A 4004 Crore Preschool and Nursery Business

By M H Ahssan

How should you venture into this business currently worth Rs 4,004 crore? Estimates are that by 2010 this business will address 126 million tiny tots in the country!

Did you know that around 50% of a person’s ability to learn is developed in the first four years of their lives? Lina Ashar, founder of Brainworks and Kangaroo Kids Education, elaborates,

This is a critical period in a child’s life when specific types of learning take place. The brain is especially receptive to stimulation in the area of language, for example, during the first three years. Therefore, children that are exposed to speech (talking, reading, singing, etc) on a regular basis, exhibit language skills that far exceed those with little verbal stimulation.”

Lina, along with many specialists in the educational field are now pitching this concept and stressing towards the importance of preschools in a child’s life. Even parents are realizing the significance of building a foundation for their kids, thanks to tough competition that exists nowadays with regards to school admissions. They no longer resort to the neighborhood play schools or day care centers but are on the lookout for preschools with a reputed name and infrastructural facilities for their child’s overall development.

Several preschool chains have already opened up in the past few years to cater to the requirement. But with around 126 million children expected to be in the age group of 0 to 4 by the year 2010, according to the United Nations Population Division, the demand for preschools in the organized segment could be on the rise like never before.

A Rs 4,004 Crore Industry
According to reports by brokerage firm CLSA Asia-Pacific Markets, the preschool industry in the country is currently estimated to gross about Rs 4,004 crore ($985 million). The report also indicated that the largest chain of preschools in India comprises of just 550 schools, less than 4% of the total market potential of 15,000 preschools.

This is primarily because most preschools in India fall in the unorganized sector. Says Lina, “The business of running preschools has tremendous potential in India as it is still highly unorganized and often lacks a standardized curriculum, infrastructure and quality. Given that it is lucrative, and there is still a quality gap, there is scope for several organized players to get into this business.”

According to Sarita Sayal, Director of Mother’s Pride, which enrolls around 10,000 children annually, “Driving this growth are several social factors, like the increasing number of double income nuclear families who desire to enroll their kids in the best of schools and fear losing out on the rat race.”

Setting up the preschool
The business is said to be low on investment and high on returns, with a break-even period within the first two years of operations. “If one plans to use the franchising model only, the investments are lower, since you only need to spend on curriculum development, nationalized marketing and teacher training. Starting your own school, however, is more capital intensive, since the cost of property refurbishment, toys and other equipment is high. Excluding brand building costs, we can safely assume around Rs 15 to 20 lacs per school,” says Lina. Trishna Kids, a preschool chain launched in Hyderabad, just about a month and a half back by Triumphant Institute of Management Education (TIME) is looking at an investment of around Rs 30 crore for around 200 schools over the country in the next three years.

Playing equipment, teaching supplies, interiors and transportation for children are significant investments. Besides this, one also has to pay attention to qualified teachers and staff. Says Jayesh Nair, Head of Trishna Kids, “Often, the quality of teachers suffers if the franchising model is adopted. To deal with this, we only appoint teachers who are well experienced and qualified in dealing with children. We have a separate team that trains teachers throughout the year to keep them abreast with teaching techniques” says Jayesh.

Many preschools also invest in a day care for children. Most schools that are running such centers get any where around 50 to 100 children annually, from both within the school and outside. Madhulika Bhupatkar, Director of Little Pearls, an initiative by the house of Pearl; which also runs the Pearl Academy of Fashion, says “A day care center is definitely a secure option for many working parents. Our day care provides all the facilities that a child would typically require throughout the day. It is equipped with a sterilizer, refrigerator and microwave to cater to these needs. A full time nurse for the babies ensures that we have a well-trained personnel taking care of them.”

Apart from academics, parents are also paying a lot of importance to extra curricular activities these days, wanting their kids to pick up an instrument, dancing or a sport as early as possible. Therefore, investing in an activity center that has programs in dance, music, art and craft, drama and speech, storytelling and other outdoor games for the children is of utmost importance.

So, could setting up daycare or activity centers be an opportunity in itself? Possibly. But as Sarita puts it, “Running a day care is a very delicate business as the children involved are very young. It is best if an entrepreneur joins hands with a preschool. He can make use of its experience and also get business easily.”

Last, but not the least, according to AL Deivanathan, CMD of Apple Kids Education, a considerable chunk of your initial investment should also go towards generating brand awareness. “Besides advertising in newspapers, we also advertise in magazines like Woman’s Era and channels catering to children like Cartoon Network and Pogo.” Depending on how well the business is doing, you can cut down on this cost over time. This is because a majority of the parents depend on word of mouth (i.e. other parents) while selecting a preschool. If your reputation is good and you manage to generate a positive word of mouth, the word spreads easily.

We also got in touch with some parents to tell us about some of the other requirements while selecting a preschool. Rakhi Pathela, a housewife, whose son just passed out of Mother’s Pride this year says, “Finding a school that was in the neighborhood was important.” Bimal Uppal, a police officer, with a working wife, also agrees, “The only thing that stopped me from sending my daughter to one of these schools is the distance factor. I didn’t feel comfortable about sending a three-year-old so far away from home and eventually settled for a playschool close to home.” Jayesh also seconds this notion. “No one wants to drive for an hour for a three-hour school. It doesn’t make sense.” Therefore, ensure that you choose the right locations to set up your chain of preschools.

Both Rakhi and Bimal also stressed on the importance of large and spacious classrooms, as well as outdoor areas. “Most preschools as of now are within the four walls, with not enough space attributed to an open area for the kids to play and move around. This is extremely important for the child’s overall grooming,” says Jayesh.

Following the franchising route
Like many existing preschools in the organized sector, you can also adopt the franchising model to achieve rapid growth. Also, as more and more parents are on transferable jobs, this would ensure that the child just has to shift to another branch of the preschool, rather than leaving it.

“Franchises enable not only sharing of expenses, but also knowledge, experience, brand image, as well as technical expertise,” says Deivanathan.

While on the lookout for franchisees, most preschools have a minimum land requirement of around 1000 square feet and a franchisee fee of anywhere around Rs 4 to 40 lacs, depending on the location. The royalty fees, which is on the total fee generated by the school in a year, can range anywhere between 15% and 30%.

After selecting a franchisee, ensure that there is a similar ambience, supplies and infrastructure in all the centers. A training program for the franchisees should be set up for this. Apple Kids, that has over 160 centers all over India and claims to be the largest preschool chain in South India, provides its franchisee with staff recruitment and training, transport, gymnasium, effective promotional material and even takes care of advertising. It also provides books, uniforms, shoes, activity charts, school bags, crayons, diaries, lunch boxes and water bottles to the children. “With an investment of Rs 6 lacs and annual loyalty fee of 30%, we set up the entire school just within ten days,” says Deivanathan.
But entrepreneurs should be very alert when following this model, because it might just appear that with such little investment requirement for franchisees and the desire to scale up rapidly, the quality of education will most likely suffer. Jayesh’s advice with regard to this model is, “Ensure that the prospective franchisee has enough experience in the educational field, has reasonable financial resources and has a passion for working with kids. Since, the franchisee doesn’t deal with the company directly; it could lack quality and a professional approach.”

Having a different approach
Wth more and more players looking to get into this business, attracting potential clients towards your school can be a difficult task. So, how can this be dealt with? Simply put, like any other startup, either do something different or do some things differently!

Trishna Kids, for example, can boast of their quality of teachers that have been well experienced in teaching for over seven years.“The reputation of TIME itself as a leading coaching institute for competitive exams such as CAT, GRE and TOEFL, sets us apart from the rest,” says Jayesh. Apple Kids, on the other hand, boasts of its ISO 9001:2000 certification from International Certification Services, accredited by the joint accreditation system of Australia and New Zealand. “Our curriculum, syllabus and methodology are at par with the international standards,” says Deivanathan.

When asked what sets Mother’s Pride apart, Sarita says, “Our founder Sudha Gupta did an extensive research on the psychology and needs of children before chalking out a scientific curriculum. That is the reason we constantly innovate and stay abreast of all other schools. Not only children but parents are also educated about parenting through books and seminars. We invest a lot of time, energy and money in research and development.”

Little Pearls also knows exactly how to attract those little delicate darlings to their school. Their school has a doll house, kitchen and a children dress up room. “We also look at holistic development through well-planned activities such as art and craft, yoga and taekwondo and computers. Each of these activities helps the child develope motor skills as well as creativity and imagination,” claims Madhulika.

Lina claims that Brainworks has one of the most compelling value propositions in the industry today. “Firstly, we have a strong understanding of the preschool business, thanks to Kangaroo Kids and have partnerships in key areas such as book publishing. Secondly, we have our professional management team, Better Value Brands, which is in place to spearhead this venture. Last but not the least, we have the marketing and creative strength of Star TV channels, as they are our media partner.”

Looking at the Challenges
One of the biggest challenges that this industry faces at the moment is awareness amongst the parents about the importance of preschool education. “Parents usually plan, research and save up for their child’s higher studies but not preschool education,” says Sarita. Parents are not convinced about shelling out Rs 35,000 to Rs 50,000 a year on preschool education.

Generating brand awareness and trust can also pose as a challenge. “It took me at least three years to make parents believe in our service. In India, everyone wants their kids to know everything at the age of three. If the neighbor’s child knows 20 rhymes, they expect their child to know the same. Since we aren’t following the traditional curriculum and are following an integrated method of education, it was hard to convince parents at first,” says Deivanathan.

We also asked Madhulika of Little Pearls what has stopped them from branching out so far. “I think the challenge we face today is the availability and readiness of quality teachers to be a part of such a setup. Preschool education requires teachers to have very specific competencies apart from an inherent passion for children; thus making it a rare combination to get.” Keeping the teacher student ratio low (around 1:10) so that every child can get individual attention could be tough when there is such a scarcity of qualified teachers.

So, how can you deal with this problem? Many housewives with MBA, B.Ed or a PhD degree can make good teachers, provided they get the right training. You can also tie up with teachers teaching in primary or secondary schools, to work with you on a part time basis.