Counterpoint: Rise of the Discounters

0
665

By David Nixon, Certified Management Consultant and President of Nixon Consulting, Inc.

Reading through “How Did We Get Here? Factors Leading to the Rise of Discount Funeral Homes” by Glenn Gould caused me to reflect on funeral services’ journey from dependable businesses to these times of change.

Glenn brings up many interesting points: disgruntled employees, inflexibility in offerings, making costs hard to access, making staff feel easily replaceable, focus on mortuary schools, focus on owners and not on staff, influence on legislators, too many funeral homes, ignoring innovation, poor training, and the primary culprit.

How You Treat Your Staff Matters 

Probably 10 years ago, I had a conversation with an owner who was servicing over 500 calls per year. This senior owner spoke harshly of his employees in terms of loyalty and dedication. He felt they were paid well, and they were. His approval meant a lot to his personnel, an approval that was often withheld. When I mentioned that he might also want to say thank you to his staff for services done well, he balked, explaining that he pays them well and that they are expected to do their jobs. While true on the surface, I find that a simple “thanks” provides more motivation for some employees than bonuses or commissions.

Glenn’s take on disgruntled employees, making staff feel easily replaceable, and a primary focus on owners is largely true. The most successful owners that I know don’t exhibit such attitudes. These successful owners serve their staff so that the staff can better serve their client families.

Legislative Influence 

The legislative influence in funeral service is a problem, as Glenn correctly points out. While protectionism lays at the heart of funeral home regulations, that stifling of new ideas has now rebounded with unintended consequences. The FTC Funeral Rule came into existence mostly from the lack of funeral service policing itself. Today, the attraction of outside investors with money to burn brings opportunities for some but for change as well. Perhaps these private equity people will alter the landscape of funeral service if funeral service does not bring about its own changes.

Comparing the U.S. to Canada 

Four years ago, I delved into the number of funeral homes in the U.S. and decided to use the Canadian experience as a proxy for how many funeral homes were needed in the U.S. After all, Canada is often 20% higher in their cremation rate as we are here in the United States, a path we are sure to follow based on CANA and NFDA projections. My research revealed that in 2015 the U.S. had 24.6% more funeral home rooftops than we needed. Imagine if your market lost 25% of your competitors – what would that mean to your business (hoping that your firm is not part of the 25%, of course)?

About Mortuary Schools 

Mortuary schools are businesses first and foremost, not farm clubs subsidized by major league teams. Their purpose is to graduate students and teach the students how to pass the exams. We can have heated discussions about the lack of cremation training in mortuary schools over the past 30 years or the focus on embalming when embalming is diminishing. We can even discuss teaching debits and credits, when most students will never use debits and credits and most owners won’t either. The focus should be training that will benefit them in their careers.

The lack of training follows into their employment after mortuary school. Their days spent washing cars, painting, and cutting grass, while important to a funeral home, do not help them advance in arrangements, handling difficult client families, or learning the business of funeral service. Nothing speaks more of a lack of training after mortuary school than the lack of trained funeral service managers. We prop up arrangers making the most arrangements into a manager’s role with little training or direction. Most managers in other businesses have advanced duties, such as budgeting, but not in funeral service.

An Industry Opposed to Change 

When I first started working with funeral home owners 40 years ago, people told me that funeral directors don’t like change. I discovered that was an understatement. At the time, funeral service was an arrangement conference, embalming, a visitation, a funeral ceremony, a casket, and a vault. Any other arrangement was almost blasphemous. Glenn’s point on inflexibility and ignoring innovations rings true, considering that here we are 40 years later and a “traditional” funeral is still the benchmark for many.

Nothing speaks more loudly of inflexibility than ignoring cremation, letting direct disposal societies grab cremation for their own. The “shake and bake” mentality regarding cremations many years ago still holds in some minds, albeit they don’t recite it out loud anymore.

So, you see, Glenn and I agree on many facets of funeral service and the reasons for the rise of discounters. Times change. I can recall when I once scoffed at a 50-call firm for investing in cable TV advertising back in the 80s. His marketing expenses doubled in one year, then his volume doubled as well. Obviously, I missed that one.

The Great Recession 

Funeral service was labeled as recession-proof. I watched disbelievingly as the Great Recession of 2018 proved otherwise. We found that our clients experienced faster growth in non-traditional burial calls than in their cremation rate for roughly three years. The impact of the Great Recession, combined with rising cremation rates, placed a strain on revenues and profit.

In similar fashion, it was assumed that all markets were the same regarding funerals. That proved false as well. I found that clients in communities with declining population and low median household income, many middle-class areas, felt the impact of the recession, and some still do.

A Different Perspective 

As to Glenn’s “primary culprit,” I must speak from a different perspective. As a certified management consultant for funeral service, I advise funeral home owners in terms of finances, strategy, pricing, operations, and business value. My background also includes being a non-CPA partner in accounting services for funeral homes for 25 years. Yes, I fit Glenn’s description of a primary culprit. I cannot speak for all consultants or advisors, but my guess is that many have experienced the same challenges.

Let’s talk about the cremation challenge first. Glenn stated that countless articles cite the answer to cremation is to just raise prices. Having examined the cremation revenue imbalance for 25 years, I feel qualified to address this issue. Glenn is correct in that some just keep raising their prices. However, consultants like myself recognized long ago that merely charging more for direct cremation – which consumers could get cheaper elsewhere – just won’t fly. I advised our clients and others years ago that you had to raise the standard of direct cremation. You had to offer more in order to charge more. Erroneously raising your direct cremation fee and providing the same services as the discounters would not work. So, let’s not point the finger at all consultants.

With funeral home total operating expenses rising 1.4% annually over the last 10 years, a funeral home owner cannot just eat that increase – it has to be passed along. That 1.4% number was from my research and published in NFDA’s magazine, The Director, in “From Statistics to Solutions” back in January. From what I have observed, the average casket company wholesale cost increases from 3.5% to 4% annually. While not sustainable at the retail level, casket selling prices have to rise as well. These days, too many funeral home owners are “eating” the increasing cost of caskets and holding the line on their casket selling prices. This is unsustainable. If expenses and costs rise, you need to at least keep up – or risk going out of business.

Glenn stated that the “absence of cost control is the primary factor contributing to the growth of discounters.” As a financial/operational advisor, we can only do so much.

In the past, probably like my colleagues, I have presented the following advice, which was not well received:

  • A multi-location firm quit our services after I questioned the need for two of his three branches. They were not generating enough revenue to cover the facilities cost.
  • Got a deaf ear from an owner who insisted that he had the “Midas Touch” and that adding a $2 million location would pay for itself. It did not.
  • Received darting eyes from an owner who wanted to build a new arrangement conference room across the street. I advised turning that lot into a non-funeral, profit-making venture. That was not welcome news to the owner.
  • A client did not renew our services when I counseled that they cut back on their facilities expenditures, in particular, their high landscaping costs.

We advisors can only do so much. Glenn is right that funeral home owners need to better manage their business to run it more efficiently, especially today.

Marketing Matters 

Marketing is more than advertising. To me, it encompasses several categories like advertising, promotion, business entertaining, and even contributions. At the start of my career, I took classes on marketing. One line in a text stood out to me: “The purpose of marketing is to make selling superfluous.” In other words, you really don’t need to upsell someone when your marketing is successful. People will come, like in the Field of Dreams movie. It is getting more difficult to attract people to an unsought service, such as a funeral.

The Importance of Building Volume 

Let’s talk about building volume. In Glenn’s article, he stated, “If you want to make more money in five years, build volume every year. No business builds volume by rejecting business.” I must disagree on that point.

Today, there is a glut of direct cremation/direct disposal firms in many markets. Funeral homes with million-dollar facilities and staff cannot compete and capture the $595 direct cremation calls. Working harder for the same revenue does not sound logical. In my opinion, we do have to walk away from those calls. As the discount cremation businesses increase, we can expect to lose more of the low-priced cremation calls. The challenge is to market to those consumers who value what you do and are willing to pay a reasonable price for your services.

In 2002, Glenn wrote an article titled “Not All Business is Good for Business.” In that article, he stated, “… most funeral businesses continue to invest too much time focusing on volume and too little focusing on quality … In simple terms, funeral homes must be willing to walk away from some business.” In my opinion, Glenn’s 2002 statement still holds true.

Glenn is correct that poor management and the absence of cost control is one of the biggest factors in the rise of discounters. Other factors like the demise of organized religion and the Great Recession also played a role. Overcharging burial families to offset cheaper cremation selections also contributed to the rise in discount firms.

Still, it is bothersome to hear someone suggest that financial advisors and accountants played a role. Believe it or not, not every client listens to their financial advisors. I am sure that not every client goes along with their marketing advisors either.

If you would like to share your comments or feedback about any article on The Leader, email [email protected].


Follow the Leader

LEAVE A REPLY

Please enter your comment!
Please enter your name here