SIC 7261: Funeral Service and Crematories
This classification includes establishments primarily engaged in preparing the dead for burial, conducting funerals, and cremating the dead.
812210 Funeral Homes
812220 Cemeteries and Crematories
The U.S. Bureau of Census projects deaths to increase at the approximate rate of 1 percent per year to 2010. Gains in industry revenue have slowed, with some stock prices dropping, despite continued consolidation by corporations and improved business practices by independent funeral homes. The steady rise in the cremation rate, as well as a trend toward personalization, continues to influence the industry to find creative ways to market its services.
ORGANIZATION AND STRUCTURE
More than 22,000 funeral homes exist in the United States. Of this number, almost 87 percent are family owned and operated. Funeral homes in the United States average 47 years in business; however, it is not uncommon to find firms that have been in operation for 100 years or more.
Since intervention and subsequent regulation by the Federal Trade Commission (FTC) in 1984, there have been major shifts in the way that funeral homes deal with the general public. Consumers are no longer kept in the dark concerning funeral cost. The FTC requires all funeral homes in the United States to provide consumers with a copy of their general price list upon request, so it is possible for the consumer to make cost comparisons for like services among competitors. The price list includes the various services that the funeral home provides, a description of those services, and the cost of each individual service. By presenting these items in an itemized fashion, the consumer may select and pay for only those services desired. Prior to the FTC ruling, it was common practice among funeral homes to use unit pricing. The cost shown on the casket selected generally included all the services requested by the consumer. Most funeral homes, however, did not allow for reductions in services.
The general price list, although possibly the most important consumer tool, is not the only requirement that directly affected the funeral purchaser. Telephone Page 2601 | Top of Articledisclosure of prices is also required, as well as disclosures concerning local laws and cemetery regulations concerning the practice of embalming and cemetery merchandise.
BACKGROUND AND DEVELOPMENT
The practice of preparing the dead for burial has been recorded throughout human history, with the ancient Egyptians as the most famous example. Funeral services, as they are known in the United States today, originated in the late nineteenth century. Prior to that time, responsibility for the burial of the dead was assumed by the family of the deceased. The preparation and viewing of the body was usually done at home, a practice that continued into the 1960s. Funeral services were generally held in the community church with the burial following in a grave prepared by friends and family. Caskets were obtained from local carpenters and, later, from local furniture merchants.
In no other country in the world is the practice of embalming bodies as widespread as it is in the United States. Embalming gained popularity during the Civil War when arrangements were made with the families of soldiers killed in battle to embalm the bodies and return them home for burial. Eventually, the practice gained such popularity that it became the basis for the funeral industry.
Embalming was usually performed at home using crude hand pumps. These pumps were used to introduce the embalming fluid into the arterial system of the body, thereby temporarily preserving it. These same pumps were used in reverse to remove any unwanted fluids or gases from the body. It eventually became impractical for families to use their homes for the preparation of the body and the funeral service. Consequently these practices moved away from the home and came to be performed at the undertaker's establishment, the funeral parlor.
Sensing an opportunity for additional income, furniture merchants began to set aside space in their stores for the display of caskets and other funeral merchandise. From this arrangement, the modern funeral home industry was born, as merchants took over the role of coordinating the various aspects of the funeral service, such as scheduling funerals, preparing newspaper notices, arranging for transportation of the body, preparing the grave, and preparing the body.
Initially the practice of funeral directing and embalming was virtually unregulated. To become an undertaker, all that was required was the desire to do so. Embalmers generally acquired an embalmer's “certificate” after attending a short seminar on embalming and, in some cases, purchasing a required amount of fluid. This part of American tradition evolved into the funeral industry. The professional title of “undertaker” later became “funeral director.”
By 1957, the average cost of a funeral service was $646. Although the average funeral cost has increased around 3 percent a year, profit margins have declined as a result of higher merchandise cost to the funeral home and an increase in the cost of providing services. Funeral homes have been slow to pass these cost increases on to consumers, resulting in a decrease of 4.8 percent in the profit margin from the years 1980 to 1998.
In the summer of 1999, the FTC's Funeral Industry Practices came up for review. The Funeral & Memorial Societies of America (FAMSA) requested that the regulations be broadened to include third-party sellers, cemeteries, and other providers of funeral goods and services. The change was supported by the National Funeral Directors Association (NFDA) and the American Association of Retired Persons (AARP), but opposed by the International Cemetery & Funeral Association (ICFA).
According to the Federated Funeral Directors of America (FFDA), the average funeral in the United States cost $4,605 in 1999, and the average number of funerals per establishment per year was approximately 182. This estimated cost included nondeclinable professional service charges, embalming, other preparation of remains, visitation, the funeral service itself at the funeral home, the funeral car, a service car, acknowledgment cards, and a midrange casket. Cost of the funeral service increased with the addition of items such as family limousines and outer burial containers.
The concept of preplanning or prepaying funerals became popular due to the rising cost of funeral services. Various programs existed for this purpose. The most popular programs offered consumer protection against cost increases over time. In 1998, the NFDA conducted a state-by-state survey of preneed regulations. They found that preneed funds were primarily placed into trusts with nearly 50 percent of the states requiring 100 percent trusting level. In addition, funds must be deposited in a time specified by the state, and all parties must be notified when a withdrawal occurs. There must be a mechanism to revoke a preneed contract, and some states require a fee paid to a state guaranty fund, whereas others require bonds to be posted.
Nontraditional Alternatives. Various alternative groups exist throughout the United States to provide consumers with options to reduce their funeral costs. These groups, generally referred to as memorial societies, attempt to offer their members savings over the cost of using traditional funeral establishments. In some cases, they negotiate with funeral directors to provide discounted costs to members. By not having the higher overhead associated with operating a full-service funeral establishment, these Page 2602 | Top of Articleorganizations are generally able to provide lower costs to the consumer. However, in most cases this results in a reduction of attendant services normally associated with a traditional funeral.
Cremation has seen a steady rise in acceptance in the United States. Even areas such as the tradition-minded South saw an increase in cremations. In 1998, cremation was selected in 24 percent of deaths nationally, and it was projected to reach 36 percent by 2010. Regional cremation projections for the year 2010 vary from 10 percent in the central southeastern United States (Alabama, Kentucky, Mississippi, and Tennessee) to a high of 65 percent in the mountain region (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming), an increase of more than 20 percent over 1997 levels.
In 1998 the average cost of a direct cremation by a funeral home was $1,200, using a container for the body provided by the funeral home. Cremation societies, similar to memorial societies in mission, tend to offer their members a less expensive alternative to traditional funeral homes. Again, the lack of overhead facilitated the lesser cost. The rising cost of traditional funeral services and merchandise, coupled with the consumer's desire to save money, greatly contributed to the increase in acceptance of cremation. A less economically associated factor, but still one of great importance, was societal education regarding cremation. Many consumers also looked for a more simplistic way to dispose of the body. A simple cremation met this desire. Funeral homes offered more cremation-related services, such as urn niches and alternative memorials.
In addition to the rising cremation rate, another obstacle challenging the funeral home operator is the appearance of the retail casket store. Although common in Europe, these stores only began appearing in the United States in the 1990s following an FTC ruling preventing funeral homes from charging special handling fees to consumers for providing their own caskets. Most retail casket suppliers advertise their goods at 40 to 60 percent below funeral home cost. They offer caskets in showrooms and catalogs, and some even take advantage of the World Wide Web and offer their caskets on the Internet. The retail casket suppliers forced the industry to rethink the way funerals traditionally were priced, with the casket making up the bulk of the service cost. The industry moved toward itemized pricing, which reflected the cost of each item or service. Package discounts also minimized any cost differential between the casket store and the funeral home.
The aging of America has given a boost to the funeral business, which brings in an estimated $14 billion each year. As of 2003, there were 22,000 funeral homes in the United States, 115,000 crematoriums, and about 300 casket stores. The death rate stood at 2.3 million per year in the United States. The largest five funeral homes held an 18 percent share of the market and claimed about 20 percent of all the revenue earned by the industry. The number of funeral service businesses has increased significantly in recent years, increasing competition and cutting into profits. Although still a quite lucrative business, profits have declined greatly in recent years, according to the Federated Funeral Directors of America, averaging $408 per funeral for funeral homes, 8.08 percent of annual sales.
Prices of funerals were increasing dramatically in the 2000s, which led more consumers to shop around for bargains on the Internet, where competition to traditional funeral homes has recently sprung up. At Funeral Depot, which began its Web site in 2000, consumers can shop for caskets, urns, vaults, grave markers, and other supplies and have them delivered to the funeral home, usually by the next day. Although a viable, FTC-mandated alternative, online sales are still a very small portion of the funeral business, with the Funeral Depot estimating its market share as 0.125 percent of the total market. Traditional funeral homes are turning to the Internet for other reasons, however. About a dozen funeral homes offered live web casts of funeral services by 2001. Other funeral homes have offered online remembrance registries that allow relatives and friends outside the area to read obituaries, make donations, participate in a private planning area, or post comments about the departed.
With funeral prices at record highs, cremations, which gained popularity in the 1990s, continued to rise in the 200s. The Cremation Society expected that trend to only increase throughout the decade. The leading U.S. state by percentage of cremations was Hawaii, with 58.6 percent in 1998, an estimated 61.1 percent in 2000, and a predicted 65 or more percent in 2010. Nevada followed, with 56.6 percent in 1998, an estimated 59.1 percent in 2000, and 65 or more percent in 2010. Washington, Alaska, and Arizona rounded out the top states by percentage of cremations, at more than a 50 percent cremation mark and expected to reach 65 or more percent in 2010.
The family-operated funeral home is still the most common form of ownership. However, citing changes in tax laws and the increase in federal regulations and monitoring, not to mention inflated offers to purchase, a growing number of independent funeral homes have begun to sell to corporations. These corporations specialize in the operation of funeral homes, crematories, and cemeteries. In 1998 the top seven U.S./Canadian Page 2603 | Top of Articlecompanies owned 14 percent of the funeral homes and accounted for 25 to 30 percent of the volume. Industry analyst Susan Little saw future consolidations dealing with facilities rather than administration, with consolidation continuing at a slower pace as less capital became available due to lower stock prices.
The largest corporate operator of funeral homes in the United States is Service Corporation International (SCI), headquartered in Dallas, Texas. In 2005 SCI operated more than 1,200 funeral homes, 400 cemeteries, flower shops, and crematoria in eight countries worldwide. In 1998, SCI acquired 308 funeral homes, 47 cemeteries, and 118 crematoria. SCI sales in 2004 stood at $1.85 billion, a 20.6 percent decrease from 2003, and had 20,598 employees. SCI continued to expand into Europe, with Paris as its largest cluster worldwide with 6 percent of total company profits. Steve Saltzman, an industry analyst, expected SCI to expand into Western Europe.
The Alderwoods Group, formerly the Loewen Group, based in Toronto, Canada, is the second-largest provider of funeral services worldwide. Alderwoods operates 700 funeral homes and 140 cemeteries in the United States, Canada, and the United Kingdom. Sales were $716.8 million in 2004, a decrease of 3.2 percent from 2003. After filing for Chapter 11 in 1999, Alderwoods planned to place all its efforts into its funeral homes and larger cemetery operations.
A third industry leader, Stewart Enterprises, Incorporated, is based in Metairie, Louisiana. In 2005 Stewart operated 240 funeral homes and 150 cemeteries in about 30 states and Puerto Rico. Revenues for 2004 were $514.7 million, a decrease of 1.4 percent over 2003. Approximately 50 percent of domestic revenues come from the company's cemeteries, with 70 percent of revenue reported as preneed.
On a much smaller corporate scale is Carriage Services, Inc., based in Houston, Texas. Carriage Services operated 140 funeral homes and 30 cemeteries in 29 states in 2005. Revenues for Carriage Services in 2004 were $150.2 million, a 0.4 percent decrease for the year.
A common theme among funeral corporations is to bring the benefits of corporate knowledge and practices to generally small business operations while maintaining a feeling of local flavor. Using this formula, corporations hope to become the dominant force in the funeral industry.
By incorporating a practice called cloistering, the corporations seek to increase revenues by decreasing operating cost. Cloistering is a practice that allows funeral homes in the same area, owned by the same corporation, to use the same people and same equipment in their daily operations. By utilizing the buying power of several different cloisters, the corporations also decrease cost by buying in bulk. In theory, this works well, but in actual practice it has been known to create difficulties. Personnel are sometimes required to travel great distances between assignments and, often the need for rolling stock exceeds the inventory. A large number of these firms generally operate with a minimal number of employees to increase profits, sometimes resulting in a situation in which the employees struggle to handle their assigned caseloads.
Personnel expenses made up 48 percent of total industry expenses; facilities, 28.8 percent; various business expenses, 6.9 percent; automotive equipment, 8.2 percent; promotions, 5.5 percent; and supplies, 2.9 percent.
Although not unique to corporate funeral homes, poor working conditions such as a lack of benefits, poor pay, and demanding schedules have resulted in increased turnover of funeral home employees.
In 2002, the funeral industry employed approximately 147,846 workers, including 24,000 licensed funeral directors. Other licensed positions include apprentices and embalmers. Nonlicensed staff includes secretaries, bookkeepers, hostesses, and maintenance workers. The occupational growth rate is expected to remain constant through 2012. The average funeral home employs four full-time and four part-time employees.
Presently almost all states have some type of educational requirement for funeral directors and embalmers. Examinations for licensing are usually administered by a state board. Apprenticeships and continuing education requirements vary from state to state. There are more than 40 schools specializing in funeral service education throughout the United States. Some of these are standalone facilities, some are located on community college campuses, and a small number are part of university curriculums. Educational awards include diplomas certifying completion of educational requirements, associate's degrees, and bachelor's degrees in funeral service.
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Woodbury, Dick. “Independent Funeral Homes Reach Out to Families Nationwide.” Denver Post, 26 August 2002.
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