Upstarts: New-Biz Watch

Mortuary maverick undercuts competitors' rates and trumpets his business in TV spots

A clean-cut man in a dark suit stands in the middle of a cemetery. Soft music plays in the background. "If you could save hundreds, even thousands, of dollars on a funeral," he inquires, "wouldn't you? At Newcomer Family Mortuary, you can."

It's a TV ad that last year started piping a ghoulish note onto the Denver airwaves. In the staid funeral-home industry, running televised spots that tout discount services marks a break with tradition. The ads were purchased by Warren "Ren" Newcomer, 45, founder of Newcomer Family Funeral Homes Inc., based in Topeka, Kans.

The aptly named Newcomer is bucking convention in another way. He is starting a string of discount homes to rock an industry drenched in tradition. He opened his first in September 1995 in Denver; now he has a total of five others--in Topeka; Phoenix; Dayton; Akron; and Albany, N.Y. By the year 2003 he envisions 50 in his chain.

Newcomer is betting on a shift in funeral-buying habits. There are signs of an attitudinal change, particularly among baby boomers, who, as their parents die, are increasingly becoming consumers of funeral services. Some of those consumers, albeit still a distinct minority, are snubbing their established neighborhood funeral home in favor of once-unthinkable alternatives, shopping for cut-rate funerals like those Newcomer offers, buying caskets from retail stores, or choosing cremation, to mention three. (See "Pioneers Thrive As Old Ways Die," below.) "We've moved away from conformity to a moment when the alternative is more acceptable," says David Charles Sloane, associate dean of the School of Urban Planning and Development at the University of Southern California.

However unconventional his business, Newcomer's background is anything but. A stalwart Republican, he belongs to the fourth generation of a Kansas funeral-home-owning family. In 1978, when Ren was just three years out of the University of Kansas, he and his brother, Jeff, entered the business by buying a traditional neighborhood funeral home in Topeka. By 1992 they owned 17 funeral homes and two cemeteries, but they parted ways two years later and split the company between them. (Ren's interest in the traditional funeral business, embodied in Heartland Management Co., now encompasses 15 homes and two cemeteries.)

In the meantime, Ren Newcomer had watched consolidation in the funeral industry become rampant. As he now recalls, "Large public companies were acquiring local neighborhood funeral homes all over the United States and raising prices." That spelled opportunity.

He and partners Ed Tuggle, a former executive at Batesville Casket Co., and Mike Land, a Topeka accountant, ponied up $3.2 million and searched for communities with an aging population and lots of funeral homes. "We believe it's easier for us to gain a little bit of business from a lot of competitors than a lot of business from a single competitor," Newcomer says. As he and his partners built new funeral homes from scratch they advertised heavily--spending $350,000 on TV ads just last year. The same year, the company posted a before-tax profit of $300,000 on revenues of $4.2 million. For 1998 Newcomer projects revenues of $5.5 million.

The trend toward higher funeral prices that Newcomer identified four years ago has gained momentum with the continued consolidation in the industry. Now three giants--Houston-based Service Corp. International, British Columbia-based Loewen Group Inc., and New Orleans-based Stewart Enterprises Inc.--own an estimated 10% of the nation's 22,200 funeral homes. It now costs more than ever to die, reflecting the high price the large chains have paid to acquire funeral homes, says David Brodie, an analyst with Toronto-based CIBC Wood Gundy. An average funeral in 1996, the most recent year for which figures are available, cost $4,782, up 17% since 1993, according to the National Funeral Directors Association.

By contrast, Newcomer Family Funeral Homes charges $2,585 on average, including all the basics, like embalming and a casket. Newcomer slashes prices by following the discounter's age-old formula: reducing margins to increase volume. If he prides himself on maintaining homes that are clean and comfortable, they nonetheless lack gilded amenities like grandfather clocks and grand pianos, as competitors are only too happy to note. "If you want the Kmart of the funeral industry, then go there," says Mike Gordon, a licensed funeral director at Drinkwine Family Mortuary, in Littleton, Colo., a Denver suburb.

Newcomer prefers another metaphor. "I want to be the Herb Kelleher of the funeral industry," he says, referring to the highly regarded chairman of Southwest Airlines Co. By modeling himself on the brash discounter, Newcomer appears to be waving a flag: that his tradition-bound competitors had better change their ways or he will bury them.

Laughter Amid Grief

If humor is anger's release, then a spoof by Mike Nichols and Elaine May highlights the antipathy of some Americans toward funeral costs. In the classic routine, rebroadcast as part of a 1996 PBS special, Charlie Maslow-Freene (Nichols) has come to the Long Dust funeral home to bury a loved one. He hands a $65 check, the advertised price, to a funeral-home employee, Miss Loomis (May).

Miss Loomis: Uh, before you go, Mr. Maslow-Freene, I was just wondering, would you be interested in some extras for the loved one?

Charlie Maslow-Freene: What kind of extras?

Miss Loomis: Well, how about a casket?

Charlie Maslow-Freene: Isn't that included in the funeral?

Miss Loomis: No.

Charlie Maslow-Freene: We have to have a casket.

Miss Loomis: Yes, it looks better.

Charlie Maslow-Freene: How much?

Miss Loomis: We have three prices: $1,243, $768, and $14.98.

Charlie Maslow-Freene: Um, may I ask...What do those prices represent?

Miss Loomis: That's mahogany, oak, and nubby plywood.

Charlie Maslow-Freene: Nubby plywood--tell me, uh, what kind of an appearance does that make?

Miss Loomis: Cheap.

Charlie Maslow-Freene: I'll take the oak.

© Nichols and May and Castle Hill Productions Inc. All rights reserved.

The power of tradition

How strong is the hold of the established neighborhood funeral home on the allegiance of the American consumer? Are funeral-buying habits changing and, if so, why? To explore those questions, staff writer Marc Ballon recently spoke with Dwayne Banks of Abt Associates in Bethesda, Md., who is an expert on the funeral and health-care industries.

Q: What is the American attitude toward funerals?

A: Americans are fairly conservative when it comes to death. They like tradition.

Q: You have said most people don't do comparison shopping before burying their loved ones. How do people decide?

A: People will actually look to see whether or not there is a particular funeral director in the neighborhood, and they'll go to that person. They tend to go to someone that's nearby, which in most cases seems to be someone that's part of their social network or someone who's part of the social network that they've had experience with.

Q: Who would buy a discount funeral?

A: I think a lot of upper-middle-class, educated folks would be quite attracted to a discount funeral, because they can afford to be. They're fairly secure in life. I don't think a poor person wants a poor funeral.

Q: Why?

A: If you can't provide for someone in life, you can at least give them a really nice send-off. So that what you can't provide for them in life, maybe you can make up for by providing it in death.

Q: Are baby boomers any different in their funeral-buying habits?

A: Many of them do shop around, because there's more information out there.

Q: What information?

A: The industry does a significant amount of advertising. If you look in the newspapers, you see advertisements for cremation services, cemeteries, and funeral homes. So the advertising is there.

Q: Are baby boomers more inclined to shop for funeral services?

A: Yes, because today people are mobile. They're less tied to communities now. They're less tied to tradition.

Q: So some consumers are becoming more price conscious and willing to abandon tradition in favor of value. Can you see other industries where that is taking place?

A: Some people appear more willing now to consider alternative medicine in certain areas of the country. You don't really see a national trend, but you do see groups of people who are more willing to undergo alternative treatment, and you see people challenging the opinions of physicians.

Pioneers thrive as old ways die

Catskill Casket Co. founder Joe White began receiving calls last year from consumers wanting to purchase caskets directly from his then-year-old distributorship, based in East Meredith, N.Y. "I finally agreed to make that first sale as a favor," he recalls about the $700 deal, which netted him a $400 profit. The only person upset was one of the local funeral directors, who had been trying to sell the same casket for $2,800. Word got around, and other funeral directors quickly filled White's driveway with returned caskets. "It got really nasty," he recalls. "We lost our entire distribution network in New York, New Jersey, and Massachusetts." Sales quickly recovered, however, vindicating White's embrace of the direct-sales approach.

To augment sales over the Web, White is now opening 10 storefronts around the country. "We see this as moving from the back room of the funeral home right into the mainstream," he says.

White is just one of the beneficiaries of a 1994 Federal Trade Commission rule that, among other things, requires funeral-home operators to present itemized price lists and permits customers to substitute caskets without a surcharge. In addition, more and more Americans are opting out of expensive funerals, to the detriment of traditional funeral parlors. Cremations, which accounted for 7.3% of the market in 1976, reached 21.3% nationwide in 1996, the last year for which figures were available. Aided by those developments, numerous start-up companies, most notably casket makers and cremation-urn manufacturers and resellers, are carving a tidy chunk out of the funeral-home industry's estimated 37% profit margin by selling products directly to the consumer.

Direct casket sales still represent a tiny fraction, estimated at less than 1%, of the $1.1-billion annual market. "There is a lot of room for competition," says Dr. R.E. Markin, who wrote a book, The Affordable Funeral: Going in Style, Not in Debt, designed to help people reduce funeral expenses. Markin's Web site refers consumers to a variety of casket suppliers, including vendors selling inexpensive do-it-yourself casket kits, which, once assembled, can be used as coffee tables until the time of need arrives. Most buyers, however, prefer to have caskets shipped overnight to their funeral home when needed.

Kevin L. Boudle's company, Urns Direct, based in Ellington, Conn., sells cremation urns over the Internet. Value is becoming increasingly important in the cremation industry, where the average urn price is well under a thousand dollars, Boudle notes. A lot of families are spread across the country, he says, and "don't have five or six thousand dollars for a traditional funeral" that many relatives aren't able to attend. As cremations become more popular, the urn business is an obvious winner. One example: wholesale-urn marketer Terry Dieterle, president of CEI/Bayco Inc. Dieterle forecast first-year sales of 50 urns when he started his company, in September 1996, but instead sold more than 250. -- Hal Plotkin

Final Reckoning: $4,965

The costs of a full-service, traditional funeral can add up. Here is a typical bill, not including cemetery charges or money paid to other vendors such as florists, sent last year by the Everett Funeral Chapel in Massachusetts to the family of an 80-year-old man:

1. Basic services of director/staff $995
2. Embalming $275
3. Casketing and dressing $100
4. Hairdresser $50
5. Viewing/visitation $350
6. Funeral ceremony $175
7. Church service $325
8. Transfer remains to funeral home $195
9. Hearse $250
10. Limousines
11. Casket
12. Acknowledgment cards $25
13. Register book
14. Prayer cards $30