In this report we examine four new trends which are not simply sector evolutions but rather fundamental disruptors of the childcare operating model. This is the reason we have called the report “The shifting sands of childcare” to suggest that the long-held assumption that the industry is built on a stable bedrock of government support, sticky long-term customers and a plentiful supply of labour is dangerous. Such an implicit assumption fails to take account of the disruptive impact of technology, changing work patterns and shifts in customer expectations. There is however good news, new entrants and existing operators who can respond to these market forces will be able to finally address margin pressures and create a clear market differentiation. Those operators who, on the other hand, remain tied to traditional models will face the “Kodak” risk of being focused on printing beautiful photos long after the world has gone digital.
Current state of play
The Australian childcare sector has grown substantially over the last decade. Higher government spending on the sector, rising enrolment numbers and higher fees have driven industry revenue growth and centre expansion nationally. Supportive government policy has been a significant part of this growth, with the Federal Government increasing childcare assistance for parents returning to the workforce as well as relaxing regulations to allow childcare centres to register as kindergartens. This regulatory change has allowed day-care centres to compete directly with the preschool education industry and has supported the ongoing evolution of child centres from being providers of child care services to being providers of educational services.
The number of children in centre-based day cares continue to grow strongly, increasing some 116,000 children over the over the last 4 years. This 4% annual growth rate – well above the population growth rate of 1.3% – is being driven largely by the shifting of children out of
family day care and into centre-based care as parents seek more wholistic learning opportunities for their children. Moving forward, growth in centre based day care enrolments is likely moderate and trend towards the population growth rate of 1–2%, as opportunities to move children from family to centre-based care become more limited.
Along with enrolments, the number of childcare centres also continues to grow, registering an average growth rate of 4.4% over the past 4 years. In total Australia boasts some 8,504 childcare centres, NSW has some 3,330 childcare centres – nearly 84% higher than the next highest state of Victoria which has 1,805 childcare centres. Whilst the supply / demand ratio is stable at a national level there has undoubtedly been excess capacity built by developers in growth corridors particularly in the outer suburbs of Melbourne and Sydney which will take some years to be absorbed. Moving forward growth is most likely in Tasmania, Queensland and Victoria which still have lower ratios of childcare centres to children. These are areas where there is still also a significant number of children attending family day care.
Small and private child care providers (often run for philanthropic or community purposes) are projected to continue to dominate the industry over the next five years. However, the ongoing entry of new corporate operators will influence the industry’s future ownership and profit structure. Today, the largest five players still hold less than 10% market share across the nation. However, as these corporates are able to make further purchases and finally leverage scale advantages, particularly around innovative education experiences, it is expected that they will assume a more dominant role in the industry.
Childcare fees continue to increase materially, with the average hourly rate for childcare going from $9.15 in 2017 to being $10.65 today, equating to an average annual increase of ~4%. Moving forward, further fee growth is expected as key input costs continue to rise steadily. Interestingly, there is almost no correlation between the availability of childcare place (e.g. children/centre) and childcare fees (Figure 2) Instead, fees are much more likely to be driven by local area considerations in terms of what it costs to develop and operate a childcare centre.
4 key disruptive trends
Trend 1. Supporting a “work-from-home” world
A lasting consequence of the pandemic will be a fundamental shift in work patterns. Enabled by technology and popularised through Covid necessity, a significant portion of the population will never return full time to an office environment. Equally, parents are keen to find a better balance between work and family with aspirations to be more involved in raising their children and to spend less time commuting and working distant from their loved ones.
The pandemic introduced many professionals to the concept of being able to work close to where their children are being cared for. Whilst occasionally causing unfortunate zoom bombing, many consider the benefits of “close care” to far outweigh its disadvantages given the opportunities for warm hugs at break time and shared activities when schedules permit.
Adjusting to these new consumer preferences will be challenging for the childcare industry, which is firmly centred in a “drop-and-go” mentality moving the childcare development
focus out of business centres towards population centres is only the first step. More important is how operators can find innovative ways to support parents who are looking for the convenience associated with being closer to their children but demand the peace of mind associated with professional, high-quality childcare. One interesting innovation has been the development of hybrid childcare workspaces. Developed as family centred childcare facilities they also boast state-of-the-art remote working facilities where parents can log in and do a full day’s work. There is a tendency to claim that this is simply a replication of the tried model of a corporate office with adjoining nursery, but this would be to misunderstand this new model. Hybrid childcare reverses the equation putting childcare and family learning first while maintaining the convenience of adjoining workspace. Parents benefit from being part of a likeminded community of working mums and dads and are able to optimise flexible time afforded to them from remote working.
Case study – Trehaus, Singapore
Trehaus presents itself as a modern village where the future family works, learns and plays together. Trehaus boast that their care model represents a fundamental overhaul and deconstruction of the traditional model of work, school and play where the trade-off between family and career is no longer necessary. To enable this balance, they offer a business club with state-of-the-art offices and coworking spaces alongside a licensed childcare centre with cutting edge facilities and wholistic learning programs. These are brought together by their proprietary “family club” concept, which encourages parents to be part of the child’s learning journey and jointly explore the facility, which includes an art atelier, beach caravan and a creative STEM maker space.
Trend 2. A new approach to employee retention
The challenge of employee retention is not new, however the scale of the challenge within the childcare industry has reached new levels. Prior to the pandemic, industry turnover was as high as 30% with an estimated 2 in 3 early childhood educators considering leaving their role. Over the last 2 years, retention has been made even more difficult as a result of periodic pandemic-related centre closures and the so-called great resignation, driven by a re-evaluation of career objectives and lifestyle priorities.
The drivers of high staff turn-over in childcare are well documented. Early education workers feel underpaid, undervalued and pessimistic about their career development and future economic prospects. Centres are aware of the high cost of churn not only in terms of hard costs associated with recruitment and training, but also with regards to the effect on children who build deep, trusting relationships with educators only to see them disappear quickly from their lives.
Whilst the industry is yet to find an integrated solution to this problem, there are two key innovative approaches that seem to be yielding positive results.
A. Making staff selection more values-based
Counterintuitive to most operators who complain about just getting enough staff to get through a shift, the best operators build a reputation for being highly selective in terms of who they employ. This is done by limiting potential candidates to those who are perfectly aligned with the philosophy and values of the childcare provider. Such an approach is founded on the idea that skills can be taught, but values such as honesty, integrity and respect are largely intrinsic. Given this, smart technology enabled psychometric programs are required to discover a candidate’s genuine beliefs and get beyond the standard platitudes associated with the hiring process. Using a values-based hiring system reduces the likelihood of an employee leaving and makes the organisation substantially more attractive to in-demand talent.
Value-based recruitment is a results-driven approach to find potential candidates that match the values of the organisation. There are new technologies being invented that analyse the traits and values of employees, which help make more effective recruitment decisions. It is a long and comprehensive process, but once it has been implemented it leads to successful recruitment outcomes.
B. Proprietary career development in micro steps
To retain top staff, operators must find a way to reward top performers with professional development, status and financial incentives. However, cost pressures and time limitations take most options off the table. Micro credentials offer a disruptive approach to addressing these issues, by rewarding good performers with proprietary micro credential courses. Operators can provide recognition, status and development at the same time whilst potentially only taking staff off the front lines for a few hours a week. Operators are also trialling linking financial incentives with completion of micro credentials, which are often a better predictor of performance than simply tenure. Proprietary credentials also make switching more difficult as competitors are less likely to recognise in-house education awards.
Case study – KinderCare
KinderCare is a large US based childcare operator employing almost 30,000 staff at 1,400 child care centres across 38 different states. In the early 2010’s, the operator was experiencing significant financial difficulties in part due to an employee turnover of around 50%. Focused on addressing this debilitating issue of staff retention, the operator set out to study and renew its culture. Specifically, it developed a customized approach to identifying high potential candidates, that is, it sought to hire candidates who weren’t necessarily the most qualified but who most mirrored their very best and most long-standing teachers. For two years they interviewed their best and worst performing teachers seeking to identify both the skills but also the personal values which were the best indictors of future success or failure at the company. They then partnered with Gallup, to convert these insights into a 30-minute online, values assessment tool able to be used at various points in the recruitment process.
Following an initial pilot program on 1,000 potential candidates the results of the initiative were nothing short of spectacular. Not only did overall employee turnover fall by 25% but children cared for by teachers who had passed through the values-based selection process had a 4 month developmental advantage compared to their peers. %.
Trend 3. Adapting to more fluid childcare requirements
Historically, a family’s routine and hence its childcare needs were relatively predictable. This historical context is what has shaped the inflexible, largely ubiquitous childcare offering in today’s market which focuses on signing children up for a fixed number of days per week. However, in the last decade much of the routine in our lives has given way to increased levels of flexibility. The gig economy, shared parenting and flexible working hours mean that a new generation of parents live a far more fluid lifestyle than that of the generation before. Unfortunately, the traditional childcare model remains stubbornly rigid, resulting in many parents having to par back their work commitments as a result of unavailability of suitable childcare options. In a national survey of 2,500 working parents, it was found that nearly 20% of parents had to leave their job or reduce their work hours due to lack of available childcare. Moving forward the need for flexible childcare will only intensify in the future as new hybrid work models indelibly blur the lines between work and family responsibilities, putting new and different pressures on working parents. A survey run by BCG Digital Ventures found that on average full-time occupancy of nurseries and childcare centres had decreased post lock down because parents weren’t sure what their schedule would look like and, therefore opted out of paying fulltime fees.
In many industries technology has been the catalyst in allowing movement away from clumsy, rigid contract to a real time mechanism that more closely matches demand and supply. Airbnb, Uber and Zipcar are just some examples of this. The childcare sector has historically lagged in digital innovation in part due to its revenues coming primarily from subsidies rather than end users. Moving forward, new players will develop products that can adapt to more fluid childcare requirements disrupting traditional childcare offerings. This is already taking place with virtual baby sitting and flexible childcare services beginning to gain market traction.
Case study – Matching supply and demand through Pebble
Pebble is an application which focuses on unlocking the latent demand for “ad hoc” childcare and enables a world where childcare, parenthood and work are more easily able to coexist. It utilises a technology-driven platform that instantly matches childcare capacity with short-notice childcare needs, taking into account parent preferences and prerequisites. Indeed, often children are simply matched to vacancies in their existing childcare centre.
The company claims that childcare centres using Pebble have seen a 30% increase in occupancy rates. Pebble equally solves the problem of how parents can book childcare afterhours so they can have certainty of where they can send their children the following day.
Trend 4. Adoption of a truly integrated approach to education
Childcare centres are transitioning from child minding facilities to genuine providers of early education. The importance of this transition has been consistently emphasised by the research showing the link between quality early childhood education and future scholastic and personal success. What remains elusive is a more integrated approach to childhood development. Research suggests that most childhood development happens prior to kindergarten, and happens outside the realm of formal schooling in homes, on car trips and through informal interactions.
Internationally, leading operators are re-thinking their offerings to provide pre-kindergarten children a more wholistic developmental program. This means more thought being put into learning objectives and planned activities but also development of holistic activities such as yoga, music, art classes, gardening and environmental awareness programs. Innovative childcare centres are now also considering how they can influence development outside of the classroom in a way that supports the critical development of social, emotional and intellectual aspects of a child. Building education pathways for parents is a step in the right direction, but innovative providers are considering how to move into traditional community service spaces like parental counselling, family support and child safety so that they can positively influence a broader range of factors affecting a child’s development.
Case study – Lumin Education Centre and it’s a holistic approach to early education
Lumin Education is a Dallas-based network of four early education centres whose vision is to transform education by starting young, involving parents, and creating learning environments to inspire children. Perhaps their most innovative program is their P-3 or Pregnancy-to-Age Three offering. This program offers a multifaceted, systematic approach to addressing the developmental needs of children from birth to age three by focusing on teaching parents to be actively and confidently involved in their child’s development and education, through regularly scheduled in-home visits.
Certified parent educators support parents through a curriculum that translates neuroscience research, observations and scientific information on child development into concrete suggestions for healthy lifestyles and parent-child activities that encourage language development, intellectual growth, social development, motor skills and more. Lumin believes that by educating parents on how to become their child’s first and best teachers, children learn, grow, and develop to realize their full potential. The programs offered by Lumin education show exceptional results with graduates of the Lumin centre having a 94% high school graduation rate vs the 69% average among peer children in the same neighbourhood.
Meet the authors
Barcley Consulting is a boutique management consulting firm focused on helping corporates and government with strategy, innovation and execution.
For more information on their other publications please visit www.barcley.com.au
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 In total for the year 2020 the childcare industry earned $11.2 bn in revenue with 80% of the revenue coming from the federal and state governments of Australia.
 The largest corporate players include G8 Education (238 centres), Affinity education (199 centres), Guardian Child are (132 centres), Only about Children (81 centres), Busy Bees (60 centres) and Think Children Care (100 centres).
 Low pay but still we stay: Retention in early childhood education and care; Paula McDonald, Karen Thorpe, Susan Irvine
 Short, low cost online courses that provide a digital badge when they complete these courses
 Childcare Is a Business Issue, Alicia Sasser Modestino, Jamie J. Ladge, Addie Swartz, and Alisa Lincoln