Doing Business With Babies

There was a time when preschools were those safe havens where mothers could drop off their kids and earn themselves a little me-time.

Cut to the 2000’s. Preschools double up as daycares and have started playing an integral role in a child’s upbringing, even sharing child-rearing responsibilities with parents. With the increase in the number of working parents, even toilet training and food habits are formed in playschool where children learn by observing other kids. “My child was potty trained at playschool. In fact, she eats proper meals there and refuses to touch the food at home,” says the mother of a three-year-old.

In the process, preschools are booming businesses like never before. According to Ajay Srinivasan, director of analytics company CRISIL, the preschool industry has been growing at a five-year CAGR of 20 per cent currently standing at Rs 99 billion. In the future, the industry will reach Rs 220 billion by 2020, growing at a five-year CAGR of 17 per cent.

Child’s Play
The preschool industry has been largely dominated by what Swati Popat, president of Mumbai-based Podar Education Network (which runs preschool chain Jumbo Kids) call ‘aunty next door’ preschools. “A lady would have vacant real-estate — and would start a preschool.” Their job was to keep the kids engaged for some hours and teach them the alphabet or numbers. In India, the ability to memorise is equated with intelligence and Indian parents are often seen showing off their kids’ ability to sing nursery rhymes or recite animals’ names in front of family or friends even today.

“However, now it is better recognised that education is more than about memorising,” says Lina Ashar, founder of Mumbai-based Kangaroo Kids Preschool and Billabong High International School. Earlier, preschools were seen as training grounds for kids to help them clear examination for high schools, leading to cramming at the cost of developing their logic, creativity or critical faculties. “It is not right for a child’s development especially before the age of five years,” she says. It was this gap that Ashar identified in the preschool segment that led her to start Kangaroo Kids in Mumbai in 1993. “It was the first branded preschool chain in India,” she claims.

Initially, just a few parents enrolled their children because of Ashar’s method of encouraging kids to learn through play. “I started with 10 kids, whose parents were mostly well travelled or had exposure to global education trends. Gradually, as they saw the difference in kids’ confidence and development, the reputation of the school grew purely by word of mouth and by end of the year I had 100 students in my preschool.”

Entrepreneurs saw the need for a change in learning style as a business opportunity and began opening preschools that emphasised on play as a vehicle for learning.
Children while learning through play learn to make sense of the world around them at their own pace by engaging with people, objects and representations, thereby developing social and cognitive skills and becoming more self-confident in the process.

Working Models
According to research by CRISIL, the organised market share of branded preschools is expected to escalate to 29 per cent from the current 21 per cent in the next five years.

In the organised sector, most of the preschool brands have a combination of pre-owned schools and franchisee branches. Preschools vary in the extent to which they focus on increasing franchisees. One chain that relies on pre-owned schools is Mumbai-based Treehouse Education and Accessories founded by Rajesh Bhatia. “I couldn’t get ‘first-come-first-served’ admission to a good preschool for my two-year-old son. So, I started Treehouse in 2003 to provide early education to other kids where they would teach the way I wanted my son to be taught.”

Bhatia has been growing his company through the self-operated model even if it is capital-intensive and slow to grow. In the first three years, Bhatia started just four more branches. He followed a rental model where property is taken on lease for three to five years and fees are calibrated according to the rent of the school premises. “Rent is the major chunk of the setting up cost of preschool and it takes two to three years to reach operational break even,” Bhatia says.

Treehouse started growing aggressively when it received its first private equity funding of $7 million from Matrix Partners India in 2008. Now, it has 720 preschools across India of which 85 per cent are company-owned. “Company-owned schools allow for a high degree of control on quality of teachers, curriculum, content delivery, hand hygiene which is not possible when you outsource it to others,” Bhatia says.

“It is a known fact that there is a dilution of quality in franchises as it is very difficult to keep an eye on day-to-day operation of franchised branches,” he adds.

“The ‘McDonaldisation’ of preschools doesn’t work. A brand is not just a name but a promise and how that quality is being delivered also matters a lot,” says Saurabh Poddar, co-founder of Mumbai-based preschool chain Eager Beavers. He says, he slowed the growth of his preschool chain to three or four per year because he doesn’t want to take the franchisee route. However, there are players that believe these drawbacks can be averted with the right approach.

Vivek Bhanot, business head of education company Zee Learn that runs the preschool brand Kidzee seems to have nailed the franchisee model with its 1,500 branches. Bhanot says that what works for them is the handholding they provide to the franchisee outlets. “We have a separate team for each stage of the lifecycle of setting up a new branch — to help the business partner find the new location, set up the centre, and get advice after the centre is established,” Bhanot says.

Swati Popat, president of preschool chain Jumbo Kids that has 210 franchisee branches, has a team of mentors, each of whom handles 15 franchised centres to ensure they follow the guidelines.

For Lina Ashar, founder of Kangaroo Kids which has 80 of its 85 branches as franchises, the priority is the vision of the founders. She says, “It is of the utmost importance to find like-minded owners whose focus is on maintaining the right quality rather than go for numbers.

“The main benefit of a franchise model is that it helps increase the footprint of the company, without taking money from your own pocket,” says Hiren Shah, CFO, Kangaroo Kids. Typically, companies get a 12 to 15 per cent royalty fee from the franchisee school. “However, it affects the profit margin for the owner of the franchisee school who gives away a part of his profits to the parent company.” He adds, “even if they benefit from the brand value of the company.”

“A standalone franchise school doesn’t even generate enough revenue to be the main income of the house,” says Smita Bakshi, COO at Delhi-based preschool chain Rise N Shine. “It can be the supplementary income. The high rent, salaries, and cost of facilities don’t justify the preschool for 100 to 150 kids.”

In contrast, a company-owned preschool by Treehouse generates 60 per cent EBIDA margin and that’s a good number, says Rishi Navani, MD of Matrix Partners India.

Regulate For Quality
Preschools are a ‘business’ as the government doesn’t include preschools under the Right to Education Act. The RTE Act makes education a fundamental right of every child between the ages of 6 and 14 years but doesn’t recognise the need for education before that.

“The previous government considered an early childhood policy, a curriculum draft framework and one for quality standards. However it is only a vision document and has not been made a law yet,” says Jumbo Kids’ Popat, who is also president of an NGO Early Childhood Association, a national body for early childhood change.
In an open letter to the Prime Minister, Popat, in 2014, recommends the government have a separate ministry for early childhood care and education (ECCE) so it gets the attention it deserves. She states the urgent need for an accreditation body that could de-recognise and close centres if they don’t maintain quality. Currently, due to lack of regulation, preschools charge whatever fees they deem fit without any justification.

However some educationists feel pessimistic over the government’s involvement. “Regulation is required but once the regulation sets in, bureaucracy will get involved and it will make early education expensive. This would affect especially standalone preschools most of which are small entities as their cost of operation might go up,” says Rise N Shine’s Smita Bakshi.

Lina Ashar echoes a similar sentiment. “Wherever government has interfered in education, we have only suffered because of it. They never consider the ground reality. Why not let free forces determine what’s working or what’s not.” Due to lack of guidelines on curriculum, many preschools have started doing their own in-house teacher training. Treehouse has an entire vertical which has a three-month training programme priced at Rs 18,000. Kidzee has a 60-hour teacher training programme followed by a monthly one-day refresher course.

These preschools have been working around the gaps to provide education. For they understand the preschool business is here to stay, childcare can’t very well be taken online, for now at least.

sonal@businessworld.in; @sonalkhetarpal7

(This story was published in BW | Businessworld Issue Dated 14-12-2015)