Funeral price war takes its toll on Dignity

We’re so sorry for your loss.

That is how Dignity, the UK’s biggest quoted funerals provider, is addressing its investors after a profits warning that has caused the share price to halve.

Dignity, which operates from 792 locations and which in 2017 conducted 68,800 funerals, is the UK’s second largest operator after the Co-operative Group.
However, it has been hit by a price war in the sector sparked by the Co-op, which in 2016 cut the cost of its most basic funeral service to £1,995.

Image: The Co-op is the largest funeral provider in the country
That compares with the £2,700 that Dignity has been charging for what it calls a ‘simple’ funeral in which a basic coffin is provided and in which the date and time of the service is chosen by the company rather than the bereaved.
The move has hit Dignity’s market share, with the number of funerals conducted by the company in 2017 falling for a second consecutive year, in spite of the number of reported deaths last year remaining constant at 590,000.
So the company has responded by cutting its prices with immediate effect.
The price of a simple funeral has been cut to £1,995 in England and Wales and to £1,695 in Scotland.
This, it warns, means that the mix of business may change, with more people opting for a simple funeral rather than a ‘full service’ funeral, for which it charged an average £3,800 last year.
Dignity expects the proportion of its customers opting for a simple funeral may rise from 7% last year to as much as 20% in 2018.
There will also be an immediate freeze in prices of full service funerals.
Adding to the intensity of the price war is the fact that household budgets are constrained.
As Dignity noted today: “Customers are increasingly price-conscious and, in an over-supplied industry, are shopping around more.”
And there is another factor.

Conversations about death are not quite as taboo as once they were and, increasingly, people are choosing to pre-arrange their own funeral rather than leave it to the bereaved.
As Dignity received on average £1,650 for a pre-arranged funeral last year, that is a trend that has also hurt it.
However, as pre-arranging funerals has become an established part of financial planning, the price of pre-arranged funerals remains unregulated.
This has led to an outbreak of cold-calling and high-pressured selling of pre-arranged funerals that claim to offer a basic funeral service at a low price but do not always do so.
A report last year commissioned by Dignity and carried out by Fairer Finance, the consumer group, revealed that many of these plans often do not include the cost of providing a burial plot and headstone, a limousine and even embalming.
That has not only left the bereaved facing unexpected extra costs but has also driven a race to the bottom in pricing.
Both Dignity and the trade body, the National Association of Funeral Directors, are calling for pre-arranged funerals to be regulated by the Financial Conduct Authority on the grounds that funeral plans are a financial product.
While Dignity receives £1,650 for a pre-arranged funeral, the price of a typical plan is as much as £4,000, highlighting the extent to which commissions and fees are being creamed off by those selling the plans.
That change in attitudes towards death and funerals is also leading to changing behaviour. One growing trend in the sector is for a ‘simple cremation’, of the kind organised for David Bowie, in which the dead person is cremated with no funeral service and the ashes are handed to relatives later.

Image: Like David Bowie, more people are opting for a ‘simple cremation’
That may, in time, play to Dignity’s strengths, as it is more difficult to open a new crematorium than it is to open a new funeral business, so barriers to entry are higher. But, in the short term, it could eat into the company’s profits.
Charles Hall, of broker Peel Hunt, said a lot would depend now on how rivals react.