Australia’s early learning sector has grown steadily over the past five years. Annualised revenues are up 8 per cent over the period^[1] and approved places across the country have climbed in lock step.

However, new entrants and increasing competition, particularly in metropolitan areas, have contributed to softer occupancy rates for many centres while rising fixed costs continue to place pressure on operators’ margins.

The launch of the inaugural CommBank Early Learning Insights Report^[2], conducted in partnership with the Australian Childcare Alliance (ACA), seeks to better understand the market forces influencing change and to examine how the sector is responding.  

A flight to quality

According to the research, early learning centres across Australia are now running at an average occupancy rate of 75 per cent - down marginally from 2017 – and most operators are alive to the rising expense associated with wages which represents the largest cost base.

Crucially, the sector is also managing the introduction of one of the largest changes to the government funding model in the history of subsidising families – the Child Care Subsidy (CCS) that came into effect on 2 July 2018.

Amid these challenges, service providers are mobilising and prioritising operational strategies that can help attract parents and families to their centres and increase occupancy rates, as well as ensuring they have the right workforce to deliver this objective.

For example, more centres are prioritising the government’s quality benchmarking program, the National Quality Standard (NQS), in an effort to secure a NQS ‘exceeding’ rating which will increase their appeal to new families.

The research also shows the growing importance of quality improvement. It was nominated as an area of operational focus by 51 per cent of service providers, up from 42 per cent in 2017. This was complemented by providers moving to upgrade their facilities (44 per cent in 2018, up from 40 per cent in 2017) and a sharper focus on the NQS assessment (37 per cent, an increase from 22 per cent).

A prevailing growth mindset

Despite the sector having to adapt to significant change, resulting in a mixed outlook for future business conditions, there is an underlying resilience among many service providers.

The research shows an uplift in operators’ intentions to pursue growth – organically and through acquisition - particularly among multi-centre operators. This suggests the potential for further industry consolidation.

This emerging growth mindset, and a flight to quality when it comes to facilities, staff and care, illustrates the proactive approach that many service providers are taking to maintain or grow market share in an ever-changing operating environment. Ultimately, it’s the children and families that will benefit as this trend translates to better educational outcomes.

If you would like to read more, you can find the CommBank Early Learning Insights Report at commbank.com.au/healthcareinsights

^[1] IBISWorld Industry Child Care Services in Australia, May 2018

^[2] The report was based on the views of 176 ACA members collectively operating 266 centres across Australia.