The industry has been aided and encouraged by increasing Australian Government assistance for parents looking to put their children into day care.
Under the Howard Government, an effort to increase the nation’s birth rate resulted in actions such as the baby bonus. Meanwhile, several family payments to assist in affording childcare, predominantly the Child Care Benefit, were paid out to encourage parents back into the workforce.
Australian Government budget papers suggest that appropriations for childcare support were $1.8 billion in 2008-09, or about $2,250 per child enrolled in care. More than 800,000 children are expected to use government-subsidised childcare this year.
As a result, the industry has gone from strength to strength. In 2010-11, the industry is set to be worth around $7.3 billion, having grown by 2.1% each year in real terms since 2005-06. The industry has exhibited very strong growth over the past decade, even taking into account the recent shake-up of consumer confidence during the global financial crisis, which temporarily applied the brakes.
In 2008-09, the industry went backwards for the first time in over a decade, as consumers reduced the amount of time their children were in care, and relied on family and babysitters instead. As unemployment rose in 2009, families had less to spend on care, and also more time to provide care themselves.
The increase in part-time work also gave parents greater freedom to care for their own children. In 2009-10, the industry made headway, although only growing by a comparatively small 0.7%. A similar jump in industry revenue occurred in 2010-11, as households found more room in their budgets for childcare, and confidence continued to return to the market following the ABC collapse.
The biggest beneficiary of governmental largesse has been ABC Learning. Founded by Eddy Groves, ABC grew from nothing to have nearly one-third of the Australian childcare market in the space of five years. However, an ill-timed, highly leveraged move into the US market coincided with the credit crunch, and the company soon found itself unable to service its debt. The company was entered into administration in December 2008, as reports of dishonest financial practices began to proliferate.
While there were fears that many of ABC’s 1,200 centres would close, government intervention was extended indefinitely. Many non-profit operators stepped into the breach, and the majority of former ABC centres still operate today. Adding to the doom and gloom of late 2008, major provider CFK Childcare also entered into voluntary administration. CFK was not heavily indebted like ABC Learning, and its collapse can be attributed to a lack of economies of scale in the childcare sector.
Despite the industry’s turbulent recent history, however, the future for the childcare industry in Australia remains bright. Demand is strong and expected to grow over the coming five years.
Continued government support, increases in the female participation rate, and a mini baby boom will all contribute to 4.7% average real growth in revenue over the next five years.
This good news is conditional on shrinking margins for operators. Government regulations, mandating higher staff-to-child ratios and higher levels of staff qualifications, are likely to increase wage costs for operators. As wages make up the single largest cost for childcare providers, operators trying to make a profit in the industry will find themselves increasingly feeling the pain. This is one of the factors leading to the dominance of the industry exerted by non-profit operators, which promises to be the defining story of the industry going forward.
Robert Bryant is the general manager of business information firm IBISWorld.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
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