Canada's daycare unlikely to be disrupted as obstacles to shakeups persist
Published Thursday, May 31, 2018 9:40AM EDT
Children put up their hands for ice cream at a daycare centre in Montreal on Friday, Aug. 18, 2006. (Ian Barrett / THE CANADIAN PRESS)
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 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, a 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.
Despite such opposition, private for-profit operations seem to be gaining market share.
Friendly's research found a 10 per cent drop in the number of spaces provided by for-profit businesses from 1992 to 2004, when they made up just 20 per cent of the market, but a resurgence to about 30 per cent in 2016, the most recent year for which data is available.
Still, the industry remains heavily fragmented, divided among some 38,300 providers, with few running more than one location, according to IbisWorld's report. No company holds more than one per cent of market share.
However, the report also suggests Canada's handful of bigger providers, such as BrightPath Early Learning Inc. and Kids & Company, will continue to expand as they take advantage of higher demand thanks to more women joining the workforce, as well as more government assistance making out-of-home care more affordable for more families.
BrightPath operates more than 75 centres under several banners. It formed in 2010 under the name Edleun and was a publicly traded company until Busy Bees holdings Ltd., a U.K.-based childcare provider, acquired it in 2017. Kids & Company runs nearly 100 centres between six provinces and lists five more locations opening soon on its website. Both companies declined interview requests to speak about future expansion plans or how private companies could disrupt the daycare market.
As demand for affordable spaces continues to outstrip supply, some parents turn to tailor-made solutions, including nannies, relatives or staying at home themselves.
But the technology that has been such a disruptive force in other industries is likely years away from true daycare disruption.
There have even been experiments with automation.
Japanese researchers made headlines in 2016 after creating a childcare robot. They claim four robots and one human can care for more than 60 children together. Chinese robot maker AvatarMind is already shipping its iPal robot, touted as "a companion, educator and safety monitor for children," in its home country and plans to soon release the product in the U.S.
However, a 2017 report on sectors poised to be taken over by robots from the McKinsey Global Institute found that educational services showed the lowest potential for automation.
Given Canada's level of opposition to private, for-profit centres, it appears unlikely that parents would be comfortable with intervention from automation any time soon.