‘The cost of death services has long exasperated Americans. In December 1856, a New York Times editorial argued that “nobody that is not comfortably off in this world’s goods can afford to die” because “to pass into the hands of the undertaker is positive bankruptcy.”
A century later, Bill Davidson noted in a 1951 Collier’s article that “while the cost of living has risen 347 percent in the last 122 years, the cost of dying has rocketed as much as 10,000 per cent.”
Not much appears to have changed in the intervening years since that 19th century New York Times piece, either in the USA or here in the UK. The high cost of funerals is a regular subject of newspaper columns and articles and the causes much debated.
The finger of blame is frequently pointed at the larger players in the funeral sector, while they, in turn justify their higher prices by claiming to provide better quality service. Indeed, a whole report emphasising quality and standards was commissioned by Dignity from Trajectory last year, making much of the fact that price was far less important than quality of service. And Dignity’s Corporate Profile publication (downloadable here) mentions the word ‘quality’ no less than 67 times, stating bravely “Our vision is to lead the funeral sector in terms of quality, standards and value-for-money.”
Hmmm. We’re not so sure that Dignity’s quality of service is justified by the prices they charge. Which appear to vary tremendously between branches, as noted in our blog post here.
Exceptionally high quality service is offered by all of the funeral directors on our recommended list, and not one of them charge the same amount for their services as the Dignity do for an equivalent funeral.
Fortunately, as noted in a series of GFG blog posts since first mentioning it last June, the Competition and Markets Authority are currently carrying out a Market Investigation into the funeral sector, and on Wednesday this week, the first working paper was published, outlining their approach to profitability and financial analysis.
It is unlikely to be have been met with delight at Dignity PLC which evolved from SCI ownership through a management buyout in 2002. (Yes, that’s the same Service Corporation International mentioned so unfavourably in the Washington Monthly piece; the largest deathcare corporation in North America that, according to one study, charges prices that are 47 to 72% higher than other funeral homes and cemeteries.)
Nor at Co-operative Funeralcare and Funeral Partners Ltd – named alongside Dignity as the three largest providers of funeral services in the UK, and all being treated in the same way by the CMA (much to Funeral Partners’ annoyance, as can be seen in their response to the CMA’s Issues Statement here – ‘It is simply not meaningful to include Funeral Partners as the third of a group of supposed ‘large funeral directors’ and as such, it is submitted that there is no basis on which Funeral Partners should be subjected to any remedy which is not applied to the market as a whole.’)
Detailed financial information requests (going back five years and forecasting for a further year) have been sent to all three companies, with Dignity also receiving a similar detailed request with regard to their crematoria services.
From the CMA working paper –
Paragraph 25: ‘Our market-wide profitability assessment for funeral director services will focus on two groups of firms:
(a) The three largest providers of funeral director services in the UK, namely Dignity Plc (Dignity), Co-operative Group Limited (Co-op) and Funeral Partners Limited (Funeral Partners). In the UK, these firms have an estimated combined market share of approximately 29%, based on number of deaths.
(b) A representative sample of branches in the remaining 71% of the market, which is composed of smaller providers.’
The CMA tell us at Paragraphs 29 – 30:
‘…we propose to collect data over a five-year historical period from 2014 to 2018, for both funeral director services and crematoria services (referred to as the “Relevant Period” in the rest of this working paper).
Where our profitability analysis is used to estimate detriment and therefore the proportionality of remedies, we propose to consider whether historical (or backward-looking) profitability is a good estimate of prospective (or forward- looking) profitability. We are therefore also collecting forecast information.
The largest providers of funeral director services and crematoria services told us that as part of the ordinary course of business they forecast detailed information for one financial year ahead. We are therefore collecting forecast data for 2019, giving us a total time period of 2014 to 2019.’
NB Paragraph 13 of the working paper advises: ‘The Market Investigation Guidelines (the Guidelines) state that: ‘Firms in a competitive market would generally earn no more than a ‘normal’ rate of profit – the minimum level of profits required to keep the factors of production in their current use in the long run, i.e. the rate of return on capital employed for a particular business activity would be equal to the opportunity cost of capital for that activity.’
The CMA’s sampling approach to gathering data from 100 small independent funeral companies is set out in paragraphs 86 – 10 of the paper, and takes quite a different format, acknowledging that these are ‘predominantly small (often family-run) businesses, which may not have full time accountants or bookkeepers.’
Now, we aren’t privy to figures from the Co-op or Funeral Partners, as this information is not in the public domain, but as a listed company, Dignity helpfully provides the public with updates on their success. Their annual report and accounts for 2018 can be downloaded here. And from the CMA’s own findings in their Final Report and decision on a market investigation reference:
‘6.112 It seems clear that the vulnerability of customers has been a major factor in enabling suppliers to charge high prices in the sector for the past 15 years, rather than underlying cost pressures, and it appears to us that Dignity’s pricing policies have acted as the engine of these price rises, with others in the market appearing to follow its lead.’
We’re looking forward to reading about the CMA’s findings when their forensic investigation into the figures is concluded and their Provisional Decision report is published early next year. Even with redacted numbers represented by pictures of scissors, it should be illuminating. Indeed, if we were inclined to a flutter at the bookies, we’d have a fiver on the largest providers not quite making the mark when it comes to only earning a ‘normal’ rate of profit.
