PRIVATE DAYCARE MAKES BABY GAINS
Market sees little disruption so far due to stringent rules, low margins
Natacha Beim opened her first daycare in 1998 and built it into a franchise business that now boasts 21 locations, with plans to open as many as 10 more centres each year.
The founder of Core Education and Fine Arts is an exception to what seems to be a rule in the economics of Canada’s highly fragmented daycare system.
Despite long-standing shortages, rising fees and political promises of change, there has been little disruption of the largely public market by big conglomerates, startups or even automation.
In other well-established industries — from hotels to taxicabs — private sector intervention has ushered in an era of innovation, accessibility and lower prices. But the daycare landscape, with its strict provincial regulations, high real estate fees and low profit margins, presents problems for private companies looking to scale their operations.
The biggest problem for Beim is finding enough teachers in an industry where the responsibility is high but the average hourly wage is about $14 an hour.
The second issue is government regulations that slow down the opening of a centre and cost providers a lot to comply, she said.
“It can compromise the whole project,” said Beim. It took her two years to open her first location because it was difficult to navigate permitting, she said.
The patchwork of varying provincial and territorial childcare regulations adds another layer of complexity, requiring companies to learn new rules in order to expand into a new province.
Canada’s daycare industry will grow at an annualized 3.1 per cent pace from 2017 to 2022 to 44,707 operators, with mostly small care providers joining the market, IbisWorld estimates.
The research firm’s report also found that wages account for more than 51 per cent of a daycare operator’s costs and 19 per cent of revenue is profit. Home daycares, especially that operate outside of regulations that require certain caregiver-to-child ratios, can squeeze more profits by employing few staff.
However, it would be very difficult for a single company — that cannot fly under the regulation radar — to acquire what would likely be hundreds of one-off businesses to capture a significant share of the overall market, said Mario Ismailanji, an analyst with IBISWorld.
Daycare operators also face another barrier that other industries don’t: parent advocates, politicians and academics who call big business unethical for trying to turn childcare into profits.
“It shouldn’t be a commodity. It’s considered to be a human right,” said Martha Friendly, an early childhood education researcher who founded the Childcare Resource and Research Unit.
She argues that private providers operate in the low margin industry of childcare and trim employee costs to pocket more profits, resulting in higher staff turnover and workers with lower qualifications. Her solution to high fees and wait lists rests with increased government spending, not private disruption.