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CHILDREN’S NURSERIES
It’s all about demand & supply!
By Philip Blackburn
Economist, LaingBuisson
NMT Nursery Business Seminar 28 October 2014
LaingBuisson – Leading provider of market intelligence on the
independent health and care sector
Children’s Nurseries – We carry out a survey of children’s
nurseries each year. Been doing it for over 10 years, so we have a
useful perspective on trends
NMT Nursery Business Seminar 2014
Headlines for 2014 LaingBuisson Nurseries Report
 Good rise in demand, as total children attending nurseries
increased by over 6% between mid 2013 and mid 2014.
(Driven by stronger economy & 2 year old places expansion)
 Real spending on UK children’s nurseries up by over 4%,
(Driven by demand growth, though held back by reduced
average attendance, and no real fee inflation)
 Demand growth accommodated by existing supply (shown
by clear rise in average occupancy of at least 2 percentage
points), and supported by increase in net nursery stock
(Momentum for increased capacity across the sector)
NMT Nursery Business Seminar 2014
Demand Thermometer – Recent Past
2009
Population
Economy
Employment
Direct
Subsidies
Strong driver
Childcare
Tax Credit
Modest driver
Corporate
inc Tax Credit
Weak driver/
dampener
Childcare
Preferences
NMT Nursery Business Seminar 2014
2014
Demand Thermometer – Next 5 Years
2019
2014
Population
Economy
Employment
Direct
Subsidies
Strong driver
Childcare
Tax Credit
Uncertain
Modest driver
Corporate
inc Tax Credit
Uncertain
Weak driver/
dampener
Childcare
Preferences
NMT Nursery Business Seminar 2014
LaingBuisson
measure
NMT Nursery Business Seminar 2014
2013/14
2012/13
2011
2010
2009
2008
2007
2006
2005
2004
RPI
2003
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
NURSERY FEE INFLATION, UK
2002
%
Supply Trends – Recent Expansion
 Clear increase in UK nursery capacity (places) in the last
12 to 18 months as the economy improved, and places for
2 year olds have been absorbed by sector.
 New capacity comes from a lot of different providers of
various size. Consistent with nationwide expansion.
Preference for purpose built properties.
 Just over half of the Top 100 UK nursery groups
expanded their nursery portfolio in the last 12 months.
 However, rate of closures remains at a high enough level,
checking faster growth – supply excess in certain regions
 Corporatisation rate is 1 to 2 percentage points per
annum. Nursery groups (corporates) now represent a
quarter of capacity (places). More than 20 years and
corporates may represent half of market!
NMT Nursery Business Seminar 2014
Supply Trends – Investors
 Stronger optimism for future market growth and
prosperity – look at 5 year demand trends.
 Many small to medium sized nursery businesses with
strong cash positions, access to internal
investment, and supported by bank debt.
 Private equity has a presence in the market and new
interest may soon pick up. Large-scale consolidation is
currently elusive but may be a matter of time.
 Profitability of nursery groups has improved according
to recent financials, though performance remains
variable across providers. Improved profitability is likely
to attract larger investments.
NMT Nursery Business Seminar 2014
Supply Trends – Future Risks
 Capacity grows faster than demand, leaving excess
capacity. Risk because market can be considered
‘mature’ and some demand drivers may weaken.
Regional risk of excess capacity.
 Increased Competition & ‘Overcrowding’ – At the
moment, despite strong government support, most schools
do not have appetite for direct childcare provision, and
prefer to partner nurseries & others. This could change,
however, should appetite change, and schools have huge
scope for growth.
 Ofsted – sector quality standards can be vulnerable
 Heavy reliance on government subsidies – is this
sustainable? Impact on private self-pay business, cross
subsidies are inefficient, and likely to raise cost of nursery
care – not a good thing for the sector.
NMT Nursery Business Seminar 2014
Nursery Market Summary – Where we are
Demand is stronger and rising
Supply is growing to accommodate demand
and expected higher demand in the future
Business and investment confidence has
improved generally, facilitating supply
growth
However, it is a mature market, demand can
become vulnerable quickly, and there are a
number of uncertainties/risks which could
shift dynamics.
NMT Nursery Business Seminar 2014
Government Policy – Important Questions
Universal vs Means Tested - What is priority?
Quantity v Quality - What does price dictate?
Multiple Funding Streams v Single - Are there efficiencies?
Childcare Provider v School Provider - Should it matter?
Parent v Provider - Who Gets the Money?
NMT Nursery Business Seminar 2014
What I would like to see?
I believe there could be pay-offs from a single funding
stream which is based on a universal core offer which has
means tested stabilisers.
Try to harmonise incentives to use childcare and access
work to support choices of all parents.
Price paid to be flexible enough to reflect/reward outcomes
achieved, and support competition based on price and
quality of outcome for children.
NMT Nursery Business Seminar 2014
All statistics and information available in:
LaingBuisson’s
Children’s Nurseries - UK Market Report 2014
Out early November 2014
www.laingbuisson.co.uk
[email protected]
NMT Nursery Business Seminar 2014