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EDUCATION CHILDREN’S SERVICES Franchise Sector Continues to Grow Demand for early education and care franchises expected to increase for years to come. BY CHRIS GOETHE, CFE In the past several years, the franchise industry has seen exponential growth over other economic sectors. Even through the recession, the industry was able to continue growing largely due to the franchise model, which naturally lends itself to resource sharing, more buying power and greater market share. The rebound the economy has experienced since 2009 has only strengthened the industry’s growth, with the children’s services, quick-service restaurants and personal-services franchise sectors leading the way. According to a 2015 Franchise Grade report, the children’s services sector, which includes educational services, day care, child sports/fitness training and enrichment/arts programs for children, is one of the fastest growing franchise sectors in the United States. Since 2013, it has been growing at more than three times the average of other franchise sectors. This ranking comes as no surprise to those in this field and is a direct result of a number of stimulants, including President Obama’s 2013 State of the Union speech, which called for “Pre-K for All.” At the time, President Obama called on Congress to expand access to high-quality early education to every child in America. He referenced research showing how building a foundation of skills during the earliest years of a child’s life is critical for future success. Fast-forward to today, political leaders, the business community and, most importantly, parents, have taken notice of the need to nurture our nation’s next generation. The importance of supporting children’s social-emotional, cognitive and creative development early is no longer debated, and is in fact viewed as critical to building a strong and globally competitive future workforce. According to the latest U.S. Census report, there are approximately 25 million preschool-aged children in the United States, 60 percent of whom are within ages three to five years and are enrolled in a preschool program. To better understand how the children’s services franchise sector, specifically educational child care franchises, is growing, we have to look at the development of the industry, market size and demand, and the financial and personal appeal to entrepreneurs. DEVELOPMENT OF THE INDUSTRY Before the 1980s, the day care industry was thought to simply offer play time and day care for children. Services were largely provided by independently-owned, single-site day care centers. In the 80s, however, the perception of child care started to shift. Parents began feeling the gap between early care and education, creating demand for higher quality preschool options that incorporated curriculum. Providers such as Primrose Schools began franchising and offering both the early education and care components that parents were seeking. These private franchise providers, required to meet certain regulations and accreditation guidelines, offered a higher standard for early childhood education for the first time in the industry. Over the years, the industry has steadily grown and as more research has surfaced on the critical role the first five years play in children’s long-term development, the early education franchise sector has flourished. Moreover, the national dialogue on early education has added to the surge in demand and franchise opportunities. MARKET SIZE AND DEMAND Entrepreneur magazine has noted the increased demand for children’s services franchises. In its latest annual Franchise 500 ranking, children’s services was listed as one 62 FRANCHISING WORLD NOVEMBER 2015
communities across the country. For example, Primrose Schools has seen an all-time high enrollment this year, with average full-time occupancy at mature schools open at least three years reaching 85.1 percent (as of June). Growth isn’t expected to slow anytime soon. IBISWorld indicates the child-care industry will continue to grow as disposable income increases for families, allowing parents and guardians to spend more on high-value services such as early education. of the top five fastest growing franchise sectors. The child care industry as a whole is growing as well. As of May, the industry was valued at $45 billion, according to research firm IBISWorld. Historically, Primrose Schools and other early education providers have found greater demand in suburban markets; younger Americans have traditionally moved away from urban areas as they settle down and start families. Over the past few years, however, city growth in the United States has been outpacing that of suburban markets, and now both areas are growing steadily. Urban markets are now positioning themselves as live, work, play communities. According to experts from the Urban Land Institute, many families are making the decision to stay in the city with their children. This “urban migration” isn’t limited to the United States; it is affecting as many as 2.5 billion people around the world. This shift has caused an increase in demand for highquality early education and care in both urban and rural FAST FACTS • According the latest U.S. Census report, there are approximately 25 million preschool-aged children in the U.S. • In Entrepreneur’s latest annual Franchise 500 ranking, children’s services placed among the top five fastest growing franchise sectors. • IBISWorld indicates the $45 billion child care industry will continue to grow as disposable income increases for parents and guardians, allowing families to spend more on high-value services such as early education. • According to Forbes, 88 percent of millennials are seeking work with a greater purpose, and more than 4.5 million people ages 50 to 70 have left their first career for an “encore career” in a business that combines personal and social impact with continued income. • Between 2010 and 2014, 75 percent of all children’s services franchises have achieved positive net growth. FINANCIAL AND PERSONAL REWARDS Increasing demand is not the only factor attracting entrepreneurs to early education. The financial and personal rewards from owning a children’s services franchise are proven and abundant. According to a 2015 Franchise Grade report, 75 percent of all children’s services franchises have achieved positive net growth between 2010 and 2014 and have generated more than $450 million in revenue per year. Additionally, the children’s services sector provides favorable terms compared to other industry sectors, including lower initial terms of agreement, longer renewal terms and a greater number of renewal options. The result is an overall term that is longer than industry averages at 20.1 years. While many franchise sectors provide financial return to the investing franchisees, few also offer broad impact and personal reward. Research shows that many entrepreneurs are now looking for more meaningful franchise opportunities, including opening early education and care schools. According to Forbes magazine, 88 percent of millennials are seeking work with a greater purpose, and more than 4.5 million people ages 50 to 70 have left their first career for an “encore career” in a business that combines personal and social impact with continued income. Moreover, unlike other franchise sectors, children’s services offer franchisees the unique opportunity to build long-lasting relationships with the families they serve while making a greater positive impact on their community and the next generation. There has certainly been a spotlight on the children’s services franchise sector over the past couple of years, but it’s not fading anytime soon. A growing number of entrepreneurs are seeing this franchise opportunity as a means to invest in a more meaningful and personally gratifying business. Early education and care franchises continue to provide an essential service to American families and communities — a service that will continue to be in demand for many years to come. Chris Goethe, CFE, is vice president of franchising for Primrose School Franchising Co. Find him at fransocial.franchise.org. FRANCHISING WORLD NOVEMBER 2015 63
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