Preschool Market
- 1. PRESCHOOL MARKETPreschools – a snapshot
- 2. Playschools, more popularly known as preschools, traditionally cater to the 1.5-6 years age group.
- 3. Increasing awareness among parents about the benefits of a quality preschool education has been driving penetration levels and price discovery in the segment.Market to expand 3x to $1bn by 2012EIn 2008 pre-schol Market Total population 1.15bnHHs with income>Rs200,000(8%) 91m2-4 yrs (6%) 5.5m2-4 yrs enrolled (12%) 661,246Average spend (Rs pa) 8,000Market size (Rs m) 11900Market size ($ m) 300Source: IDFC-SSKI ResearchPRESCHOOL MARKET: MULTIFOLD GROWTH
- 4. Preschools – a snapshot
- 5. Major players – KidZee the largestLargest player at 34% oforganized market and 7% of total marketOrganized preschool market in India
- 6. Organized preschool market in India
- 7. Preschools have a limited target area – maximum of 2km radiusAny preschool, however strong the brand, ideally has a customer pull within a 2km radius (parents prefer to send toddlers within a limited radius for safety/ comfort reasons).The segment caters only to customers who can afford annual fees of Rs20,000-45,000, which further limits the scope of the market.Tail wags the dog – rental costs!Preschools are currently being run primarily on the franchisee model, which has so far evolved largely on the back of two factors- 1.low cost of setting up a franchisee, 2.housewife occupation that typically does not consider the opportunity cost of lease rentals (schools are being set up on existing premises which otherwise also do not generate returns).Franchisee Model
- 8. Considering the economics of the preschool business, lease rent forms the largest expense for running a preschool and can eat into profitability of the business.Soaring rental costs – mounting pressure on cost structures
- 9. The unorganized neighborWith awareness levels still low, the unorganized market provides ‘the same’ care butat a much lower price. With more than 80% of the target market still with the‘trustworthy’ neighbor, it may take some time before organized players are able to establish the importance of a quality preschool education.A non-regulated market – low entry barriersThe preschool market is non-regulated and hence entails no regulatory barriers for new entrants. Given the relatively low investment required, competition is intensifying in this segment.unorganized neighbor Market
- 10. franchisee has to pay a brand/franchisee fee (Rs60,000-5,00,000pa)some part of the revenues to the franchisor (~20% of total) in lieu of using the latter’s brand name and for the handholding required to run a preschool.Except for a few preschool chains (Kangaroo Kids going in for JVs with developers and Tree House with largely owned schools),Assumptions: We have assumed a model premise of 1200 sq. ft with rent at Rs70 per sq.ft.Only 60% of the total area can be used for classrooms and a minimum of 10-15 sq.ft per student is considered optimal.The one-time capex broadly comprises furniture and fittings cost and excludes brand fee (we have assumed an average franchisee fee of Rs2,00,000, which is renewable every three years and amortized over a period of three years).We have assumed three classes and two batches a day, which translates into a maximum capacity of 20 students per class (thereby a maximum of 120 students per preschool) and an annual fee of Rs25,000.Economics of a preschool
- 11. Economics of a preschool
- 12. Revenue modelUsing these assumptions, the model breaks even at the operational level at a fairlyhigh occupancy level of ~70%.
- 13. The limited catchment area for a preschool implies limited scalability per branchA large section of the franchisees being run on owned premisesThe model ignores lease rentals – a major cost-headThe business for a franchisee runs the risk of becoming economically unviable in a scenario of high rentals . (it has been observed that while franchisees keep mushrooming, there has also been a considerable churn in existing franchisors under high rental costs).To improve economic viability of the model, some franchisors are seen to be levering The existing infrastructure beyond the 1.5-3 year age group for programmes' like mother-toddlers(children aged between 6-12 months) and activities like dance, music, pottery classes, etc (children aged three years and above)Levering infrastructure beyond preschools to improve economic viability