INDEPENDENT FUNERAL HOMES REBOUND

Just a few years ago, industry observers were predicting the demise of independent funeral homes. Four giant companies were buying up thousands of independent mortuaries and rapidly consolidating the industry. By processing bodies at large regional embalming plants, buying in bulk, and sharing employees across multiple homes, the chains were expected to gain a significant financial edge over their independent competitors.

But now, all four companies are struggling to stay afloat. Earlier this year, they began to sell hundreds of funeral homes back to local owners.

The largest, Service Corporation International or SCI, with more than 4,300 funeral homes in 18 countries, has mountains of debt and is facing numerous lawsuits for everything from concealing information from investors to mishandling bodies. Its stock price fell from nearly $50 a share in 1998 to the single digits today. SCI is now selling more than 500 properties.

The second largest, Loewen Group, filed for bankruptcy two years ago and recently reorganized as Alderwoods Group. Both Stewart Enterprises and Carriage Services are also facing financial difficulties and have sharply scaled back their expansion plans.

"It looked like the independents were finished," says Dick Babcock, president of Independent Funeral Professionals (IFP). "But now the pendulum is swinging back the other way. People have realized there is a difference." IFP, which represents 60 funeral homes, formed in the mid-1990s when the chains were at the height of their buying spree. The group conducts educational and promotional programs to help its members compete.

The chains incurred substantial debt to finance their acquisitions and proved unable to deliver the cost savings anticipated. To maintain cash flow, they jacked up prices by as much as 25 to 50 percent. A Consumer Reports study last year found that the chains charged an average of $1,300 more than independent funeral homes for comparable services.

Pushing sales and profits in an industry built on personal care also proved disastrous for the chains. "They couldn't match the service," says Babcock. "It's a very sensitive industry."

"We know from reports that the manipulative sales tactics of these giant chains are pretty despicable," contends Lisa Carlson, head of the Funeral Consumers Alliance. "All they really care about is the stockholders, not the neighborhood family."

Consumers generally cannot tell that a funeral home is owned by a chain unless they ask. The chains maintained the appearance of local ownership at most of the homes they purchased by keeping the original name and often hiring the former owner to manage the home.

The idea was to take advantage of the community roots and trust built up by the business. But it also meant that the chains gave up a significant strategic advantage: the ability to develop a national brand and mass advertising. As they regroup, industry observers predict that the chains will roll out national brands. SCI has already begun to do this with its Dignity brand.

It's a new challenge, notes Babcock, but the worst seems to be over and independent funeral homes have demonstrated they can hold their own.

• Independent Funeral Professionals