Nov 29, 2020

Business of death is a profitable undertaking

written by Lisa Eason

During these desolate days of lockdown, it has been difficult to find interesting places open to the public. Somewhere you can usually access freely is a cemetery. It feels somehow apposite, when the whole nation is obsessed by disease and death, to spend a little time wandering among the faded gravestones, reflecting on mortality.

So at weekends I have been touring the so-called magnificent seven: giant repositories for the dead built in Victorian times that encircle London. All were constructed as commercial undertakings, although only one remains a private business. My favourite is Brompton cemetery, the “Great Garden of Sleep”, where more than 200,000 people are buried.

Even if the grand necropolises are no longer viable as businesses, the death trade in general remains robust, worth £2bn a year. The leading funeral directors had been concerned that the Competition & Markets Authority, which was investigating the industry, was going to recommend price controls. Organising the funeral of a loved one is described as the “ultimate distress purchase”, so customers rarely shop around. The unctuous gentlemen who inter our dead relatives in the ground were accused of sharp practices and exploiting the bereaved.

However, in August the regulators ended their inquiry without proposing material reforms — pathetically blaming their inability to finish their work on the pandemic. The share price of one of the biggest players, Dignity, says it all: it has risen from 250p in July, just prior to the CMA announcement, to more than 700p — a jump of more than 180%. Lucky old undertakers, saved by the virus!

Dignity is the second-largest operator after the Co-op, while a buy-and-build vehicle, Funeral Partners, is the other main player. These three giants control about a third of the market, the other 5,000 or so branches that make up the remaining two-thirds being owned by smaller family firms.

In the mid-1980s I wrote the first-ever piece of stockbroker research comparing the then three quoted funeral directors: Great Southern Group, Kenyon Securities and Hodgson Holdings. Two of the three later merged and were rebranded as Dignity. Even 35 years ago, it was an attractive business: cash generative, high margin, with limited competition, and extremely stable demand. Today, the corporate undertakers can still enjoy underlying margins of 25% to 35% — noticeably higher than in similar overseas markets. The morbid nature of the trade somehow keeps typical capitalist rivalry within modest bounds.

Cremation is an even better business than burials. These days, more than three-quarters of us end up being turned to ashes, and the average price has risen by 84% over the past 10 years. The four key players are Dignity, Westerleigh, Memoria and the London Cremation Company. Memoria is run by Howard Hodgson, the renowned death-care entrepreneur, whose autobiography is titled How to Become Dead Rich. There are now more than 300 crematoriums, more than half of them owned by local authorities, but 50 have been constructed by private operators in the past 12 years.

Inevitably, in a country that has largely ceased to believe in God, church burials have rapidly decline. Religious services are rarer, with increasing numbers opting for natural burials in places such as woodlands. However, mourners still spend more on disposing of the dead than they did. Plots in desirable graveyards such as Kensal Green, west London, can cost more than £20,000, and the interment fee another £1,500 at least on top. What with a coffin or urn, flowers, hearse, service, headstone and so forth, the entire ceremony could set one back £30,000, although the average funeral costs about £5,000 in total.

The funeral directors have done well this year in terms of demand: deaths were up 23% in the first-half. For the full year I expect deaths to be perhaps 15% higher than last year, because of the coronavirus and lockdowns. In the coming years, however, deaths are likely to be lower because most of the excess deaths were of the very elderly and ill.

Unquestionably, undertaking is an unusual profession, and not for the faint of heart. Yet there are many dedicated funeral directors who take great pride in providing a compassionate service with empathy and respect. I believe that a large part of the reason many people have been so fearful this year is that society is in semi-denial about our mortality. Philosophy teaches that life is transient; ultimately, little endures. So we must insist that the government allow us to be free agents once more, and remind ourselves that we should treat each day as if it is our last.