Daycare proves resistant to disrupters
Strict rules, low profit margins hamper change
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 a 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 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-tochild 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.
On the other hand, there are also renewed fears of a trade war after the Trump administration imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union, which swiftly retaliated with their own tariffs.
Risks to the outlook, Williams said, are therefore “roughly balanced,” the same words the Fed has used to characterize risks for many months.
Later this month Williams will move to New York to head the Fed bank there, giving him a permanent vote on Fed policy-setting and a deeper role in shaping the Fed’s post-meeting statement.
As rates rise, he said, the Fed needs to use “less forward guidance,” conveying its intentions in fewer words and relying more on numbers, such as those contained in its quarterly forecasts for unemployment, GDP growth, inflation and interest rates
But he did signal he believes the Fed should continue to make use of at least one word for the next little while.
“‘Gradual’ is not in any way stale,” he said.