Adult Day Care Industry SWOT

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Adult day care industry is well-known for providing social and basic health assistance to the elderly with physical and mental disabilities. The assistance provided in these adult day care centers include meals, hygiene services such as bathing and cleaning up, therapeutic activities and transportation. This industry is differentiated from nursing homes since adult day cares only operate during normal business hours and therefore do not include home or night care ARCH National Respite Resource Center, 2004.

Companies in this industry depend on three major sources of finance which are grants from donor agencies, fees charged to clients or public funding from the government. Public funding represents 55% of product segmentation while client fees represent 26%. In the year 2013, the industry had gross revenue of 6.2 billion dollars representing an annual growth of 2%. 3,700 businesses operating in this industry made total profits of just over 396 million dollars. According to statistics provided by IBIS World, 2013()

, the adult day care industry is in the growth life cycle stage with medium barriers to entry. The industry does not require high capital to set up and the level of competition is medium. The performance of the industry over the last five years shows promises for investors and gives hope to this new adult day care to be set up in the mid-Atlantic region.

Industry SWOT analysis

Strengths

The key strength of the adult day care industry comes from its continued growth in the period from 2008 to 2013. Statistics show that the industry has grown over the past five years. this can be attributed to continued growth of the aging population and the economic downturn that has made services such as nursing homes to be out of reach as a result of being almost five times as expensive as adult day cares. Over the year 2010 to 2011, there was slow growth in the industry as a result of the economic recession which made state and local governments to have shortfalls in their budget. As public funding provides more than 50% of the revenues for the industry, reduced government spending directly resulted in decreased performance of the industry players ARCH National Respite Network & Resource Center, 2012()

The various players in the adult day care industry act as independent stakeholders meaning each one sets its own fees and charges for services. This provides a different environment in comparison to other industries. This is because it allows companies to adjust prices to control issues of profitability and cash flow. This has helped the industry to grow rapidly over the last five years.

Medicaid which provides long-term care services has provided a great strength for the adult day care industry. This is because Medicaid spends a lot on long-term institutional care which increases opportunities for increased revenue for the industry.

Weaknesses

The major weakness in the industry is its high reliance on public funding. Industry statistics show that more than half of the revenue for this industry comes from the public sector. As a result of many state and local governments reducing expenditure due to the recession, the adult day care industry has been greatly affected. Growth has slowed and industry players have had to look for other sources of income to sustain their growth.

The industry also greatly relies on Medicaid which is the major source of long-term care services in the country. There has been decreased Medicaid expenditure as a result of economic recession and this has decreased growth in the adult day care industry.

Another weakness of the industry is the high investment in human resources. According to statistics provided by IBIS World, 2013()

, the industry spent about 2.7 billion in wages which is more than 40% of the industry revenue. This shows that the industry requires high investment in labor. Therefore even though the industry is not capital intensive, the investment in human resources is high. In addition, industry players need to hire highly skilled employees in order to provide high quality services. Other costs that are high in this industry include cost of supplies such as medical supplies and utility expenses. This reduces the profitability of the industry considerably.

The adult day care industry has limited opportunity for growth internationally since it is service-based. International trade is often a great channel for growth in industries. This industry compared to other service industries such as the hotel industry has little potential for international trade. Majority of the players in the industry operate as non-profits meaning they are not allowed to declare and distribute profits as a result of services provided.

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This means that even though industry players can be able to tap into the growth as a result of opportunities available in the industry, they are not able to enjoy benefits of the profits Kenny, 2009()

Opportunities

There is increasing demand for adult day care services and this has several driving factors. One of the driving factors is that the baby boomer generation is driving demand for the services as they continue to age. Since the adult day care services caters majorly for persons aged 65 years and older, as more people join this age group, there is expected to be increased demand for adult day care services.

Demand is also fueled by advances in the health care sector which are leading to longer life expectancy in the population. Data from the World Bank shows that over the years, life expectancy has increased steadily. This means there will be more people in the age group that requires assistance in living, medical treatment and personalized care that is provided by players in the adult day care service. Demand for adult day care services is also fueled by increased prevalence of lifestyle diseases such as Alzheimer's disease, dementia and other mental and physical problems, more people require services provided by adult day care centers ARCH National Respite Resource Center, 2003()

Medicaid which is the major provider of long-term care insurance also creates great opportunity for growth in this adult day care industry. It is expected that years to come, Medicaid will continue to pay for these services and provisions in the Patient Protection and Affordable Care Act are also expected to increase health care funding and insurance coverage and thus fuel increased demand of adult day care services.

Operating as a not-for-profit organization in this industry provides industry players with opportunities to exploit revenue streams from grants by donor agencies and foundations. In addition, there is high fragmentation in this industry. This means that majority of the industry players are operating as small companies with single sites only. This creates an opportunity for growth since concentration and market leadership has not yet been established in this industry. This also creates opportunities for growth since organizations that can identify with larger and more established not-for-profits such as the Red Cross or National Easter Seals will be more likely to get more grants and more community awareness as a result of the community relationships that have already been established by these larger organizations.

Threats

Increasing competition is a huge threat in the adult day care industry. Currently the degree of competition is thought to be moderate but as more companies continue to join the industry, there is bound to be more internal competition in the industry. Therefore it is expected that more stringent rules will be introduced to reduce the number of companies that can access public and private funding. This will create issues for the industry where players will have to diversity their service portfolio in order to survive steep competition such as extended working hours and specialized services such as rehabilitation therapies.

There is also external competition from other providers such as nursing homes which, though are more expensive, provide services that consumers value and enjoy. Other external competitors include retirement communities, home health care agencies and convalescent centers. Typically all these organizations provide the same adult care services though at different levels.

Increased regulation is also a huge threat for companies operating in this industry. This is because they are required to comply with federal, state and other regulations in force by donor agencies and foundations in order to survive ARCH National Respite Resource Center, 2003.

For example, recently in California, all adult day care centers are required to be non-profits in order to receive Medi-Cal funding. Complying with these regulations is a strain for these organizations.

The economic recession that has led to huge cutbacks in government funding also creates a threat to the adult day care industry since the industry players are required to diversify their revenue streams to mitigate cash flow problems that may result from decreased funding.

SWOT summary chart

Risk Management Plan

In order to deliver a comprehensive risk management plan, it is important for risks to be identified, assessed, mitigated, tracked and reported. For the opening of the adult day care center in the Mid-Atlantic region, one of the largest risks is competition. The Mid-Atlantic region has 17.5% of the total number….....

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