October 5, 2009 / 4:51 PM / in 10 years

Baby Boomers to inject new life into funeral industry

BANGALORE (Reuters) - Jennifer Austin Leigh, a 51-year-old psychologist from New York, is planning a big party with her favorite music — the Beatles and Prince, among others.

Regional funeral parlour employees place the lid on a coffin as they finish funeral preparations in Pessac, southwestern France in this September 18, 2009 file photo. As Baby Boomers choose unique ways to bid their final goodbyes, the funeral industry is set to see increased demand for pre-arranged funeral services and a flurry of consolidation activity in the coming years. REUTERS/Regis Duvignau

However, it’s not for some birthday or anniversary, but rather for her own funeral — an event she hopes is far in the future.

“I want a really big celebration. I don’t want a traditional church service with people sitting around, looking at the casket and sobbing,” Leigh said. She has already set aside money for her last rites and plans to approach a funeral operator soon.

“It’s important to take that burden (arranging the funeral) off your children,” she added.

As Baby Boomers like Leigh choose unique ways to bid their final goodbyes, the funeral industry is set to see increased demand for pre-arranged funeral services and a flurry of consolidation activity in the coming years.

Pre-arranged funeral service contracts, which suffered in the recession, are expected to pick up as America’s 76-million-strong Baby Boom generation heads into retirement — good news for funeral service companies like Service Corp International and Stewart Enterprises Inc.

“Baby Boomers have seen a lot of their wealth wiped out (in the recession). The inclination will be to think, uh oh, I’d better think of what’s down the road and what’s going to happen to me,” said Ann Bastianelli, chief executive of Anthology Consulting, which specializes in marketing consulting.

Also, according to Vanderlyn Pine, professor emeritus of sociology at the State University of New York at New Paltz, many who arrange funerals for older relatives and friends these days are Boomers, who are driving changes in funeral customs.

Bill McQueen, president of the Cremation Association of North America (CANA), said these non-traditional funerals will take a lot of planning, including arranging for caterers and audio-video equipment.

These are things the financially stronger public players such as Service Corp, Stewart Enterprises and Carriage Services Inc are better equipped to handle than small funeral homes.

SPURRING CONSOLIDATION

As smaller players fail to cope with the fall in revenue during the recession and either close or cash out, the public companies are expected to pick up market share.

The funeral industry has also seen cremations — cheaper and more convenient than burials — rise to make up about 35 percent of all funerals, leading to a drop in funeral revenues.

“As cremation rates become a higher part of the mix, the mom and pop operators will find it hard to generate sufficient revenues,” CANA’s McQueen said.

“Within the next 10 years, you will likely see the number of funeral homes fall by 20 percent.”

Also, the variety of services and new amenities demanded by Boomers — the post World War Two generation born between 1946 and 1964 — will precipitate consolidation, said McQueen, who owns the Anderson-McQueen Funeral Home in Florida.

“The smaller operators may not have the resources to meet the level of demand by Baby Boomers,” McQueen said. “I see the pickup in demand going to the public companies and the big private firms.”

Chuck Gallagher, a 52-year-old resident of Raleigh, North Carolina, is a case in point.

Pre-planning funerals for himself and his wife, Gallagher said his demands for a more celebratory funeral service were resisted by at least two independent funeral homes, who suggested he opt for a more traditional service.

The Gallaghers finally went with Montlawn Memorial Park, Funerals and Cremations, owned by Stewart Enterprises, for their funerals, plans for which now include video footage of their lives and a mix tape of their favorite music.

UNTAPPED POTENTIAL

One of the biggest waves of the retiring Boomers, who make up a fourth of the U.S. population, is likely to crest between 2010 and 2014.

The fragmented funeral industry — private companies and mom and pop firms account for 80 percent of the market — should see a big spike in the years ahead as the number of deaths in the United States is projected to rise to 2.7 million in 2015 and to 3.1 million in 2025, from 2.4 million now, according to CANA.

Wisco Research analyst Vimal Nair said the opportunity offered by Baby Boomers was not priced into the shares of industry leader Service Corp, which currently trades at around $6.50.

“We have a price target of $10, and once we start getting a clearer picture of the Baby Boomer trends, we think the stock price is going to go even higher, because right now the market has overlooked (that) future potential,” Nair said.

Editing by Anthony Kurian

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