Franchising and the Indian Preschool Industry

Though at a nascent stage, the Pre-school industry in India with a current estimated size of Rs 7000 crores, is expected to top $ 1 billion by 2012, clocking a growth of over 28 percent per year. And taking advantage of this huge growth opportunity, most of the players are out to scale up their operations through the franchise route. There is a huge growth opportunity in the sector and most players have scaled up their operations through the franchise route. 

By Priyanka Kapoor

As three-year-old Sanika’s parents shifted from Gurgaon to Bangalore, her mother’s biggest concern was putting the child in a pre-school similar to her last one. Much to her relief she found exactly the same one. With pre-school franchises growing across the country, life has become much easier for young parents with transferable jobs. “My biggest concern was that Sanika should not feel uprooted and alienated,” says Sanika’s mother Nidhi Pandey, a housewife. “Since she was used to the toys, classroom set-up and general ambience in her previous pre-school there was not much issue settling down here.”

Playschools, popularly known as pre-schools cater to children between the age of one and a half and four years, the time when children are too young to start formal education. The concept of pre-schools is relatively new in India, but the trend is fast growing due to increasing awareness about the fact that about 40% of a person’s ability to learn is developed in the first four years of his life. It is an environment which imparts a smooth transition to a child from informal homely atmosphere to a formal schooling set-up and hence passion and care are two most important ingredients of this segment.

The transition, too, has been relatively painless for the operators behind these franchises. In several cases, these franchisees are housewives looking to gain fully utilize their time. Unlike schools that run from nursery to class 12, which largely are mandated by states to be run by non-profi t trusts, pre-schools can be set up as profi t companies. And with increasing awareness among parents about the benefits of a quality preschool education, the school chains and creches, are reportedly turning profi table within the first year—quite uncommon in the franchise model.

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 fi eld are now pitching this concept and stressing towards the importance of pre-schools in a child’s life. Even parents are realizing the signifi - cance of building a foundation for their kids, thanks to tough competition with regards to school admissions.

They no longer go for any neighborhood play school or day care center but are on the lookout for a pre-school with a reputed name and infrastructural facilities for their child’s overall development. Several pre-school chains have already opened up in the past few years to cater to the growing need. But with around 126 million children expected to be in the age group of 0 to 4 by the end of this year, the demand for pre schools in the organized segment may well soar like never before.

Industry overview

According to reports, the preschool industry in India is currently estimated to gross a whopping Rs 7,000 crores. The sector is likely to top US $ 1 bn by 2012, a growth of more than 28% per year, according to estimates from brokerage firm CLSA Asia-Pacific Markets. But then most of the pre-schools in India fall in the unorganized sector. “This industry is presently very fragmented with numerous ‘auntynext door’ pre-schools spread across the country.

There are no regulations that govern this segment and the unorganized sector accounts for more than 92% of the total market share,” claims Prajodh Rajan, Vice-President, Eurokids International Ltd. “The potential of this segment is vast but remains largely untapped because of low penetration. The population in the age group of 2-6 years is 10-11 crore i.e. about 9 - 10 % of the population in India but a low enrolment ratio limits the current size of the segment.”

Speaking on similar lines Deven Khullar, MD, Brats n Cuties, adds “The business of running pre-schools 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.”

Franchise route

With nearly three-quarters of the country’s population under the age of 35, the demand for quality pre-schools is expected to only intensify. Over the years, a number of pre-school chains have emerged that are adopting the franchise route for expansion. Among the prominent players are Mumbai-based EuroKids International Pvt Ltd, with 584 centres across 160 cities and towns in the country. Except for 25 centres, all others are franchises. Another pre-school chain- Shemrock Schools has 120 branches, with about 10,000 students. S.K. Educations’ Bachpan, pioneers in providing professional and structured pre-school education has more than 375 schools across the country, Kangaroo Kids Inc, has more than 80 schools across India besides centres in Dubai and Maldives.

Pre-school chain Kidzee, an arm of Zee Interactive Learning Systems Ltd, has over 623 centres in more than 275 cities in India. ‘I Play I Learn’ by New Age Knowledge Solutions Pvt. Ltd has set up about 45 centres across various cities. Emerging franchisors in this sector include Aadyant Education Pvt. Ltd. which plans to open about 500 schools within the next 5 years and Brats n Cuties which currently has 2 companyowned schools in Delhi and Gurgaon. Other prominent players in the preschool segment are ABC Montessori, Poddar Groups’ Jumbo Kids, Hello Kids, Apple Kids, Silicon Kidz, Brainwork, Brainway, Zeel, Mother’s Pride, Pinnacle Kids, DPS Play School, Sanfort, DRS Kids, Root To Wings, Einstein Kids, Genius Kids, Smart Kids, iDiscovery, Maple Bear, Lullaby Kids, Planet Kids etc.

Majority of the pre-school chains are taking to the franchise route for 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. “Franchisees enable not only sharing of expenses, but also knowledge, experience, brand image, as well as technical expertise,” says Devendra Gaur, CEO, Aadyant Education.

The preschool 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 franchise model, 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,” says Arun Khetan of ‘I Play I Learn’.

While on the lookout for franchisees, most pre-schools have a minimum land requirement of around 1500 square feet that goes upto even 5000 sq. ft at some locations. The franchisee fee can be anywhere between Rs 4 to 40 lakhs, depending on the location. The royalty fee, which is on the total fee generated by the school in a year, can range anywhere between 15% and 30%.

Agrees Deven Khullar of Brats n Cuties, “Starting a business from scratch requires a lot of experience, contacts and exclusivity to make it different from its competitors. Moreover, the new business takes time for brand development. On the other hand, a franchise is already a successful business with a brand name and popularity among the people. The franchisor is the driving force behind the success of the business which the franchisee aspires to buy.”

Selection of a franchisee is also not often easy. A franchisor often ensures that there is similar ambience, and infrastructure in all their centers. Apple Kids, for instance, that has over 150 centers allover India and claims to be the largest pre-school chain in South India, provides its franchisee with staff recruitment and training support besides, 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.

Eurokids’ Prajodh Rajan says the company prefers women, ideally with a teaching background, as their operating person for the franchise. The franchise costs also vary; for a second-tier city, for example, it’s Rs 3-7 lakhs, while for bigger cities, Rs 7-8 lakhs. But a playschool in south Delhi, downtown Mumbai or upmarket Indiranagar in Bangalore requires an investment of more than Rs16 lakhs. School fees also differs depending on location, and can vary from Rs 8,000 to Rs 35,000 a year.

“We generally take a royalty of 15% from our franchise. The royalty is on the total fee generated by the school in a year,” says Amol Arora, of New Delhi-based Shemrock. Playing equipment, teaching supplies, interiors and transportation for children are other signifi cant investments. Besides this, one also has to pay attention to qualifi ed teachers and staff. Says Amol Arora, “Often, the quality of teachers gets affected if the franchising model is adopted. To deal with this, we only appoint teachers who are well experienced and qualifi ed in dealing with children. We have a separate team that trains teachers throughout the year to keep them abreast with teaching techniques.”

Many pre-schools 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. Swati Popat, Director of Jumbo Kids, says “A day care center is defi nitely 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 mthe babies ensures that we have a well-trained personnel taking care of them.”

But entrepreneurs taking up this business should be very alert when following this model, because with such little investment requirement for franchisees and their desire to scale up rapidly, the quality of education may well suffer. Amol Arora’s advice with regard to this model is, “Ensure that the prospective franchisee has enough experience in the educational fi eld, has reasonable fi nancial resources and a passion for working with kids. Since, the franchisee doesn’t deal with the company directly; he could lack a qualitative professional approach.”

Teaching methodologies

While most pre-schools are today adopting the play and learn method of teaching, there are several other methodologies on offer too. There is, ofcourse, the old traditional method where more emphasis is laid on bookish knowledge, lectures, homework and tests. Then there is the Montessori teaching according to the child’s initiatives. The method discourages tests and grades and believes in feedbac through skills, activities or a narrative of the child’s achievements, strengths and weaknesses, etc.

“There are several methods of teaching like Montessori, Kindergarten etc. but all of these aim at helping the child with the environment. Using one single methodology is not enough. We have therefore combined various aspects of different pre-school systems plus we also see our childrens’ requirement considering the fact that they have to go to a formal school after Shemrock. We have theme-based approach in the school. This helps a child to pick up things easily unlike the American system which is completely child centric where the child decides what to do,” claims Amol Arora of Shemrock.

Similarly EuroKids’ curriculum is a healthy blend of the ‘play-way’ and the ‘Montessori’ method. Their philosophy of ‘learning through fun’ keeps the children constructively engaged and stimulated in the pre-school environment. “We strongly believe that it is not just the content but the delivery method that is most important when it comes to the education of young children. Hence we have made many an innovation in the delivery (teaching) methodologies and these innovations have helped us jake a mark for ourselves and create differentiators in a completely unorganized segment. Till date more than 100,000 young children have gone through the EuroKids experience in our various Preschools,” asserts Rajan.

At Bachpan pre-schools, one can find a blend of traditional and western culture. With a team of scholars, who are specialists in this field, their R & D team keeps on exploring new and innovative ways for concept-based learning. “Bachpan has created a niche in a very short span of time with unique pedagogy, updated curriculum, eye-catching infrastructure, scientifi c and advance study materials as well as play and learn equipments. We are a step ahead of others,” asserts Ajay Gupta, Director (Operations), Bachpan. And as the name suggests ‘I Play I Learn’ believes in the same methodology. Play is the underlying principle of ‘I Play I Learn’ curriculum and “we are strongly influenced by this law of nature and we believe in play as the basic mode of learning for early years. I Play I Learn emphasizes on play in an environment, where children can play little facilitators to their development, take a lead, discuss, follow and get together to learn with their guiding facilitators and playmates,” says Khetan.

Brats n Cuties’ teaching methodologies are a blend of contemporary Indian ways and the forward looking Montessori system. Their focus is on overall grooming of kids rather than the mundane learning methods. Everthing is taught in an interactive manner because “the bed rock of learning at Brats n Cuties is the old saying “You tell me and I will forget, you involve me and I will always remember.”

Aadyant, on the other hand, has been inspired by globally accepted UK Early Learning Goals and Project Based Learning of India. Following the approach of Think while playing • Do • Learn, the curriculum focuses on inquiry-based learning. Young children at Aadyant are respected as competent thinkers and communicators who are offered many opportunities to engage with a range of materials and resources to extend and challenge their thinking. The curriculum invites children to hypothesise, theorise, predict, solve problem, construct and document their developing understandings of the world in which they live. “Our approach acknowledges the socio-cultural principle that children learn from quality interactions and relationships with people, places and things; exploring and discovering in an affirmative environment,” claims Devendra Gaur.

Being different

With more and more players looking to get into this business, attracting potential clients towards school can be a really difficult task, something different or do some things differently! EuroKids, for example, bank on the quality of their teachers that have been well experienced in teaching for over a decade. Apple Kids, on the other hand, boasts of its ISO 9001:2000 certifi cation from International Certifi cation Services, accredited by the joint accreditation system of Australia and New Zealand. The curriculum, syllabus and methodology are at par with the international standards, they claim. When asked what sets Shemrock apart, Amol Arora says, “Our curriculum is our strength. The fact that we have combined diferent teaching methodologies to suit the requirements of our children in today’s environment has given us an upper edge. We constantly innovate and stay abreast of all other schools. A lot of time, energy and money in research and development.” Lina of Brainwork claims that they have one of the most compelling value propositions in the industry today. “Firstly, we have a strong understanding of the pre-school 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.”

Expansion spree

Considering India’s a growing economy, this industry has tremendous potential with a large market. The pre-school market has, over the last 5-6 years, seen a shift towards organized players. They have largely scaled up using the franchise route and the trend of rapid rollouts indicates that ‘quality’ supply of pre-schools is bringing latent demand to the fore.

A largely urban phenomenon, there has been rapid proliferation of organized pre-school. Shemrock plans to open 50 franchised schools in the next one year of which 50 % will be in the North and the remaining in South and West India. EuroKids too has massive expansion plans. It plans to add 500 franchisees across the country and “have also drawn up aggressive plans to open pre-schools in South East Asian markets,” says Rajan. Bachpan too plans to establish another 300 schools by the end of 2011. Delhi-based Brats n Cuties is targeting about 65 franchisees by 2010 end which includes 40 franchisees in Delhi-NCR and 25 franchisees in select towns of Northern India. Their target is to have a network of 300 franchisees by 2013 in select towns of India - all major cities and various state capitals. Aadyant

Education Pvt Ltd, an emerging franchisor in this sector, aspire to have 500 franchisees in coming 5 years. Their immediate plan is to open 30-50 fran- chise schools in the next one year. Hello Kids is targeting to open 100 franchised schools by 2010 end.

Challenges in the Industry

The pre-school industry, today, faces several challenges. One of the biggest challenge 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 pre-school education,” says Prajodh Rajan. “Parents, especially in tier 3 towns, are not convinced about shelling out Rs 35,000 to Rs 50,000 a year on pre-school education.”

Another challenge faced by almost all players is lack of adequately trained and skilled manpower. “I think the challenge we face today is the non-availability and readiness of quality teachers to be a part of such a setup. Pre-school education requires teachers to have very specifi c 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 qualifi ed teachers,” asserts Amol Arora.

Arun Khetan claims, “There is lack of good quality teachers due to the unavailability of quality training institutions. This problem will get acute in times to come. Hence training and retraining is key to growth.” 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. One can also tie up with teachers teaching in primary or secondary schools, to work with on a part time basis. Further, the pre-school segment has a negligible and marginal representation in terms of the branded chains and hence there is a huge potential.

On one hand it’s a great opportunity but at the same time it can also be a drawback since small sample size, although high on quality and standard parameters, may not be able to claim representation of the entire segment, adds Khetan. Also there is no regulatory mechanism for this segment. This augments the mushrooming of a lot of unorganized players. It is estimated that about 92 % of the players in this industry are unorganized. The general sentiments about preschool and franchise concept also becomes a challenge “because the word ‘franchise’ sometimes has a negative connotation. People feel that a franchisee is just there to make fast bucks,” asserts Amol Arora.

Future Outlook

“Going forward we defi nitely see a marked shift of parents preference in choosing organized Pre-Schools rather than unorganized ones. We expect the organized pre-school share to increase from a current 8% to 25 % in the next 3 years time. This segment is also undergoing the phenomenon of price discovery and an underpenetrated market will lead the way to the emergence of a high growth market,” says Prajodh Rajan of EuroKids. As any more organized players have entered into this segment over the recent past, resultantly, almost all metros, today, can be seen fl ooded with pre-schools that are not only systematically designed but are tech-friendly in their approach too. As future holds bright for this market, players are expanding their reach into tier II, tier III or small towns in the country, giving new thrust to the franchise business.

Tags: Preschool, Education, Franchise India 2010, Lina Ashar, Brainworks, Kangaroo Kids, Prajodh Rajan, Eurokids International, Deven Khullar, Brats n Cuties, Sarita Sayal, Mother’s Pride, ABC Montessori, Poddar Groups’ Jumbo Kids, Hello Kids, Apple Kids, Silicon Kids, Brainwork, Brainway, Zeel, Mother’s Pride, Pinnacle Kids, DPS Play School, Sanfort, DRS Kids, Root To Wings, Einstein Kids, Genius Kids, Smart Kids, iDiscovery, Maple Bear, Lullaby Kids, Planet Kids, Aadyant, Kidzee, Shemrock, Devendra Gaur, Arun Khetan, I Play I Learn, Swati Popat, Amol Arora