May 2006

The Nation Reviewed

The alphabet game

By James Kirby

Illustration by Jeff Fisher.

Passing my local child-care centre the other day, I noticed it’s all changed: the builders have come in. Flown in, actually, because the place has been sold to ABC Learning Centres. The ABC renovation troops don’t mess around. The Brisbane-based company has a squad of specialist renovators who travel the country doing nothing but fixing up newly acquired child-care centres.

Like other businesses, child care operates on economies of scale. Buying a thousand rolls of teddy-bear wallpaper is cheaper than buying ten. Cutting five cents off the cost of a kid’s lunch brings an extra five cents in profit. Yet it’s a peculiar business. What are the assets? The sandpit would be a tangible asset, I guess; the quality of the morning hug would probably be regarded as an intangible. Who are the clients: the children or their parents? They don’t always want the same thing. Parents are likely to be interested in standards: they might inspect the kitchen to see if there’s dirt on the floor. Kids will check out the yard to see if the swing is free.

Most child-care centres – government, not-for-profit or private – follow a standard model. There are about fifty kids, a few (mostly) young women on minimum wage, and one all-powerful director who runs the show. What’s changing in child care is ownership. In the case of ABC Learning, things are changing faster than a crèche worker can change a nappy. Its founder and chief executive officer, Eddy Groves, is breaking all the records. He’s become what Australia yearns for in every field: a world-beater.

I first met Groves three years ago. I expected a banker, or at least a technocrat. I got something entirely different (though he is a former bank teller). He’s not childlike but he is exuberant, maybe even charming. He is also irascible, driven, and he likes to get his own way. He said that by 2013 his group could have 700 centres. ABC Learning has already reached that target. On 16 November last year, the company bought the huge US-based Learning Care group. By 30 June this year, Groves will control 850 centres that will look after 42,000 children. Groves is no longer just the biggest child-care operator in Australia; he’s the biggest in the world.

Almost everybody, from investors to regulators, has underestimated Groves, and he’s still only 40. When ABC Learning joined the stock market back in 2001 it was seen as a novelty stock. But Groves had all the bases covered. His partner and co-director, Le Neve Groves, was ready for attacks from ‘early learning’ academics: she has a PhD in day care. And to make the most of a welfare system that provides $1.7 billion a year in child-care benefits, Eddy Groves went straight to the top and hired Larry Anthony, the former Howard government minister for children and youth affairs.

Over the past five years the share price of ABC Learning has rocketed. It began trading at two dollars a share; today it’s worth about eight dollars, and everyone from the pure-as-the-driven-snow Australian Ethical Investments to the ubiquitous Commonwealth Bank has gone along for the ride. Groves has reached a point where he can do things that have never been tried. And it’s not just the obvious stuff such as bulk-buying paint and flying teams of renovators around the country; Groves has also sidestepped the TAFE system by establishing the National Institute of Early Childhood Education, a training college controlled by ABC Learning.

Where will it all end? As the biggest fish in the pond, Groves is the focus for all the delicate and uncomfortable questions raised by corporate child care. He has a mixed record on staffing: he’s been at loggerheads with the Liquor, Hospitality and Miscellaneous Union, and even tried to sue one union leader for defamation. Yet, while there are hundreds of centres and tens of thousands of kids in his jurisdiction, Groves has thus far escaped serious censure. There have been incidents such as the child whose broken arm went undetected for several hours, but at least the police have never been called to an ABC Learning centre to break up a picket line, as they were at the privately owned Kids Cove centre in Mandurah, Western Australia.

I asked several early childhood learning academics to tell me what is wrong with one company controlling so many centres. “There’s going to be no choice,” they chorused. But ABC still has less than 20% of private child-care places. “They focus on cost-cutting for profit,” came the rejoinder. Yes, but don’t all private companies?

It’s not the tangible assets that will worry Eddy Groves; it’s the intangibles. Is Tracey in the under-threes room a bit ratty this morning? Is Kathy in the kitchen fit to poison someone because the fridge light is broken again? These measures never come up in government accreditation reports, which in any case carry little weight in a sector where 97% of day-care centres are approved with a rubber stamp.

In April the Australia Institute released a new report on child care. It did one thing nobody has done before: it measured the disposition of the nation’s child-care workers. The report found that 20% of workers at corporate chains such as ABC Learning would not send their kids to the crèche where they work. The figure was 6% for employees at small private centres and 4% for those at not-for-profit centres. It’s the first hard evidence that big is not beautiful. It’s the first time the condition of workers – and by definition the children in their care – has been used as a measure of quality, and it’s bad news for Eddy Groves. But it will take a lot more than that to stop him.

James Kirby
James Kirby is a financial journalist. He is the author of the book series Business Secrets, and the managing editor of the online Business Spectator and the Eureka Report.

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