SAIF Golden Charter

Who wins?

Last week the Co-op revealed its trading figures for the last quarter – and unveiled its best results for some years. Undoubtedly this growth was driven by the aggressive price cutting introduced last year, supported by a huge advertising investment.

That marketing focuses on a single price point, the Co-op’s Simple Funeral Plan cost, and compares this to other providers’ more comprehensive products. This headline number has lured families away from Independents. Many have argued that funerals and pre-paid plans are not price sensitive, but we all have to reassess that opinion in light of this success.

Others are on the same page. In December, Dignity launched the Limited Plan, priced at £2,995, mirroring its Basic Plan for Age UK. Both offer less choice and control to families and are only offered through a restricted number of their funeral homes.

The pattern is set: no frills funerals are becoming mainstream and those who offer them report increasingly frequent requests. I can only conclude that those firms resisting the trend must be losing out.

Some argue this discounting will pass, suggesting that ‘the Co-op has always been more expensive’ and will revert to type shortly. The Co-op has generally been more expensive than Independents, and still is. Research among our shareholders demonstrated that, on average, Independents charged 13% less than the £3,817 quoted by the Co-op as its average funeral invoice in 2015.

However, the truth is that the Co-op is not winning business today on price, it is winning on the perception of headline price. It attracts the enquiry and then upsells when the family comes in.

If you doubt that, re-read James Daley’s scathing report in the Telegraph last July as he recounted his experiences when organising his mother’s funeral. He firmly outs and condemns that strategy, but it’s a model that is succeeding and is here to stay – and if it is, can Independents operate effectively as margins are squeezed?

There is ongoing media demand for funeral inflation to fall back towards the consumer price index (CPI). Fuel prices are on the rise and there is a drift towards simpler funeral services. None of these developments will enrich margins, so life will get tougher for everyone. Will smaller firms continue to prosper if prices are frozen for a lengthy period?

The Co-op has not embarked on this trail lightly and may be deflecting its own pain by its aggressive upselling, a tactic most Independents regard as distasteful. Is a bigger strategic play unfolding here? Who has the deeper pockets? Who can gain if an undertaker’s business is less profitable? Someone seeking to acquire such businesses, for one.

Dignity has been slower to join this rush to the bottom. It has occupied the middle to premium position, but it too has introduced a bargain basement pre-need plan. If the Co-op has also progressed significantly at need, then Dignity, which is commercially astute, will also slash prices for funerals. At that crossroads, some Independents may find themselves transformed overnight from value-leading local providers to the most expensive game in town.

What could the conglomerates do to wipe out the independent sector? Firstly, they would have to split the strong ties between independent funeral directors and Golden Charter. Together we have protected the majority share in funerals and won the lion’s share of future funerals, so there is a huge prize for a corporate to go after.

Golden Charter must respond and average plan prices will fall, with resultant reductions in maturity values, but do not doubt that Independents will continue to receive larger maturity returns from Golden Charter than from any other provider.

Aligning ever more closely together as conditions become more adverse is the only way to continue our joint success.

In reality, nobody gains from driving value out of the market. Independents don’t, and the public may see lower costs for now but the price for that win will be reduced choice in years ahead. I’ve never seen a market where lower competition drove prices in the same direction.

The sad reality of a competitor destroying value in a market means everyone is going to share the pain.

Our shareholders through reduction in pre-need income, and Golden Charter through even tighter financial control.