If I were Scandone I'd set more realistic objectives: 5 centers this year, 10 next year, maybe 10 more after that, once my management was in place. There's a danger in trying to be the next Kinder-Care -- inadequate management leads to inadequate care, and parents pick up on it real fast, leaving you with empty centers. If they grow more conservatively, they can be successful. It'll be interesting to watch, because of their franchising experience.
FINANCIER
MICHAEL J. CONNELLY
President, Lepercq Capital Management, New York City, managers of a $32-million venture fund that has invested in child-care centers
It's true that this will continue to be a fast-growing business, there aren't any dominant players, and the market they're going after is the most attractive one -- the higher end, people who are looking for something other than custodial care. But their notion that they can do the rollout as quickly as they're planning and be able to make the margins they're projecting as consistently as they say just isn't realistic, even if they can do it with a few centers.
I feel confident saying no company in the history of the child-care industry has done what these guys are projecting. They expect franchisees to reach break-even in 12 months -- in practice it usually takes 18 to 36 months, and that's for centers that don't have to take 7% off the top just to pay a franchise royalty.
Then there's quality control. Scandone is going to take people who have no experience in early-childhood education and turn them into owners of early-childhood-education businesses. He's going to try to do it at the highest end of the market, with the most sophisticated clientele. One of the requirements of a developmentally appropriate curriculum for early childhood is flexibility. The criticism, for example, that's leveled at Kinder-Care by the educational community is not that it is custodial. The criticism is that they've McDonaldized the curriculum, so that if it's the third Tuesday in March, three-year-olds all over the country learn the letter C. That's perceived by the educational community as being an inappropriate way to develop the cognitive skills of three-year-olds.
This is not a commodity business; child care is as far from a commodity business as you can get. And it's very difficult to maintain quality, especially when you're franchising with people who've never done it before. Scandone says that he'll pull a franchisee if someone is not providing the level of quality that he insists on; well, how's he going to know? How's he going to measure it? If you do a bad job on transmissions, people's cars break down and they have to get towed in, and it's an expense -- but it's just money. You do a bad job on child care, you're risking a whole lot more than money. I don't believe the sophisticated market he's going after will be comfortable leaving its children in the care of people with so little experience. I just don't think it'll work.
COMPETITOR
ROGER BROWN
Chief executive officer, Bright Horizons Children's Centers, Cambridge, Mass., which developed and operates 26 work-site child-care centers on the East Coast
I don't know that franchising is going to work at the high end; it would be much more appropriate as a low-end strategy. Part of the reason involves teachers -- if you were a teacher, where would you rather work, a place that allows you to create your own curriculum, or a place that hands you a manual and says, "This week we're doing rabbits"? Hiring the best people is going to be difficult in this context.
If you want to do the high end, you ought to hire teachers who have a good background and give them autonomy. See, what they're touting is the fact that the entrepreneur-franchisee has financial autonomy in running the center, and that that's going to lead to better results than a company-managed center could get. But if you want to be on the high end educationally, you need to have that same autonomy in the educational program.
OBSERVER
ROGER NEUGEBAUER
Publisher and editor, Child Care Information Exchange, Redmond, Wash., an industry trade publication
The Carousel people present Kinder-Care as their main competition, and that's misleading. Their real competitors are the small chains with three to six centers that can be found in every community in the country. They run quality centers and charge a higher fee. They're after the same market Carousel is. Much of the growth in the past five years has been in this area, and now all the big chains are going after it, too.
There's nothing about franchising that prohibits it from working in child care, except the amount of the royalty. Average day-care profit margins are in the range of 5% to 6%. Even the yuppie centers are not dramatically above that. If you tell franchisees that the first 7% to 8% goes to the franchisor, that's not very encouraging. No chain over the past 10 years has been able to maintain profit levels above 15% for more than a few years; how is Carousel going to do it? Companies we've surveyed in the 8% to 10% profit range are already charging 15% more than their competitors, just as Carousel plans, so that premium alone isn't enough.
