. 4% of operators according to the latest data from the US Census Bureau.
Many people supplement their income by babysitting, or they partake in this activity when they are between jobs. However, new firms may arise out of long-standing relationships with many parents. Among the large firms, increasing consolidation by major players in the form of mergers and acquisitions has led MarketShareConcentration | KeySuccessFactors | CostStructureBenchmarks BasisofCompetition | BarrierstoEntry | IndustryGlobalization this industry is Low to a gradual shift toward large establishments.
Stark revenue growth before the recession prompted many players to acquire rivals in their attempts to grow quickly. This acquisition trend has temporarily slowed as a result of the slow economic recovery. However, companies such as Children’s Learning Adventure are expected to expand their national presence quickly over the next five years. Over the next seven years, the company plans to open at least 200 more locations nationwide. Nevertheless, given the industry’s low barriers to entry, the industry is likely to remain highly fragmented. KeySuccessFactors I BISWorld identifies 250 Key Success Factors for a business.
The most important for this industry are: Ability to take advantage of government subsidies and other grants Federal and state governments provide various subsidies, including fee relief for low-income families. These subsidies promote demand for industry players. Ability to vary services to suit different needs Industry operators that have flexible hours and are able to cater to the varied needs of working parents will be more appealing. Recommendation/accreditation from authoritative source Accreditation promotes the center to parents and potential employees.
It can also assist in identifying and correcting any areas that could compromise care. Ability to alter mix of inputs in line with cost Having flexible staffing arrangements will minimize the risks associated with any volatility in enrollments or revenue. Optimum capacity utilization It is important for day care centers to maintain high occupancy rates. Must comply with government regulations Compliance with government regulations is essential to maintaining a center’s license. CostStructure Benchmarks The Day Care industry is composed of large corporate day care centers and sole proprietors.
While the cost structure among individual firms may vary, this section details the average costs and profit margins for companies in the industry. Profit Profit margins for industry players, measured by earnings before interest and taxes, are estimated at 6. 0% of industry revenue in 2012. The industry has historically managed to remain profitable; however, most child day care WWW. IBISWORLD. COM DayCareintheUS October 2012 19 CompetitiveLandscape CostStructure Benchmarks continued services operate at a significant loss at the beginning of their operating period.
According to Bright Horizons, new child care centers not sponsored by an employer and operating on leased space typically operate at a loss until utilization levels reach 65. 0%. This typically occurs within 18 to 30 months of operation. Another reason why the industry experiences low levels of profitability is the numerous number of nonemploying firms in the industry. Nonemployers are not able to gain as many clients as large operators and therefore will not benefit from the economies of scale that larger operators experience. Wages Labor makes up the largest cost for a company at 47. % of revenue; the level indicates that the industry is labor intensive. Employees are required for administrative purposes, childcare and Sectorvs. IndustryCosts AverageCostsof allIndustriesin sector(2012) 100 education. For larger agencies, effective employment of part-time workers can lead to efficient management of labor expenses. The ratio of employees to children is often a firm’s greatest selling point and is legally mandated by state regulations. Therefore, large agencies generally hire more staff to keep the staffto-child ratio high.
This segment has stayed stable over the past five years because companies use the staff-to-child ratio as a competitive marketing strength. Rent and utilities Rent and utility costs typically average 16. 2% of revenue for industry operators, of which 15. 0% is allocated towards rental payments. However, this figure varies depending on the industry operator, rental costs can average as high as 25. 0% of revenue for larger day care centers. On average, day care centers are required to have 35 square IndustryCosts (2012) 8. 8 6. 0 80 Percentage of revenue 44. 0 60 47. 9 Profit ¦Wages ¦Purchases ¦Depreciation ¦Marketing ¦Rent&Utilities ¦Other 40 18. 4 2. 4 3. 8 5. 8 16. 6 20 10. 5 1. 1 2. 0 16. 2 16. 3 SOURCE: WWW. IBISWORLD. COM 0 WWW. IBISWORLD. COM DayCareintheUS October 2012 20 CompetitiveLandscape CostStructure Benchmarks continued feet of usable space per child, though regulations vary depending on the state. Increasingly, larger operators are competing on the basis of square footage and are changing their location prototype to high profile locations with locations averaging between 18,000 and 30,000 square footage.
Purchases Purchases are a significant cost for the industry, representing about 10. 5% of revenue. Purchases are anything that is bought on a daily basis to keep the day care center running. These expenses generally include the cost of food, beverages and other supplies. This cost has remained relatively constant over the past five years. Other Other expenses include depreciation, legal, insurance, administrative, marketing, 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 has increased the risk for insurers and therefore, increased insurance premiums. BasisofCompetition Level&Trend Competition in this industry is High and the trend is Steady Industry operators differentiate themselves based on superior qualifications of staff, educational programs, staff-to-child ratios, the level and quality of facilities and aesthetic surroundings. Accreditation by the National Association for the Education of Young Children can also raise the perception of quality of the day care center (the criteria for accreditation is generally more stringent than state regulatory requirements).
Price of service Price of service is one of the main competitive advantages an industry player can boast. Broadly, parents can choose to place their children in for-profit or nonprofit day care centers. Many religious and other nonprofit child care centers have no or low rental costs and may receive donations or other funding to cover operating expenses. In addition, they may use volunteers for staffing. These lower costs may be passed on as lower tuition fees to the clients. According to the latest information provided by the US Census Bureau, an estimated 28. % of day cares with employees are non-profit. Moreover, fees for home-based care are normally higher than fees for center-based care. The average cost for center-based infant care exceeded $10,000 per year for 19 states and ranged from $4,600 in Mississippi to nearly $15,000 in Massachusetts, according to 2012 information from Child Care Aware of America. By contrast, a live-in nanny is the most expensive option with an average cost of $27,664 per year, according to the International Nanny Association. For-profit day care centers compete on price by using economies of scale.
The standardization of service and numerous locations can enable a large firm to lower prices for clients. However, parents may want a more personalized approach. As a result, firms must balance prices with the quality of the child day care service. Brands and marketing Major center-based operators have created their own brand names and spend 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 WWW. IBISWORLD. COM
DayCareintheUS October 2012 21 CompetitiveLandscape BasisofCompetition continued child care arrangements that will adapt to their own schedules, particularly as working shifts away from traditional business hours. Marketing to this segment will create competitive advantages for firms in this industry. Location of service Location is also an important point of difference between day care providers. Parents want to be able to drop their children off at a day care center and pick them up after work. For non-employing firms and family day care centers, parents want the location to be relatively close.
However, this factor is not as important in determining the basis for competition as quality. Most families that seek high-quality day care will take their children to organizations that will be able to provide them with the best services. Reputation of the firm 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.
BarrierstoEntry Level&Trend Barriers to Entry in this industry are Medium and Steady Barriers to entry differ based on the type of firm present in the industry. Nonemployers face fewer barriers to entry given that there are no significant costs or government regulations that would deter a would-be caretaker. For larger firms, there are medium barriers to entry for this industry. Although there is not a significant investment in capital involved in building a new establishment, hiring enough people to care for children will be a major expense.
Additionally, the industry is heavily regulated, and as a result, a new enterprise must obtain permits and comply with other rules in order to operate. One of the large barriers for new entrants is the level of regulation in this industry. Newly established firms, whether a family day care or a child day care center, must be approved by the state. A license ensures that the day care center is safe for children to occupy. Additionally, it ensures that the employees who are working in the day care center pass a strict background check. Labor is a potential barrier to entry.
Day care centers are mandated to maintain a specific child-to-staff ratio, BarrierstoEntrychecklist Competition Concentration Life Cycle Stage Capital Intensity Technology Change Regulation & Policy Industry Assistance Level High Low Mature Low Low Heavy High SOURCE: WWW. IBISWORLD. COM which varies depending on the state. On average, for children 6 months and younger there must be one staff member per 4 children. For children over 4 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 children, it is important 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 firms from entering the industry. For family day care and babysitting services, there may be fewer start-up costs involved because most are sole WWW. IBISWORLD. COM DayCareintheUS October 2012 22 CompetitiveLandscape BarrierstoEntry continued proprietors. The only significant costs involved for these establishments are the costs of obtaining new customers.
Day care centers can either purchase a building or lease a building to conduct their business. The cost of purchasing or building a center for accommodation, together with the cost of facilities and equipment can be prohibitive to a new entrant. In order to provide services to parents’ satisfaction, substantial costs may be incurred, as modern facilities are considered essential. Day care centers can mitigate these costs if they are able to lease a space. For babysitting services, this would not be a significant problem because sitters typically go to a client’s home. Industry Globalization
Level&Trend Globalization in this industry is Low and the trend is Increasing There is a low level of globalization in this industry because operators are almost entirely US-controlled and predominantly provide services to US residents. There have been some domestic companies that conduct business abroad and foreign companies that have established businesses domestically. For example, Bright Horizons Family Solutions, a player in this industry, began operating in Europe with the acquisition of companies in the United Kingdom. WWW. IBISWORLD. COM DayCareintheUS October 2012 23
MajorCompanies OtherCompanies TherearenoMajorPlayersinthisindustry | OtherCompanies The Day Care industry is highly fragmented, with 92. 4% of the industry’s establishments belonging to nonemployers. Nonemploying establishments are most often nannies or babysitters, with the employee coming to the client’s home or business to take care of the children. Most often, establishments are location-specific and the owners of each establishment rarely have more than one location. None of the major companies in the industry accounts for more than 5. 0% of total industry revenue.
Bright Horizons Family Solutions acquired Lipton Corporate Child Care Centers in 2008; the company previously operated nine centers that served more than 125 clients. The main industries of Bright Horizons’ client base are office-park consortiums (30. 0% of all centers), financial services (15. 0%), government and education (15. 0%), healthcare (10. 0%) and industrial or manufacturing (10. 0%). Bright Horizons has enjoyed double-digit growth in the past five years, and it is estimated that the company will generate about $920. 0 million in revenue in 2012. Estimated market share: 2. % Acquired by Bain Capital in 2008 for $1. 3 billion, Bright Horizons Family Solutions is one of the largest employersponsored child care and early education companies. The company provides child care for more than 850 corporate clients throughout the world. Additionally, more than 80. 0% of its centers are accredited by the National Association for the Education of Young Children, which generally uses more stringent standards than those required by states. The company is headquartered in Watertown, MA. Bright Horizons’ business strategy is broadly classified in two forms.
The management cost-plus model, where the company manages worksite child care and early education centers under an agreement with a corporate sponsor, is one of the company’s largest growth segments. The profit-and-loss, or sponsor model, where the company operates a center on or near the premises of a sponsor, gives priority enrollment to the employees or affiliates of the sponsor company. Bright Horizon’s growth strategies are focused on expanding relationships with existing employer-sponsors and pursuing strategic acquisitions. The company Learning Care Group Estimated market share: 1. % Learning Care Group is the secondlargest for-profit provider of child care in the United States. The company operates about 950 schools in 36 states through its five brands: Childtime Learning Centers, Tutor Time Child Care, the Children’s Courtyard, Montessori Unlimited and La Petite Academy. Learning Care Group was previously owned by ABC Centers, an Australiabased company that dominated nearly 30. 0% of its local child care market and undertook an aggressive expansion into the United States. The primary strategy for the company was to purchase existing child care centers by borrowing heavily.
ABC rapidly became one of the dominant players in the industry through this strategy and acquired Learning Care Group in 2005. The company began to expand in the United States in 2005 and had US revenue of about $400. 0 million in 2007 and global revenue of $1. 6 billion. By 2009, the company had more than 1,000 centers in the United States. As a result of the global credit crunch, the company was highly leveraged from its efforts to buy a large number of day care centers in America. In 2008, Morgan Stanley WWW. IBISWORLD. COM DayCareintheUS October 2012 24 MajorCompanies OtherCompanies continued
Private Equity acquired a 60. 0% stake in Learning Care Group. Learning Care Group is estimated to generate about $775. 0 million in revenue, giving the company a 1. 7% market share. costs ranging from $561,575 to $3. 9 million for franchise operators. Children’s Learning Adventure Primrose Schools Estimated market share: 0. 8% Primrose first opened its doors in 1982 establishing its first school in Marietta, GA. The company began franchising seven years later. Since then, Primrose Schools has grown to national franchise extending over 17 states. Currently, Primrose has 248 locations, of which one is company-owned.
Primrose offers both childcare and preschool programs for children from six weeks to five years old. The company also offers after-schools programs for older children. Primrose differentiates itself by emphasizing educational curriculum; all of its schools receive educational accreditation. The company has continued expanding its presence, growing from 187 locations in 2008. Primrose plans to continue expanding its nationwide presence by growing to 312 schools by 2014. Primrose locates its schools in large, metropolitan areas in order to maximize the number of families within its geographic scope.
Primrose is estimated to have a market share of 0. 8% based on aggregated revenue of $396. 8 million from its 248 locations. On average, Primrose School franchise owners bring in school gross revenue of over $1. 6 million. Franchise fees total $70,000 with total investment Estimated market share: Less than 0. 1% The first Children’s Learning Adventure opened in 2008 in Phoenix, AZ. The day care center currently has 10 locations throughout Arizona, Nevada, Oklahoma and Texas. Children’s Learning Adventure provides infant, preschool and afterschool programs.
The centers provide a broad range of activities for children including a multimedia room, science center, library, computer lab and basketball courts. Unlike the majority of its competitors, the company typically locates its centers in retail-oriented areas with high traffic count. Its centers are also predominantly located in areas where the majority of households have over $80,000 in annual income. Day care centers for Children’s Learning Adventure range from 16,000 to 32,000 square feet and typically average 25,000, which is larger than the industry average.
The company has been aggressively expanding, and is expected to increasingly concentrate on markets in Florida and Southern California. Furthermore, the company is in the process of opening locations in Texas, Arizona, Colorado, Nevada and Oklahoma, with a goal of adding 200 more locations nationwide over the next seven years. Children’s Learning Adventure is estimated to have a market share of 0. 04% with estimated revenue of $20 million in 2012. WWW. IBISWORLD. COM DayCareintheUS October 2012 25 OperatingConditions CapitalIntensity Level The level of capital This industry has a low level of capital intensity.
In 2012, for every $1. 00 spent on labor, industry operators typically invested $0. 02 in capital. Child day care involves a high level of personal care and interaction; consequently, wages constitute the largest expense for industry operators. On the other hand, wage rates are relatively low in this industry with the average worker earning $13,353 per year. Still, there are significant costs involved in finding people that are suitable for child care. The companies do so to insure that the there are no liabilities created from poor child supervision.
Child day care requires little investment in equipment. The largest capital cost incurred by industry CapitalIntensity | Technology&Systems | RevenueVolatility Regulation&Policy | IndustryAssistance Capital units per labor unit 0. 5 0. 4 0. 3 0. 2 0. 1 0. 0 Economy Healthcare and Social Assistance Day Care Capital intensity intensity is Low Dotted line shows a high level of capital intensity SOURCE: WWW. IBISWORLD. COM operators is the cost of maintaining the business’ central location. However, firms in this industry may also lease ToolsoftheTrade:GrowthStrategiesforSuccess
NewAgeEconomy Recreation,PersonalServices, HealthandEducation. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. InvestmentEconomy Information,Communications, Mining,FinanceandReal Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan. CapitalIntensive LaborIntensive DayCare FamilyCounseling&Crisis InterventionServices PublicSchools PrivateSchools Toy,Doll&GameManufacturing OldEconomy
TraditionalServiceEconomy Computer Stores WholesaleandRetail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth. AgricultureandManufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products. SOURCE: WWW. IBISWORLD. COM ChangeinShareoftheEconomy WWW. IBISWORLD. COM DayCareintheUS October 2012 26 OperatingConditions
CapitalIntensity continued their property or travel to the client’s home, both of which mitigate this capital expense. Technology &Systems Level The level of Technology Change is Low Many home-based child care providers use little, if any, technology. Some day care centers are introducing computerbased educational tools 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. Furthermore, child care centers are also increasingly allowing parents to become ore 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. Additionally, several large day care operators have instituted virtual private networks and company-wide management information systems to decrease administration costs. RevenueVolatility Level The level of Volatility is Low There is a low degree of revenue volatility for the Day Care industry. From 2007 to 2012, year-on-year revenue changes are expected to average 1. 5%. The emand for services in this 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 is a necessary expense, a factor which minimizes revenue volatility for the industry. Government funding and tax 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 firm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly. easures (which reduce price and bolster demand) also tend to reduce volatility with more parents interested in placing their children in day care centers. Female labor participation (which affects demand) is not significantly volatile, but is gradually and consistently increasing. As the participation rate grows, demand for child care is set to increase commensurately. A marked shift in the female participation rate will likely have a significant long-term effect VolatilityvsGrowth 1000 Hazardous Rollercoaster Revenuevolatility*(%) 100 10 1 0. 1 DayCare Stagnant –30 –10 10 30 50 BlueChip 70
Fiveyearannualizedrevenuegrowth(%) * Axis is in logarithmic scale SOURCE: WWW. IBISWORLD. COM WWW. IBISWORLD. COM DayCareintheUS October 2012 27 OperatingConditions RevenueVolatility continued on industry revenue. Seasonality is also a critical factor in industry volatility, particularly within a given year. For example, enrollment tends to be higher in the first six months of the year, and it usually decreases during holiday periods. Nevertheless, the amount of revenue changes from year to year tends to stay consistent. One factor that does increase revenue volatility rates is the unemployment rate.
When the unemployment rate is high, families have less disposable income to spend on child care services and are more likely to rely on family members. Furthermore, with heightened unemployment, a greater number of parents are at home during the day, which further decreases the demand for child care services. Regulation&Policy Level&Trend The level of Regulation is Heavy and the trend is Increasing Child care 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, he 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 care centers affiliated with religious institutions are exempt from child-care 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-care center.
Home-based family day care providers are subject to state and local regulations and licensing requirements, which usually differ from those applied to child-care centers. These requirements also differ significantly from state to state. 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-care providers. Also, the National Association of Family Child Care (NAFCC) 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. WWW. IBISWORLD. COM DayCareintheUS October 2012 28 OperatingConditions IndustryAssistance