Getting rid of a delusion makes us wiser than getting hold of a truth. –Ludwig Borne
We can always learn in any situation like a family death about an industry such as funeral homes or the death-care industry. Interestingly, bankruptcy statistics show the lowest failure rates for small businesses in the funeral industry. Funeral homes typically have high fixed costs like 24-hour call service and staff, hearses, showrooms, vaults, and embalming rooms yet low failure rates. Perhaps funeral homes act as local monopolies–they have local economies of scale. Many funeral homes are family-owned and passed from generation to generation. One of the firms I spoke to as been in business at that location for 80 years.
What should strike you as an investor is that there is strong stability in the asset and earnings power value of funeral homes–hence the business longevity and low failure rates. I quickly found out the power of their local monopoly through my battle to obtain the lowest prices for a funeral service. After all, I am a bargain hunter to the core. What was so bad about going “Dutch” on my honeymoon?
I asked why the prices were so high to move the deceased. The funeral director asked where the deceased was currently located. In my car trunk right here in your parking lot, I replied. I was quickly informed that one needed a license and death certificate to transport a body. Beyond fifty miles, I needed a refrigerated container. There went my chance to shop around.
The Loewen Group, Inc. and Service Corporation International Case Studies
I placed two case studies on the funeral industry:
The Loewen Group Inc. (Dec. 2000): An industry roll-up and the perils of debt to finance growth.
Service Corporation International (July 1996): How to manage a high growth company in a low-growth industry.
Though we will soon go over Chapter 6: The Dilemma of Growth in Competition Demystified by Bruce Greenwald, these cases can act as a supplement to studying economies of scale and corporate finance. I will send the key to the folder to anyone who has already asked for a key to strategic logic case studies. If you do not have a key by this evening or you are new to this blog, you can email me at email@example.com with just FUNERAL HOMES in the subject heading, and you will receive a key.
Death is part of life. The goal is to live and learn fully. See the advice my Papa gave me:http://www.youtube.com/watch?v=AloNERbBXcc&feature=related