Weep for the Grim Reaper

It's a tough time to be in the death-care business—or what all us non-undertakers refer to as funeral homes. At Service Corp. International (SCI), the Houston-based giant with 2,000 homes, the number of services conducted fell 2,131, or 4 percent, from last year. And revenue per funeral barely kept pace with inflation, rising just 2.7 percent. At the Batesville Casket Co., a unit of publicly held Hillenbrand Industries and one of the largest U.S. coffin makers, sales in the first nine months of 2007 were flat compared with 2006.

In theory, death care should be immune from short-term economic swings. Death is one of only two sure things in life, and the U.S. population is aging. "This is one industry that pretty much holds strong regardless of the economy," says Mike Nicodemus, funeral director at Hollomon-Brown Funeral Homes, a 10-operation chain in Virginia Beach, Va. But costs for raw materials (wood, flowers) are rising, while the flow of customers has slowed. "There's been a decrease in the death rate over the last six to eight years," says Phil Jacobs, chief marketing officer at SCI, who's too polite to note this is bad for business. According to the National Center for Health Statistics, the U.S. death rate fell from 8.8 per 1,000 in 1999 to 8.5 in 2005. In 2005, fewer people died than in 2002, despite an increase in population.

And while Americans don't necessarily spend more on funerals during boom times, a slowing economy makes people think twice about opening their wallets for wreaths and high-end caskets. "People are definitely questioning us more on what things cost," says Robert Biggins, past president of the National Funeral Directors Association, and operator of a funeral home in Rockland, Mass.

But the fact that more customers are opting for a cheaper option is also helping to kill margins. Cremation is, well, on fire. The cremation rate rose from roughly 15 percent in 1985 to 27 percent in 2001, and to about a third of all deaths in 2005 and 2006, according to the Cremation Association of North America (CANA).

Compared with full-on casket burials, cremation is less expensive, requires less labor and fewer materials, and doesn't involve purchasing a plot. As such, it's perfect for an era in which consumers are trading down. "I'm finding that people that spent $8,000 to $10,000 on a funeral are now spending $4,000 to $6,000 on a cremation," says Nicodemus of Holloman-Brown, where cremations account for about 43 percent of business, compared with 20 percent a decade ago.

But the rise of cremation is not simply a matter of economics. And powerful social forces suggest the trend toward cremations, which are cheaper (and less profitable), may be rising. First, there's been much greater acceptance of the prospect. The Roman Catholic Church, which ruled cremation to be an acceptable alternative in 1963, in March 1997 said cremated remains could be present at a Catholic funeral mass. This sanction has contributed to sharply higher rates of Catholic cremation. The embrace of cremations hasn't been ecumenical, though. Jewish tradition largely frowns on the practice. And in the Bible belt, says Jacobs, casket funerals retain their status as important religious rituals. Mississippi has the lowest cremation rate in the United States, at just under 10 percent.

The second reason for more cremations is that as mobility has greatly increased—older Americans frequently retire far from their original homes, while their children are likely to disperse throughout the country—a greater number of people no longer feel the need to be interred in a particular spot. Among the states with the highest cremation rates are those that have experienced large influxes of population, such as Arizona (60 percent) and Nevada (65 percent).

Third, concern over land use is helping tip the scales in favor of cremation. "The idea of taking up space in cemeteries when it could be used for other purposes is contributing to people's decisions," Nicodemus says. Some of the highest cremation rates are in ecofriendly coastal states like Hawaii (66 percent) and Washington (64 percent). In California, where SCI has a significant presence, more than half of 2005 deaths resulted in cremations.

With such megatrends working against it, the old-fashioned burial business seems to be facing trouble. CANA projects the cremation rate will rise to 39 percent by 2010. But there are some causes for optimism (at least if you're an undertaker). Despite the best efforts of modern medicine and the pharmaceutical industry, baby boomers will begin to die at some point. The U.S. death rate is projected to rise to 8.9 per 1,000 in 2010 and 9.3 in 2020. Jacobs says the rapidly growing Hispanic-American population places a significant emphasis on "memorialization." (Translation: Hispanics are more likely to spend money on a funeral.) And for many Americans, regardless of their faith or ethnicity, it still seems anathema to scrimp on a loved one's last life-cycle event. As Biggins wisely and wryly says: "A funeral is something you can only do once."