Given that today death care is reportedly a $23+ billion industry in the U.S., we aren’t surprised to hear one of the funeral trends that isn’t waning after the pandemic is the presence of corporations. Even as more people say they want personalized, localized death care services (something massive corporations aren’t known for), more corporations are entering the funeral industry.
The debate over family-owned vs corporate-owned funeral homes is going to continue, so let’s take a closer look at why corporations are getting into death care. Plus, we’ll discuss the upsides and downsides of corporate influences in the funeral world.
What Are Private Equity Firms and Why Are They Interested in Funeral Services?
Many of the corporate-level players who are entering the funeral industry are private equity firms. These are separate from the publicly traded companies that have created chain funeral homes for decades that now account for roughly 2,800 funeral homes according to Forbes’ research.
A private equity firm is an investment group that invests in private ventures not publicly traded companies. The firm can invest in a number of ways from buying a business to improve and sell for a profit to fueling a small business with capital.
No matter how a private equity firm invests, it’s usually looking for long-term investments, which is why the funeral industry has been targeted by corporations.
Income is Predictable
People are going to die, and legally, disposition has to happen. Any investor or investment group likes having a very good idea of their return, and funeral service revenue is somewhat predictable given you have a rough idea of the customer base. Just consider the service area, how many people die in the area a year and how much competition there is from other funeral service providers to get a good idea of your potential income and profitability.
Baby Boomer Generation Promises to Boost Future Revenue
One of the largest generations in human history is aging. The Baby Boomer Generation was born between 1946 and 1964. Thanks to that spike in births and modern medicine extending life, the 65+ population has grown substantially in the U.S. The average life expectancy in the U.S. is 77.5 years.
Corporations are massive entities that have the resources to project far into the future and line up revenue streams to maintain their profitability for years to come. They are staying ahead of trends and looking for ventures that will be profitable in the near future. Funeral services fit that bill for private equity firms given that each year more Boomers will surpass the average life expectancy.
High Profit Margin
Funeral services already have a decent profit margin, but private equity firms increase it by standardizing services and systems. All of the funeral homes that the firm acquires will use the same administrative systems and marketing strategies. The funeral homes will offer all of the same products that have been bought in bulk for a discount.
The high profit margin that can be made higher makes funeral services a prime target for some private equity firms that are focused on return.
Funeral Home Owners Are Retiring and Selling
Another thing that corporations are capitalizing on is the large segment of funeral home owners who are nearing retirement age. Not long ago, it was common for a funeral home to pass on to a family member who was already involved with the business. Today, that isn’t the case.
In 2021 the National Funeral Directors Association noted that 34% of funeral home owners were planning to retire in the next five years but 73% had no one to pass their business on to. That means private equity firms have ample opportunities to purchase funeral homes right now.
Consolidation Potential
Huge corporations turn even bigger profits by consolidating within a fragmented industry. In other words, they find industries where they can acquire similar businesses across different regions or throughout a single region and bring them under one umbrella to streamline costs and cut competition.
If that sounds like it might not be the best deal for consumers you could be right. That kind of activity is why we have laws against monopolies.
What Consumer Have to Watch Out For With Corporate Funeral Influencers
The corporate takeover of death care is a relatively new occurrence, and many consumers aren’t aware it’s happening. Often when a private equity firm acquires a small family-owned funeral home everything looks the same from the outside. However, the management has changed, which means the services offered, how they are delivered and quality of service could change dramatically.
The reason corporations maintain the appearance of being a family-owned funeral home is they know it’s better for business. More families in Texas and across the U.S. want personalized funeral services from local providers. Many people think they are working with a small local funeral home when in fact it’s part of a conglomerate that’s made to look independent.
Limitations and hidden costs are two other issues that consumers have to watch out for. Corporations undercut the competition with lower prices, yet they are able to maintain profit margins. Corporate-owned funeral homes have the ability to make purchases at a large scale to lower expenses, but that isn’t always passed on to the end consumer. Deviating from the standard selection could mean additional expenses that aren’t always obvious at the onset.
Another concern is that private equity companies will increase prices once they are established in a market area. It’s a valid concern given that publicly traded companies in the funeral industry have done just that.
As you may be able to tell, the biggest concern for many consumers is that corporations are just interested in turning a profit, not compassionately helping people who just lost a family member. Working with a corporate-owned funeral home can feel like you’re just a number on a ledger since the firm is beholden to shareholders who are only interested in profit.
Cremation.Green is proud to be a local, family-owned funeral home that is able to provide big-hearted eco-friendly funeral services that aren’t offered by corporate providers. We’re here to help Texans and the state’s beautiful environment, not shareholders.
Our team is available to help with personalized service 24 hours a day.
