Kumon Math & Reading Centres shares insights into maintaining franchising affordability in the face of rising inflation

BY KUMON MATH & READING CENTRES

As inflation surged last year—with costs and interest rates increasing—Kumon maintained its position as one of the most affordable avenues to enter Canada’s franchising world.

In fact, becoming a small business owner with Kumon became even more attainable as the company increased its incentives and relaxed its real estate requirements. “We recognized that we needed to do something,” says vice president for centre network development John Collins. “Prices rose so fast and the ability to find a suitable centre location became even more challenging as the demand for Kumon’s services grew. We needed to help our new instructors, so we made a few adjustments.”

Those adjustments are partly why the company has held the number-one spot on Entrepreneur’s Top 100 Franchises for Less Than $100,000 list for four consecutive years. It’s not an easy feat given Canada’s current economic climate. The last 18 months have been largely defined by persistent interest rate hikes, high prices for goods, stagnant wages, and increased cost-of-living issues.

Everyone has been under financial strain. But 2024 appears more promising, as a recession was avoided and inflation slows.

Keeping it affordable
As the economic wave of rising inflation spread in 2023, Kumon’s franchise team saw the incentives they had been offering their new instructors were not cutting it, and the demand for Kumon’s services continued to increase throughout Canada and the U.S.

In early 2023, Kumon offered its new Canadian instructors up to $14,000 in incentives to help cover the costs of centre materials, furniture, signage, and local marketing. But as inflation surged, that money covered less and less. In response to those increased costs, Kumon raised its incentive threshold to $31,600. A comparable increase occurred in the U.S.

“We worked hard to keep our fees and costs affordable for our instructors,” says Collins. “In a world with everrising costs, we know every dollar counts, especially when you’re starting your own business for the first time. We know it’s hard work, and we want our owners to be in the best financial shape when they open their centre. That way, they can focus on what is most important— educating children.”

But even as prices increased, Kumon was in the minority when it came to addressing the increased financial burden on its new owners. Franchise Update Media’s 2024 Annual Franchise Development Report, which surveyed 120 brands, found only 23 per cent of surveyed franchisors implemented strategies to lessen initial expenses for potential franchisees. Those strategies included reducing franchise fees, cutting royalty fees, minimizing buildout expenses, and offering alternative build-out options.

“With the cost of doing business at historic highs, such strategic adaptations have proven beneficial for the franchisors surveyed,” the survey’s findings reported.

Real estate challenges
Finding suitable commercial real estate also became a challenge in 2023. Many small businesses were competing for the same space as existing inventories dried up. Permit approval times also increased and delayed the openings of many businesses throughout the country.

Kumon Centres follow a similar design wherever they are in Canada or the U.S.—a minimum of 1,000 square feet of retail space on the first floor of a shopping plaza that has signage capability. Those requirements made it challenging given the competition for space, but solutions were found.

“We work with our instructors to find alternative solutions if all of the criteria can’t initially be met, given the challenges in the current commercial real estate market,” says Collins. “We know this is a challenging market. We want and need to be flexible. I think if you’re going into it, you already know that. It’s an investment in your success. The incentives we offer reflect our acknowledgement of the importance of that investment. We want to see our instructors succeed.”

Depending on the circumstances, whether availability, extreme costs, or permitting delays, Kumon developed strategies to help its instructors open and begin running their businesses. In some rare cases, instructors were able to lease second-floor spaces and other temporary locations until something more permanent was available.

“You aren’t able to survive in this industry for 70 years without being able to get creative and responsive,” says Collins. “We want to help our instructors overcome these challenges and get them into their centres. 2023 was challenging, but we found ways to make it happen.”

While the last year was taxing for many brands, the forecast for this year shows an improvement to inflation and a decrease in interest rates. That should translate to a healthier economy for all franchises.

“The franchise landscape in 2024 suggests a mix of optimism, adaptability, and areas that need attention,” according to Franchise Update Media’s survey results. “As franchisors navigate this environment, ongoing insights and analyses will be pivotal when developing successful strategies and approaches.”

ABOUT THE AUTHOR
Kumon Math & Reading Centres is one of the largest and most established franchisors in the supplemental education industry. Kumon offers individualized, self-paced learning programs that have proven highly effective in helping children meet and exceed their grade level, regardless of age or ability. In the last 60 years, the Kumon method of learning has helped over 16 million students in over 50 countries achieve remarkable results by improving their subject proficiency and overall study.