Hi Islay, thanks for your info on occupancy rates. I'm curious how a child care provider can increase occupancy rates other than by reducing vacancies. Your thoughts are appreciated.
As you and others have noted, the physical space and ratios limit occupancy growth within a centre. Even where space allows physical expansion, there may be a limitation in occupancy growth to the extent that large centres may be perceived as more impersonal and less nurturing.
Many/most bricks and mortar businesses have this limitation. Restaurant chains have fixed size due to regulations on seating and liquor licenses. Hospitals and clinics have fairly strict staff-patient ratio regulations. To overcome this, firms replicate their operations into new neighbourhoods, communities, and even countries. Peter Lynch commented favourably on this type of investment, but, of course, the US is a massive market in which to expand into over a long time.
Two final points:
1. Critics of GEM's "roll-up" strategy avoid mentioning that it makes more sense to acquire compatible businesses (roll-up) than to build your own (replication) when (a) the cost of acquisition is lower than the cost (and opportunity) of building and (b) integration costs (financial and corporate cultural) are relatively low.
2. Along with (a) acquisitions (roll-up) and (b) organic growth through replication, companies grow through (c) supplemental value-added or upscale products/services, and (d) innovations (including discovering ways to shift away from on bricks and mortar-dependent revenue.
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