Funeral Service Costs Appear High and are Increasing, Could it be the Result of Quiet Buyouts of Independent Operators by National Chains?
Many consumers are surprised about the high cost of funeral services. Part of the problem is that, when making funeral arrangements, consumers are often too overcome by urgency and grief, to make savvy and discretionary choices. However, as this ConsumerGram finds, national firms have been buying out small independent operations, which may potentially reduce competition and drive up prices, while avoiding the watchful eye of regulators.
The Industry of Death
Approximately 2.4 million Americans die each year, which, for the most part, drives the $25 billion funeral industry. Funeral-related costs appear high. Sources estimate that a traditional funeral, including in-ground burial, flowers, notices and other associated costs, could easily cost a consumer $10,000. In discussing a lawsuit alleging price-fixing in the industry, the Wall Street Journal reported in 2005 that casket prices ranging from $2,200 to $7,395 could be purchased from a wholesale shopping club, like Costco, for under $1,000.
Why do consumers pay so much? Consumers may often feel too rushed to compare prices and be overcome by grief as they make funeral preparations for their departed loved ones. For some funeral home operators, these more vulnerable consumers may be easy target for higher prices and added services. High funeral-related costs have contributed to an increase in preplanning, as well as cremations. However, deception and fraud are “rife” in preplanning according to an AAPR bulletin, which offers consumers a bit of good advice – “preplan but not to prepay.”
Competition should be the answer. If consumers could quickly gather information and determine which funeral operators offer the best value, things would be fine – but it is not that simple. The industry is not known for its sales, discounts and coupons. The fact is that intense competition is hard to observe, competitive information maybe harder to collect, and all of this could mean that consumer pay more than they should.
Funeral Service Prices Increase Faster than Inflation
Not only do funeral-related expenses appear high, but prices are increasing at a fast clip. As the chart below shows, since 1990, funeral prices have increased nearly twice as fast as prices for other consumer goods and services, according to the Consumer Price Index.
In recent years, consumer expenditures have increased briskly for funeral-related services, with older consumers – those 75 years of age and older – experiencing a much higher increase in spending compared to average consumers. Specifically, using the most recent government statistics comparing 2003 to 2005, the chart below shows that older consumers spent 37% more for funeral, cemetery lots, vaults and maintenance fees over a two-year period, compared to a 12% spending increase for the average consumer. Could this highlight the vulnerability of elderly or is it just some unexplained demographic phenomenon?
Major Chains Buying Independents, Concentrating the Market
What else could contribute to high and increasingly higher prices for funeral-related services? There has been a trend of mergers in the industry and reports of potential market power. A case in point was an analysis of a $578 million merger in 1999 in which the Federal Trade Commission (FTC) found that a merger would lead to complete monopolies in some markets and significantly concentration elsewhere. In effect, the FTC’s analysis concluded that these mergers could pose anticompetitive risks for consumers and prescribed remedies.
However, while the FTC and state attorney generals may keep a watchful eye on major mergers, national firms have been quietly buying out many small independent operations, avoiding regulatory oversight. When buying these small and sometimes family-owned independents, consumers are often unaware that their neighborhood’s businesses are now part of a national operation. For example, the website for one funeral home in New England mentions its 150 year old family roots, although it is no longer family-owned. The problem with all of this is that consumers may not realize that two funeral homes in the same town are owned by the same operator, who controls and can coordinate prices for each, which, for consumers, makes finding a competitor and competitive prices even more difficult. Could this stifle competition and lead consumers pay more?
The Sun-Sentinel has written about how small “mom and pop” operations were being snapped up by large chains and made a comparison of funeral prices in two Florida counties. They found that national firms, including Alderwoods Group (previously named Loewen Group) and SCI were charging up to 62% higher prices than independent operators for the same services. If this analysis is correct, then consumers appear to be paying significantly more as market concentration increases. However, more information is needed about the structure, conduct and performance of the industry.
For consumers, funeral-related expenses are significant and prices appear to be increasing much faster than inflation. While part of the problem may that consumers are often too overcome by urgency and grief to comparison shop, another problem is that consumers do not realize that some area funeral homes, though having different names, are owned by the same operator. This may make comparing prices for difficult and confusing for consumers.