On the expense side, Scandone enjoys a major advantage from his association with Martino. He runs Carousel from the MAACO headquarters and receives its franchising support services -- probably of higher quality than he could get on the outside -- essentially at cost. This subcontracting also enables him to run a very lean shop; even now, Carousel's payroll includes only three people other than Scandone.
He also plans to hold down expenses by carefully directing the company's growth. Instead of opening centers wherever potential owners show interest, he'll grow the company in geographical clusters of about 10 centers each. That way, he says, he can deliver a high level of support with only one operations person in the field assigned to each cluster.
The first cluster will be in the Philadelphia area, the second in suburban Washington, D.C. Two centers opened in January, and Scandone expects to have 15 operating by the end of this year -- 65 by the end of 1991. Then he expects the pace to quicken even more, with 240 units in operation in 1993.
That's the kind of pace that only Kinder-Care and La Petite Academy have been able to sustain until now. It certainly places into sharper relief the central questions about Scandone's business. Can he maintain a high standard of quality in a franchised operation that is growing quickly? Can he differentiate Carousel from its competition? Will parents be willing to pay an extra $500 or more for his service?
"I'm not the first guy to deliver quality and charge more for it," he says. "If the perceived quality is there, people will pay for it."
* * *
Research assistance provided by Leslie Brokaw.
FINANCIALS
Franchisee Projected Annual Operating Statement (Goddard School for Early Childhood Education)
REVENUE
Tuition: infants (15 @ $6,240/ year) $93,600
Tuition: toddlers (15 @ $5,640/year) 84,600
Tuition: preschoolers (68 @ $4,500/year) 306,000
Tuition: part-time differential
(25% premium over full-time) 42,368
Registration fees 3,430
Total gross revenue $529,998
OPERATING EXPENSES
Franchise royalty (7% gross revenue) $37,100
Taxes and payroll expenses (for director,
5.578 teachers, and 7.971 aides; franchisee/
operator receives no salary) 213,523*
Rent 91,000
Advertising & Yellow Pages listing 22,400
Phone, utilities, & building maintenance 20,400
Insurance & professional fees 9,508
Supplies, snacks, contingencies &
miscellaneous 23,495
TOTAL OPERATING EXPENSES $417,426
GROSS PROFIT
(before taxes and interest expenses) $112,572
*Salaries will vary depending on city of operation
CAROUSEL SYSTEMS (FRANCHISOR)
PROJECTED PROFIT & LOSS
1990 1993
Revenue ($millions) 1.65 11.75
Net Profit ($millions) .17 2.65
# of centers 15 240
EXECUTIVE SUMMARY
THE COMPANY: Carousel Systems Inc., King of Prussia, Pa.; franchisor, Goddard School for Early Childhood Education
CONCEPT: Create a national chain of franchised day-care centers targeting upper-income parents who want more formal education for their children
PROJECTIONS: Franchisor operating profits of $170,000 this year and, in 1993, profits of $2.65 million on $11.75 million in royalty and franchise fees from 240 centers; franchisee gross profits of $113,000 on revenues of $530,000 (21% margin)
HURDLES: Meeting high margin projections at each center; maintaining quality while aggressively expanding; differentiating Goddard enough to support premium pricing
THE FOUNDER
Joseph Scandone, president and CEO
Carousel Systems Inc.
Age: 41
Family status: Married, two daughters, 16 and 18
Workweek: 50 to 60 hours
Board of directors: None
Other businesses started: Two child-care centers in the suburbs of Philadelphia
Last job: Manager of human-resources operations, General Electric Information Services Co., a division of G.E.
College degree: B.S. with major in accounting from Philadelphia College of Textiles & Science; executive degree from Wharton School at University of Pennsylvania
Loses sleep over: The inconsistencies of local officials in approving child-care centers, which cause facility-opening delays beyond Scandone's control
Role model: Lee Iaccoca; "He's very customer oriented."
Vacations: Stays at houses he owns in Ocean City, N.J., and West Palm Beach, Fla.
WHAT THE EXPERTS SAY
OBSERVER
DICK RICHARDS
President, Childcare Center Brokerage & Development, St. Louis, which develops and brokers centers for the nation's largest day-care chains; former director of real estate for Kinder-Care
I agree that small centers can operate at greater margins than national chains, as long as the operators are qualified. But it's really presumptuous to think franchisees can attend a two-week training program and then be qualified to operate a child-care center. They should be brought into existing operations as interns, be given a longer orientation period, and be evaluated themselves by Carousel. If I were Scandone, putting together a high-end operation, I'd want to be convinced that the people I put out there know the industry inside and out. If you're selling this as the crème de la crème, you'll need to market it on the qualifications of the staff. And informed parents care less about the appearance of the place than they do about the philosophies and values of the operators.
