Fast growing high-end kindergarten chain in China-Etonkids

Company Overview

Etonkids Education Group is a leading high-end private kindergarten chain in China with over 30 campuses across the country[1] (Exhibit 1). Its education program features an advanced educational philosophy-Montessori which emphasizes on independence, freedom and respect of a child’s natural development and enables children to learn concepts from interacting with materials rather than direct instructions[2]. Etonkids targets middle-to-high market with majority of its schools being bilingual.

Exhibit 1 Etonkids’ Beijing Campus

China’s kindergarten market

China’s kindergarten market is highly fragmented and majority of kindergartens are owned by government. Subsidized by government, public kindergartens enjoy a significantly lower tuition comparing to their private competitors. Most private kindergartens chains failed to expand nationally, especially high-end chains. However, since its founding in 2002, Etonkids has been able to expand throughout China, maintain its high-quality education and sustain a healthy profitability level. Much of its success is attributable to the close alignment of its business strategy and operating model.

Business Model

Etonkids aims to create extraordinary learning experiences that enable each student to realize his or her full potential. It combines scientifically-tested western education methods with Chinese culture to deliver superior educational experience. Unique curriculum design and highly-trained faculty with Montessori approach lie in the core of its competitive advantages.

Operating Model

• Strong R&D team to develop Montessori curriculum: Etonkids invests heavily to integrate Montessori philosophy with Chinese local context. It has a strong curriculum development team consisting of talents with systematic training in Montessori approach and education Ph.D. backgrounds[3]. Its unique curriculum design provides children a blend of Western and Chinese educational values embedded in the Etonkids Three C’s: Creativity, Character, and Culture (Exhibit 2).
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Exhibit 2 Selective Etonkids’ curriculum[4]

 

• Competitive compensation and rigorous training program to retain talents: Majority of Etonkids’ teachers have received certifications from American Montessori Society, demonstrating their professional training in the approach. Etonkids also established an internal training academy to provide systematic and continuous training on Montessori approach for its employees. To retain talents, Etonkids provides competitive compensation and attractive career development opportunities for its key faculty[5].

• No franchise and expand judiciously: to maintain high quality education and protect its brand image, Etonkids expands judiciously and does not franchise its business. Campus site selection determines the affordability of community and is very critical to viability and profitability of single campus especially considering Etonkids’ high tuition ($500-2,000 per month). Etonkids strategically partners with high-end real-estate developers (Greenland, Poly and Vanke) in China and only opens campus in premium real-estate property. This strategic relationship also provides relatively lower rent for Etonkids comparing to its key competitors (Exhibit 3)[6].
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Exhibit 3 Rent comparison of key players

• Centralized operating model with high standardization: Etonkids has a centralized operating model and maintain a high level of standardization across campus. Majority of hardware and equipment are centrally purchased to maintain high consistency across all campuses. The company also established 13 handbooks, procedures and processes to standardize all key operations, including safety, food safety, teaching, etc. across all campuses[7]. Those standardization improves efficiency and allows the company to achieve scale of economies to further reduce cost.

• High marketing investment: Etonkids invests heavily in marketing activities to further promote both Montessori and its own brand. It leverages various channels, including printed ads in educational magazines, social media and educational conferences.

Performance Implications

Most high-end kindergartens in China charge a high premium because of its superior campus and facility while Etonkids has been able to charge a premium mainly for its high-quality educational experience. Etonkids usually has a small campus and does not require high capex for expansion. Together with lower rent, lower depreciation expenses and higher revenue, Etonkids has been able to maintain a higher profitability for single campus (Exhibit 4). The higher profit generated by single school enables the company to invest heavily in marketing, retaining talents and curriculum R&D activities. All in return created the competitive advantages for the firm to lead in the long term.

Exhibit 4 Single kindergarten profitability analysis

[1] http://www.etonkids.com/en/AboutUs/

[2] https://en.wikipedia.org/wiki/Montessori_education

[3] Etonkids Company Interviews

[4] http://www.etonkids.com/en/Academics/Curricula/

[5] Etonkids Company Interviews

[6] Etonkids Company Interviews

[7] Etonkids Company Interviews