Dignity (DTY) shares leapt by more than 40 per cent after the Competition and Markets Authority (CMA) put plans to impose price caps on the funeral industry on hold. Dignity, which is the UK’s only listed funeral provider, has experienced an influx of demand for cheaper funerals during the coronavirus pandemic.
The CMA launched a review of the industry in response to concerns over excessive funeral prices and long term, above-inflation price increases. Among its observations, the watchdog claims that pricing and product information is not consistently provided by funeral directors, which makes it difficult for bereaved customers to adequately compare prices. It also found that fees charged by funeral directors and crematoria have indeed risen beyond inflation for over a decade. It has mooted price controls as a solution.
While the idea of a price cap has not been totally abandoned, the regulator has been forced to temporarily shelve the proposal as a consequence of the coronavirus pandemic. The CMA said that the spike in deaths since March has made data collection difficult, while government restrictions on funeral services have altered the kinds of services available to people and made the testing of possible remedies harder.
The watchdog admitted that it is difficult in the current climate to forecast funeral operators’ revenues and profits, which complicates the introduction of a price cap. Further, the authorities that would need to impose this regulation are currently capacity-constrained by the virus. The CMA will instead ask directors and crematoria to give customers price information on their products and services, and will require financial data from funeral operators on a quarterly basis.
Dignity acknowledged the CMA’s latest announcement and backed calls for greater consumer choice. But the company rejected price caps in a June submission to the regulator. Dignity argued that the CMA’s enquiries had failed to establish that either crematoria or funeral directors generated excess profits, and argued that price controls would likely be difficult to implement and “could lead to significant customer detriment”.
Dignity also pointed to sub-inflation funeral director fee growth between 2016 and 2018, and observed that its own funeral director revenues had fallen in 2019 and 2020.
Dignity has the second-largest share of the funeral market, according to the CMA, with 13 per cent share. It announced a pre-tax loss of £13.6m in its six months to 26 June 2020, compared with prior year interim profits of £58.3m. The average income it received per funeral fell dramatically. The percentage of ‘full services’ dropped below half its funeral activities in its second quarter, as customers opted for cheaper, ‘simple’ funerals instead.
