I recently read an article from Yahoo Finance written by Andy Serwer that asks the interesting question, “(Is) inflation the business opportunity of a lifetime?” You can read that article here.
Serwer explains that after almost fifty years of very low static inflation that we may be in for a much higher rate for the next several years. United States price inflation rate was at about 5.7% in 2021 and it appears like it will run at least at that level in 2022 regardless of how some are trying to calm the fears. In January 2022 the inflationary rate stood at 7.5% — up from the 2021 annual rate.
Serwer also reminds us that inflation did not go away quickly after it started rising in 1974 when it reached 12.2%. It was not, Serwer says, until Federal Reserve Chairman Paul Volcker raised interest rates – if you remember, the prime rate hit 20% in June 1981 – and tightened money supply that inflation started going down. . . . . That’s a full 7 or 8 years from when it started.
The article also points out two very familiar reasons for inflation at that time. First — military spending had been increased because of the Viet Nam war and social programs were very much increased. That combination expanded the federal deficit. . . .Does it sound familiar — with defense spending probably on the rise because of what we see in Ukraine today and the amount of spending (and printing of currency) the United States has instituted because of the Covid pandemic.
Secondly, Serwer says at that time period we had “Oil Shocks” beginning in 1973 that came from OPEC stopping the flow of oil to countries that supported Israel in the Yom Kippur War and the Iranian Revolution which took Iranian oil off the world market.
So, that’s a little history, but Serwer says those issues and the increase of inflation also became a boon to some industries — for instance it led to the proliferation of “generic brands”. And he also points out that it created the rise of dollar stores and discount stores like Wal-Mart because consumers “searched for low-priced goods to mitigate inflation.” Serwer states, “. . .some new business models will address and take advantage of it. For some, inflation won’t be a problem. It will be an opportunity.”
The question for the readers of this forum is, “What will inflation mean for consumers in death care selections?” I think that is difficult to answer, however, the over-riding feature of consumer inflation behavior is that they look to where their money can buy the most. What does that mean in death care?
Historically, it is difficult to tell what effect inflation had on death care choices in the 1970’s. Lower-priced cremation did have a more rapid rise, as a percentage of services in the 1970’s, but that was also the time period when the consumer was just getting comfortable with the idea of cremation as a disposition method and it is difficult to tell what effect price points had on those decisions. It was about the time that many of our country’s “cremation centric” businesses started, but I’m not so sure that they were started with an inflationary reflex as much as they were just started with a “low cost alternative to the funeral” way of thinking.
And, I think we have learned, that there are many consumers of death care where method of disposition, not prices of dispositions, is the catalyst for choice. So, it is not just about having the lowest price that will lead consumers in an inflationary environment to your door.
Price will have some effect on consumer choice, but I think quality of service will continue to be defining feature that drives the choice for those that do not put “Price” as their number one reasoning.
If an operator would put all of his apples in the basket of lowest price. . . then I think that is the business that they will draw – margins will be low and volume increases will be a must. However, if they continue to offer incredible service with a value-sensed price, I think that could be a successful road map for the immediate future.
And, what about Pre-need? My guess is that consumers, in a high inflationary environment, will love the idea of “guaranteed services” at today’s price. But, how will that play out with your long-term business fundamentals? Can you afford to get an annual increase in value from a pre-need policy of 3-4% in an environment where the cost of giving that service will go up 5-8% per year for a period of years. Can the guarantee, which should produce a higher volume of services, compensate for the decreasing margins you will see every year? It’s a question to ponder.
Again, this is one of those writings of mine where I have no answers, just a lot of questions to consider. However, I agree with Andy Serwer that someone will figure it out and take inflation from being a problem to being an opportunity that works. And, whoever does that will reap the benefits.
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Fun Fact from the World of Basketball and Basketball Shoes: I don’t fill out a Bracket, but I always enjoy the month of March because I enjoy watching the NCAA Basketball Tournament. I had the good fortune to attend the final games when the University of Minnesota was the Host School for the Final Four in 2019. Here’s an interesting tidbit I found about this year’s event:
“Out of the 68 teams that made March Madness this year, 39 wear Nikes, 16 wear Under Armour, and 13 wear Adidas. Of the Nike teams, 6 wear Jordans with the infamous “Jumpman” logo.”
Kind of reminds me of the commercial about “What’s in your Wallet?” Except we could say “What’s on your Feet?”
More news from the world of Death Care:
- FEMA tops $2 billion in Covid-19 funeral assistance program, announces new campaign to increase program awareness. Homeland Security Today (USA)
- Devitt’s Funeral Directors marks 50 years in business. Tipperary Live (Great Britain)
- Hundreds of volunteers clean headstones at Fort Smith National Cemetery. Video story and print article. KHBS- ABC TV (AR)
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