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The new reality for independent funeral directors: The big boys are tough competition...
A decade ago, many independent funeral-home owners were practically begging a public consolidator to acquire a nearby firm. The boastful taunts took on a familiar tone: "The best thing that every happened to my firm was SCI buying my competition. Now, half the families that used to go there come to my funeral home."
You could easily substitute Carriage Services, the Loewen Group or Stewart Enterprises for Service Corporation International (SCI). And to be fair, the alleged shift in market share was sometimes closer to 25%. But in a few cases, it was 60% or higher. And nearly everyone in deathcare knows the reasons why.
The Big Four were focused on keeping the acquisitions mill running at full speed - their only hope, really, for getting a little love from Wall Street analysts mesmerized by the meteoric growth of Dell, Microsoft and the other high-tech darlings of the '90s. Accordingly, deathcare's top consolidators weren't devoting a lot of time and energy to running those newly acquired properties properly. And too often, they just made some really bad decisions at the headquarters or regional-office level.
Like raising a funeral home's prices by 10% or more - sometimes two, three or more times in a single 12-month period. Also, in their attempt to extract ever-greater economies of scale from a regional cluster, some of the public chains would shift even the most beloved, community-connected funeral directors from location to location. Thanks to that dubious game of musical chairs - and because many licensees simply got tired of all the nonsense and quit – the public consolidators began to hear a common complaint within the communities they served: "I went to Mabel Reed's visitation at Smith's Funeral Home Thursday night, and I didn't see a single employee I knew. And the new people there didn't seem very friendly. That place just isn't the same anymore." Ouch.
Of course, independent funeral directors would fan the flames, too. They'd talk about the chain-owned competitors' price hikes and personnel moves at their Rotary Club and Kiwanis meetings, then drive the point home: Smith's profits are now all going to some fat cats in an out-of-town corporate headquarters... but every dollar you spend with us stays right here in the community.
If the chain competitor was selling preneed aggressively, the indy funeral director would stress that his family-owned firm still embraced a more tactful, low-key approach. And when the acquisitions bubble burst right before the new millennium, the chain's financial troubles provided additional grist for their independent competitors. I recall one indy owner who grew a start-up funeral home to nearly 300 annual calls in just four years, in part by filling his local paper with ads highlighting Prime Succession's descent into bankruptcy. (They owned his main in-town rival.)
Ah, but that was then... this is now. Today, nearly every seasoned industry watcher believes the public consolidators have emerged from a troubled adolescence to become robust, serious-minded adults. The big guys are poised to start buying again ... and promise to kick some serious butt in the decades ahead.
As you probably know, The Big Four have largely stayed away from the buying game for the last seven years, focusing instead on becoming leaner, meaner machines. They've tamed the debt monster that hobbled all of them in the early part of this decade. That has meant selling off the dogs in their funeral-home and cemetery portfolios, tightening their belts like never before and, in Loewen's case, plunging into Chapter 11 bankruptcy and re-emerging as a restructured, stronger company, the Alderwoods Group.
In short, the big public companies have learned some tough lessons and built some formidable operating skills at every level of their organizations. "All of the big guys are making smart moves with a level of consciousness and maturity that they never had before," says Dan Isard, president of the Foresight Companies, Phoenix. "All of them have raised their business savvy."
Another thing has happened: Consumers simply care less and less about who owns a firm. Sure, Wal-Mart has its critics... but it also has millions and millions of loyal customers. "Made in the U.S.A." might still matter when Americans shop for a motorcycle or PC. But most folks today have accepted the fact that their next shirt or blouse will probably be made in Thailand rather than North Carolina ... that their next call for customer service will very likely be answered by a man or woman in India ... and that Japanese cars simply leave the competition in the dust when it comes to reliability and bang for the buck.
Little wonder, then, that funeral service's top marketing guru - Marilyn Jones Gould of MKJ Marketing, Largo, Fla. – began urging clients years ago to stop making "locally owned" a prime focus of their advertising campaigns. That message just doesn't resonate with consumers the way it used to, she reasoned. And who can really argue with her on that point?
Carriage Services reveals how the big boys plan to grow and profit in the years ahead
It was against this backdrop of changing consumer preferences - and a shifting deathcare landscape – that Carriage Services brought its pitch to New York City yesterday. Whatever stake you have in the funeral business, you owe it to yourself to hear the webcast of the 36-minute presentation that Carriage CEO Melvin Payne and CFO Joseph Saporito made yesterday. Simply click onto www.carriageservices.com, hit the "investor relations" button at the top of the page, then the "webcasts/conference calls" link that will appear to your right. From the list that subsequently appears, choose "Sanders Morris Harris Middle Market Investor Growth Conference." A media player will appear, and the presentation should start streaming automatically.
Tomorrow, FuneralWire willl bring you the highlights of Carriage's presentation. It was filled with eye-opening insights on everything from how the Houston-based consolidator is choosing which firms to buy – and how much they're willing to pay – to an intriguing gameplan for growing volume at their existing locations. Much of Carriage's strategy focuses on identifying leaders within their locations and giving them the tools and incentives to pull market share away from the competition.
First, a bit of background: Carriage got its start in 1991, and its early acquisitions were mostly firms that SCI was forced by the feds to sell after an epic buying spree that year – Sentinel, Arlington and Pierce Bros. Carriage went public in 1996 and has since been a distant No. 4 among the top consolidators. Of course, Payne's continuous spin is that "small is beautiful" - not only because it makes for a more nimble company, but because many independent funeral-home owners feel more comfortable selling to a consolidator whose revenues are well shy of the $1 billion mark.
Maybe so, but Wall Street hasn't really embraced that story. Carriage's stock has wavered between $4.12 and $6.70 a share during the past two years. Yesterday, it closed at $4.92 per share, up just 9% from its $4.53 sale price on Oct. 25, 2004. During that same, 24-month period, Alderwoods' stock price has soared 93%, from $10.29 to $19.91. And SCI shares have climbed 44%, from $6.41 to $9.20.
It's not just that SCI's revenue is more than 10 times that of Carriage Services." Even after a debt restructuring last year, Carriage is devoting 12% of its sales to interest payments, or double SCI's debt load. Also, as a larger company, SCI is able to keep its corporate-level costs to 5% of revenue; those "general and administrative" expenses run 8% at Carriage.
Mel Payne - Carriage's founder, president, CEO and chairman – knows this differential all too well. He earned about $527,000 in salary and bonus last year ... or about one-fourth of the $1.93 million SCI Chairman Bob Waltrip received.
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