In distance learning, Kroton sees competition advancing on all sides

The distance education market has grown in a frightening way in recent years. In 2018, for the first time, the number of vacancies offered in distance courses exceeded the number of vacancies in classroom courses: 7 million of remote vacancies, compared to 6.3 million of in-person vacancies. In the world of private universities, 46% of the new enrollments of 2018 were in distance courses; In 2017 were 37%. The modality won 324,000 enrollments in the period. There are times the absolute queen in the segment is Kroton, owner of Anhanguera. But this painting is changing — and fast. The country's largest education company, Kroton had 38% of the EAD market in 2014 and has been losing space ever since. From 2017 to 2018, the loss was eight percentage points: the company was 33% of the market to 25%, according to data from the census of Higher education 2018 compiled by the consultancy Educa Insights. Although the distance learning market has grown considerably — it was 1.2 million students to 1.8 million between 2014 and 2018 – Kroton's loss of space for other companies in the industry represented an effective reduction of students for the company , which had fewer 46000 students from 2017 to 2018. Even so, the company remains the largest in the industry. In the analyzed period, the second-placed Paulista Unip was from 9% to 12% in market share. Third is the Uniaselvi, which was from 8% to 11% Headquartered in Santa Catarina, Uniaselvi was the private university that most gained students in absolute numbers in 2018, with 61600 new students, a 43% increase over 2017, according to the Educa Insights survey. Interestingly, the Uniaselvi that today bothers Kroton was already part of the company. The education giant bought the company Catarinense in 2012 for 510 million reais and sold it four years later for R $1.1 billion for the Carlyle and Vinci funds. From there to here the network won 81000 students in distance learning. "Uniaselvi has had a major expansion in the number of Poles in recent years, offers courses with weekly meetings, which attracts the customer, and knows when to give a discount to the right student," says Daniel Infante, director of Educa Insights. Another company not listed on the market and that draws attention is the Unip, the second largest in the distance learning segment and that won 55700 students between 2017 and 2018. Unicesumar was the company with a national scale that grew more in relative numbers, with an increase of 28700 students in the period, high of 45%. Cruzeiro do Sul educational also had significant growth, with 26500 new students. The group has been calling attention to the focus on acquisitions, the most recent being that of the University Center Braz Cubas, in the metropolitan region of São Paulo. Of those listed on the Stock Exchange, Yduqs (ex-Estácio), the second largest higher education company in the country, won 31100 students in distance learning (24% high). To be won 2800 students, high of 33%. Of the twelve universities analyzed, only Kroton lost space. Kroton moves Kroton's been moving forward to face the competition. At the beginning of the week, the company announced that it will change the name and format of the operation. The company will be divided into four arms that will be administered by the holding Cogna Educação — which comes from "cognition". The companies will be Kroton, which follows with the same name and focus on higher education courses; namely, which includes language courses and elementary schools of which Kroton owns; The vast education, which will offer management services for schools and courseware, including eventual participation in public bidding; And Platos, created to provide management services for higher education. The group will also have an investment arm in startups, Cogna Venture. The current president of Kroton, Rodrigo Galindo, will be the president of the holding company Cogna. Roberto Valério, who was president of higher education, becomes president of the Kroton brand. The announcement was not well received by the market and the company lost 1.3 billion reais in market value. But it highlights the strategy of diversifying the business to continue growing after some disappointing results. In the second quarter of 2019, the company's adjusted net income was 267 million, 44.2% lower than that of the same period last year. In distance learning, a sector in which Kroton has swam in the last few years, one of the strategies is to reinforce the relationship with partners in the Poles throughout the country. The company has presence today in about a thousand cities and wants to reach close to 2000 cities. According to a recent report by Itaú BBA, the expansion should be promoted by partners who already work with Kroton, which expands the chances of success. "This model significantly increases the chances of success of the new distance learning poles, because the owners are already familiar with the dynamics of the business," the bank says. "The biggest challenge in expanding the EAD poles is to identify good partners," he adds. The company also works to improve the performance of the existing poles, from a periodic comparison of performance between the different poles and the sharing of best practices of the most successful units. An application gathers data from all poles and identifies variances in specific units. From there, the poles with below average performance receive the guidance of regional managers. Despite the challenging scenario, the bank evaluates the company's strategy in EAD as positive. In short, Kroton did not adhere to aggressive rebates, which could compromise its revenues, and expects competition to lose its breath in the coming years, especially small competitors. After all, the game of distance learning is expensive and requires scale. "The main risk is the continuation of the current competitive environment for a longer time than expected", ponders the bank. Industry trends The data compiled by Educa Insights show that the dispute over the distance learning market must remain fierce in the price. The average price of the courses fell by 19% between 2018 and 2019 — it was 291 reais for 237 reais per month. The hybrid courses, with classroom and distance classes increased their share in the market: in 2018 they represented 16% of the EAD market, compared to 12% in 2017. The modality grows with the offer of more complex courses, such as engineering and nursing. Another trend that must continue is the consolidation of the sector. Cruzeiro do Sul recently bought Braz Cubas and studies the acquisition of Positivo. Other operations may appear shortly. "There are assets available on the market, and if the economy responds well, we should see more mergers," Infante says.