How the Funeral Industry has Evolved

In the U.S., the funeral service industry is relatively new. Until the 20th century, funerals in the U.S were organized by family and neighbors and held at home. People were often buried on the family property. As communities became larger and more established common cemeteries began to be used. Funeral homes were later established to relieve the family of the logistical problems presented by a death.

The Emerging Undertaker

The term “undertaker” refers to the person who “undertook” responsibility for funeral arrangements. Many of the early undertakers were furniture makers because building caskets was a logical extension of their business. For them, undertaking was a second business rather than a primary profession.

The Origin of Embalming

Although embalming dates back to the ancient Egyptians, in the U.S. it began during the Civil War when it became necessary to preserve the bodies of dead soldiers for the trip home. As embalming gained favor, the skills that it required helped to turn undertaking into a real profession.

From Coffins to Caskets

Casket making also evolved from the early days when the undertakers made the coffins. By 1950, there were over 700 companies manufacturing caskets in the U.S. At that time, over 50% of the caskets sold were made of cloth-covered wood or cardboard. However, metal caskets were gaining favor and they required a more sophisticated manufacturing process that could only be provided by larger companies.

Consolidation of the casket manufacturers occurred during the same time as consolidation of the funeral homes and cemeteries (see below). Consumer preferences continued to change and by 1990 metal caskets represented over 60% of the industry’s production. The capital-intensive manufacturing required to produce metal caskets has contributed to the consolidation. Currently, only two casket manufacturers account for over 60% of the caskets produced in the U.S.

Funeral Homes Stay in the Family

Over the years, most funeral homes and cemeteries have been small, family-owned businesses that were passed down to successive generations. In the late 1960s, a consolidation of the industry began with large companies acquiring the “mom and pop” funeral homes and cemeteries.

To retain the funeral home’s loyal following, “consolidators” continue to operate acquired businesses under the family name. Oftentimes, the seller stays on in a management role and existing personnel are retained.

Many of the changes that occur after a consolidator takes control are in the “back office.” This is where they seek to improve the profitability by implementing computer systems and other advanced business practices, and by realizing economies of scale.

Despite over 30 years of consolidation, the industry still primarily consists of small, independent, family-owned operations. Together, the four largest funeral service operators are estimated to own 15% to 20% of approximately 23,000 funeral homes in the United States. However, they own only about 1,000 of the 20,000+ U.S. cemeteries, although many of these cemeteries may be inactive and unavailable for acquisition. Industry analysts estimate that the top six operators collectively control only 25% to 30% of the funeral services in North America.

Competition Fuels Industry Change

In recent years, the funeral industry has become more competitive with the emergence of “alternative” funeral service providers and retail stores. These organizations market themselves as a lower-cost alternative to traditional funeral homes.

These alternative funeral service providers typically offer the services of Funeral Directors but they may specialize in certain services or offer a packaged, simplified, or “no-frills” approach. For example, they may specialize in cremation or offer only graveside services. To control costs, many of these organizations do not own their own funeral homes. Instead, they will rent facilities on an hourly or daily basis as needed.

Memorial Societies, an alternative for consumers, position themselves as consumer organizations whose purpose is to disseminate information. However, many have established relationships with service providers enabling them to offer discount funeral services to anyone who pays a membership fee. The use of the term “society” implies that they are not-for-profit, but that may not be the case.

Caskets and other funeral-related products are sold directly to consumers in specialized retail stores and internet sites. These retailers are relying on Federal regulations that require funeral homes to accept a casket the consumer has purchased from another party. However, most of the major casket manufacturers sell their products only through funeral homes.