'Personal feeling' wins out
Hodges Family Funeral Home in Dade City is growing after fending off corporate competitors focused on the bottom line.
By MOLLY MOORHEAD
Published June 30, 2005
DADE CITY - When Michael Hodges opened a funeral home in 1999, he learned something even his customers probably didn't know: His was the only one in town not owned by an out-of-towner.
At that time, the funeral home industry was in the grips of a consolidation that saw a handful of national companies buy up many locally operated homes in cities across the country. The signs out front bearing family names didn't change, but the profits were siphoned away to far-off corporate headquarters.
"There was massive consolidation going on," said Bill Burns, a financial analyst for Johnson Rice & Co. in New Orleans. "They would finance it with short-term bank debt. The earnings were growing very fast: 20 percent plus."
Hodges was the exception to the trend. Hodges Family Funeral Home was a classic homegrown business. It had a small staff, a person instead of an answering service to pick up late-night calls, and lower prices.
"We started doing very well," Hodges said recently. "They liked the way we treated people."
And now, six years later, Hodges has seen the trend reverse. The big chains have been pulling back, unloading pieces of their far-flung empires as profitability shrank. The change in direction has let Hodges build something of an empire of his own, having bought five funeral homes and a cemetery from the same big companies that once wanted to squeeze out proprietors like him.
"At most funeral homes the first thing they say is, "Is this going to be cash, check or credit card?"' Hodges said. "We are not going to ever be a corporation."
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Hodges, now 54, decided at age 45 that he wanted to own his own business. His long-ago experience driving ambulances, which doubled as hearses, pushed him toward the funeral industry. He enrolled at St. Petersburg College to become a licensed funeral director, taking courses such as Restorative Art and Death, Dying and Decisions.
Hodges moved to Dade City from Tampa with his wife and opened up shop in a former Sears mail-order home.
He charged $1,695 for a funeral, while his competitors, he said, were asking $3,500.
"They lost that personal feeling," Hodges said of his corporate competitors.
And they started losing customers. In 1998, Service Corp. International, the largest publicly traded death care company in the nation, announced that it did not expect to meet its earnings estimate.
"Wall Street immediately turned the capital markets off to them, and they were left with short-term bank debt," analyst Burns said.
The next year, another large death care corporation called the Lowen Group declared bankruptcy. Lowen later re-emerged as Alderwoods Group, owner of four funeral homes and a cemetery in Dade City and Zephyrhills.
Hodges saw his first opportunity to expand early last year. A funeral home in Zephyrhills went up for sale. Its owner was SCI. Hodges bought it and installed a crematory. Within a month of closing on his new Zephyrhills property, Hodges learned the Alderwoods properties were for sale.
According to company records, Alderwoods has been getting smaller in recent years. At the end of 2002, it owned 802 funeral homes nationwide, 185 cemeteries and 62 combination funeral home/cemeteries. In January 2004, the numbers were down to 730 homes, 150 cemeteries and 60 combinations. By March, the company owned 645 funeral homes.
Alderwoods' 2004 annual summary explains the pattern this way: "We believe our year-over-year decline in funeral services can be partly attributed to broad national factors that include the cyclical nature of the death rate."
SCI has followed a similar path. Exact figures are not available, but last year's annual report provides a glimpse into the Houston-based company's strategy.
Starting in 1999, "changing market conditions led SCI to move away from its acquisition activities in favor of its current business strategy of improving operations in properties already owned," the report says.
That focus, it seems, put pressure on prices.
"Costs going up during an acquisition is pretty much common," said David Walkinshaw, spokesman for the National Funeral Directors Association and a funeral home owner himself. "In some cases the service level may have declined."
Hodges would not disclose the price he paid for Alderwoods' four funeral homes and cemetery, but he said he had buyers lined up during negotiations so he could immediately sell two of the homes. Those locations are no longer funeral businesses.
"I knew that there was no need to have three funeral homes in each city," he said.
The day of the closing he invited the employees of all the properties to meet with him. Most showed up, he said. A few decided to leave. Even so, his work force grew from eight to 21, including his wife and three of their children.
He now charges $1,995 for a funeral at each of his three remaining funeral homes.
Walkinshaw said that whatever is going on in the large death-care companies, the great majority of funeral homes - 89 percent - still are independently owned.
And Burns, the stock analyst, said he thinks the trend of selling off may be over. It wound down last year for SCI and Stewart Enterprises, another big player. Those companies both reinstated dividends this year.
The selloff has persisted longer with Alderwoods because of its bankruptcy, but Burns thinks that firm will hold on to what it has.
"I think the trend now is to focus on operations."
--Molly Moorhead can be reached at 352 521-6521 or toll-free at 1-800-333-7505, ext. 6521. Her e-mail address is moorhead@sptimes.com