The ABCs of educational franchises

Franchise Times Magazine – by Becky Bergman

When Alka Garg decided to start a business that would provide the flexibility, income and work-life balance she craved, the stay-at-home mom embarked on an intense search for the perfect opportunity. Garg, a former tax accountant, spent several months researching before she inked a deal to open a Kumon Math and Reading franchise.

Since June 2004, her Charlotte, North Carolina, tutoring business has grown to 340 students. Garg relies on word-of-mouth advertising and the Kumon name for new customers. “The parents I meet say education is a high priority for their family. They want to give their children the best opportunity to succeed in life,” says Garg.

Consumer-based tutoring businesses and test-prep services fetch $3 billion to $5 billion each year in the U.S., according to Boston-based education information company Eduventures. Growth in tutoring, which used to be something brainiac high-school students and retired teachers did to earn extra cash, has ranged between 4 percent and 9 percent a year.

But as colleges get more competitive and countries like India and China churn out a highly skilled, low-cost workforce, educational franchises play a significant role in how American children learn new subjects and achieve academic milestones. More than 3 million high-school seniors applied for admission into elite colleges last year, up 28 percent over the past 10 years.

Shifting priorities in the U.S. education system spurred by the radical No Child Left Behind Act of 2002 have also fueled the demand for programs like Kumon Math and Reading Centers, Mathnasium and Sylvan Learning Centers in recent years. “I think the No Child Left Behind initiative actually gave parents better access to information about how well their schools are performing,” says Deven Klein, vice president of franchising at Kumon.

“Parents have the ability to make sure their children are getting the academic skills they need to succeed,” says Klein.

At Kumon, students attend two 30-minute sessions weekly to review completed assignments and identify potential weak spots. Tuition ranges from $80 to $120 per month for one subject. Students at Mathnasium attend twice a week for 35 to 55 minutes and receive a customized math curriculum developed by the franchisor. Fees are steep though — $200 per month.

According to FRANdata, an Arlington, Virginia-based franchise information and research firm, the number of educational units jumped from 3,219 in 2000 to 5,223 in 2006. Children’s educational programs, general courses and related services accounted for 85 percent of the sector while computer training, dance and fitness classes and modeling schools made up 9 percent, 4 percent and 2 percent, respectively.

Joel Libava, a consultant with Franchise Selection Specialists, says the education market appeals to a variety of people — from retired teachers to corporate refugees — because it’s a chance to invest in a feel-good business and feel a sense of giving back to the community. Investors like Garg are attracted to the education industry because of the flexible schedule, return on investment and low cost of entry, which can start for as little as $10,000.

Although it’s difficult to imagine how fingerpainting lessons will get 3-year-old junior into Harvard in 15 years, enrollment in franchises dedicated to crafts, cooking, dance and foreign language have exploded in recent years. Abrakadoodle, a popular national arts education program, offers classes, camps and parties for children 20 months to 12 years old. Since it started franchising in 2004, the company has added 75 units.

The Kiddie Academy, which combines an academic program mixed with all-day care for children from infant to 5 years old, has 92 franchise sites and 62 under development. “We have heard grade-school teachers say they see the difference between children who have been exposed to early education and those that haven’t,” says Fred Harms, vice president of franchise development. “People have higher academic expectations on our children today than ever before. You have to get an early start to be competitive.”

Make no mistake: Educational franchise concepts are not just some glorified daycare center with lesson plans. They are real businesses that offer valuable curriculum to consumers and high-profit potential for investors, according to Libava.

“These types of franchises are definitely popular right now, especially among dual-income families that don’t have a lot of time on their hands,” says franchise consultant Joel Libava. “Kids in third through eighth grades who need math and reading services are the sweet spot for this industry.”

But Libava worries the education market has become too saturated, especially with specialty businesses and cautions against an industry-wide consolidation, which could chase potential franchisees away from the market.

“The niche sector has to rely heavily on a strong networking system,” says Libava. “They are attracting people who have a passion for what they offer. Parents are nickel and dimed for everything these days. There has to be a need for these services.”

Proving that no one is immune to changing trends and stiff competition, education giant Sylvan Learning Centers recently revamped its business plan to include online and in-home tutoring services. The company, which has annual revenue of more than $500 million, is also contracting with schools that need help to boost test scores under the federal No Child Left Behind Act. “As long as the public school system continues to fail to meet the needs of our children, there will be tutoring companies,” says Susan Fairbairn, who owns five franchise units in Texas.