A tale of two companies. . .can they both be on the right track?

April 14, 2023/Business, Finance/

According to Wikipedia, which may or may not be accurate at this date, Co-op Funeralcare in Great Britain operates over 1,000 funeral homes in Great Britain and Dignity plc operates about 795 facilities across the same landscape. If you assume that those numbers are somewhat accurate you would then surmise that Dignity plc facilities do more revenue per location because their Revenue in 2022 was US$ 401.4 million as compared to Co-op Funeralcare’s published Revenue of US$ 336.6 million.

Either way you look at it, they are pretty large companies and have been through a lot in the past couple of years, much like their United States counterparts, including navigating the pandemic death care issues and dealing with inflation in all things from employee compensation to supplies. But, unlike their U.S. counterparts they have also had to deal with a loss of public confidence in the preneed sector as one fairly large operator failed and took many client family funds with it. In addition, they are operating in a nation in which “Direct Cremation with No Services (DCNS)” is growing by leaps and bounds, somewhat lead by start-up company Pure Cremation.

What is different is how the companies are responding to the challenges that they face and the results that they are seeing. Co-op Funeralcare has, at least not that I’ve seen, taken on a public stance of vast change in their operations. At least, until now except in the preneed arena, they have had relative operating success as compared to past years. For 2022, they increased Revenue to US $336.6 million from 2021’s number of $327.9 million. They also increased the number of calls 3.5% from 90,731 in 2021 to 93,867 in 2022 in a market where the raw number of deaths dropped by about 10,000.

Their Chairman Allan Leighton said in a recent article, “The inflationary challenges facing most consumer-facing businesses are well known, so for our Co-op to have delivered this level of performance over the year is encouraging.”

In preneed however, what they refer to as “funeral plans”, they have had a reduction to 16,774 plans implemented in 2022 as compared to 44,751 implemented in 2021. . . that’s a decrease of over 62%. This may be a short-term blip as the company mentioned “. . .this was driven by lower consumer confidence in the overall market, ahead of regulation, as well as exiting some third party distribution arrangements due to changes in regulation.

On the other hand, Dignity plc appears to be publicly moving ahead and facing new challenges in Great Britain with the growing use of DCNS and preneed. Dignity plc CEO Kate Davidson recently made these comments in a shareholder’s report. “Throughout a challenging year we have remained focused on our long-term aims and have confidence that our strategy will deliver sustainable growth and the highest standards of care and service to our customers.

We have a continuous emphasis on growing our market share across each of our businesses, and a commitment to ongoing investment in our people, facilities and infrastructure to unlock Dignity’s long-term success. We will continue to work towards our vision of being a market leader through our exceptional service, quality and proposition.”

Part of what she explained is Dignity plc’s new emphasis on employees, where compensation for over 2,500 employees was increased. She also notes that the company is continuing to move forward with a proactive lower price funeral strategy which will include a direct cremation service through Dignity’s network — a move that is termed in an investor presentation as “structural change“.

CEO Davidson said in that same communication that Dignity plc will continue to deliver on “. . .our growth strategy, which we launched in September 2021. In essence, the strategy focuses on four key areas: creating the best proposition, perfecting a customer-centric culture; executing an effective customer acquisition strategy; and leveraging the benefits of our scale and breadth.”

While I believe that it is still too early to say if Dignity plc’s strategy will pay off, the financial results shown by their 2022 Preliminary Report that you can access here don’t seem real encouraging. . . but, I stress in a business such as death care, immediate results are not always the final results because it does take time for changes to play out for the consumer.

For the calendar year of 2022, Dignity plc reported Revenue of US$ 401.4 million as compared to 2021 Revenue of US$ 439.4 million — a drop of about 9%. They also reported a Underlying Operating Loss of (US$ 12.8 million) as compared to an Operating Profit in 2021 of US$ 33.3 million.

From my point of view, the biggest challenge that I see on the Dignity, plc report was the Underlying Operating Profit, what I might call Net Margin, dropped from 15.7% of Revenue in 2021 to 5.5% of Revenue in 2022. The company did say market share increased in funerals 0.1% and in cremations 0.5%, however, I would contend that when you drop your prices to theoretically gain market share, market share needs to grow much more than that to make up for the loss of revenue per case.

There seems to be a thought process that “taking care of employees” with higher wages and working conditions may increase raw call volumes over time and at the very least keep employment where others may find it difficult to retain employees. But, increasing overhead at the same time you are lowering prices to the consumers, at least in my point of view, is a strategy that could prove risky to the bottom line.

As you may know, a take private offer came to Dignity plc in January of this year. That offer has been accepted and remains conditional on, among other things, regulatory approval at this time.

Funeral Director Daily take: So, two companies in what seems to be a transitional stage of death care in the United Kingdom. One company seems to say let’s “Stay status quo” and see what happens. . . and that strategy seems to be winning right now as they have increased sales and market share. Another company, who are making “structural changes” in how they operate seems to be on the losing end at this time considering the results of less revenue, but do they have the right plan for growth moving forward?

It all depends on from my viewpoint, based on that truly American game of baseball, on what inning we are in.

Related — The Rebirth of Funerals: How Direct Cremation is leading the UK’s Mourning Revolution. A press release on Great Britain’s Pure Cremation company. PR Newswire

Related — Planned takover of Dignity clears UK FCA control condition. Morningstar

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