Wednesday, January 6, 2010

Funeral Service and The New Economy, Ain’t That A Joke

Richard A. Santore
Practicum Strategies

All over Newspapers, Magazines, TV infomercials and the internet we keep hearing about the New Economy. Buy my (whatever) to protect yourself in the “New Economy”. We can re-educate you for the future, in the “New Economy”. We can do all kinds of wonderful things for you, as you adjust to the “New Economy”. But first you have to give them a big bunch of your money. Money you can ill afford to give away. All are scam artists promising you success and salvation. The simple truth is there is no economy. People and businesses are hurting and these scam artists are taking advantage of them while these people and businesses are clutching at straws trying to survive.

All too many times I have heard, “Oh, you’re a Funeral Director, you’re in an inflation proof business, people are always dying.” Yeah. people are always dying but the funeral industry is far from inflation proof. While a funeral can qualify as a necessity purchase it is most definitely can also qualify as a luxury purchase. So it’s not to hard to see funeral homes are falling on hard times as their clients are searching for less expensive ways to honor their loved ones.

To understand what you can do to improve your position in the marketplace also requires you to take a history lesson.

Early in the 1960’s Robert Waltrip found himself forced to drop out of college to run the family business when his father died. Bobby had a dream, not satisfied to merely running the family funeral home he wanted to expand and operate a chain of funeral homes and with little less than a lot of chutzpah Service Corporation International and a dynasty was born. At about this same time, Paul Hamilton of Des Moines, Iowa started International Funeral Service and the race for consolidation was on. The ensuing years also brought out many imitators, most of which lacked Walthrip’s dream but were merely there looking to put funeral home packages together for resale.

The “Funeral Rule” created in the 1970’s taught funeral directors, that sundry items that they gladly gave to grieving families was no longer permitted. The FTC’s position was and is “no one gives anything away and if you are, you’re inflating your prices to compensate for what you are giving away”. In essence funeral directors began charging for things they have never dreamed of charging for in the past. Now, if I may, I would like to digress just to say, prior to the FTC Funeral Rule, when a family selected a casket everything else was included form prayer cards and memorial folders right down to the hearse and limousine to the cemetery or crematory.

The 1980’s brought about the emergence of Stewart Enterprises and The Lowen Group as major competitors of SCI as well as a young upstart stockbroker from the Chicago Corporation who was looking for that niche market he could develop, which he found in funeral service. Thanks to that stockbroker Funeral Service was now being touted as a growth industry and the consolidation began in earnest. Family Funeral Businesses were popping all over the auction blocks and being sold to the highest bidder. Independent funeral directors who swore they loved the family business started by their grand-father more than life itself and more than their first-born were holding out to sell to the highest bidder. The upshot of all this was, funeral homes were being sold at inflated prices and the new owner (the corporate consolidator) was forced to raise prices and cut back on service to grieving families in order to meet their financial obligations. It is also important to note they closed many properties within market areas and established centralized service facilities to reduce expenditures. And, most important of all we learned Funeral Services is not a growth industry. A growth industry is an industry which is growing earnings and/or revenue faster than the overall market. Growth industries usually contain a large number of growth stocks investments such industries are usually suitable for investors who are willing to accept larger risk in exchange for the possibility of larger returns. The problem with funeral service is the consolidator’s only means of growing was to continually buy funeral homes; there is no internal industry growth. As a whole the industry is dependant on the death rate.

In the beginning independent funeral directors scoffed at the consolidator’s practice of raising their prices on service and merchandise “sell to a consolidator and the first this they do is raise prices.” And, gradually greed began to set in, “if the consolidator can charge that much so can I.” along with reduced service. No, you say! “We provide all the service a family could possibly want.” True, but only at a price! Think about what happened. When you cut back on service families are going to question what they want or need. And lets stop blaming “Baby Boomers” because they think differently than their parents, they’re the ones caught up in the “New Economy”.

Think about this. You and your spouse decide it’s time for new living room, dining room or bedroom furniture. You are going to visit all of the local furniture stores, you are going to take along a floor plan of the room; you may even decide to travel to factory showrooms to find the perfect furniture for your room. This whole shopping process can take you anywhere from one or two weeks to several months and you are going to spend anywhere from 5 to 10 thousand dollars for furniture you are going to look at and use for the next 20 years. I ask you is it right to expect a family to come into your casket showroom, spend the same amount of money, select a casket within minutes and then charge them extra if this want visitation for an extra day?

Is there a solution to all this? Yes! Adjust some of you service charges, take a hard look at your casket pricing, do those things that will encourage a family to see value in the services you provide.

Prior to Consolidation and prior to the “Funeral Rule” the industry philosophy was “good embalming means repeat business and memory picture was the catch phrase funeral directors used when explaining closure upon the death of a loved one.

I can make you no promises that this will make a difference in your business, but I can tell you that the concept of memorailization and funerals without visitation has been growing for the past 40 years and nothing changes over-night. What is important is, it is a starting place to encourage families back to the value of funeral service.