CMA to probe funeral market amid pricing concerns; Dignity shares slump

The UK's competition watchdog has announced a full investigation into the funeral market after identifying "serious concerns" over large price hikes.

The Competition and Markets Authority - which launched a market study into the funeral market six months ago - noted that the cost of arranging a funeral has increased to between £3,000 and £5,000, which is a rise of more than two thirds in the past decade and almost three times the rate of inflation.

Organising a funeral would now cost those on the lowest incomes nearly 40% of their annual outgoings, more than they spend on food, clothing and energy combined, it said. The CMA said that while customers could save over £1,000 by looking at a range of choices in their local area, they are usually distressed and not in a position to do this, making it easier for some funeral directors to charge higher prices.

Chief executive Andrea Coscelli said: "People mourning the loss of a loved one are extremely vulnerable and at risk of being exploited. We need to make sure that they are protected at such an emotional time, and we’re very concerned about the substantial increases in funeral prices over the past decade.

"We now feel that the full powers of a market investigation are required to address the issues we have found. We also want to hear from people who have experienced poor practices in the sector, so that we can take any action needed to fix these problems."

The CMA said that while some smaller funeral directors have sought to keep their prices low, other providers, in particular the larger chains, have implemented policies of consistently high year-on-year price increases.

"A number of these have now introduced lower cost funeral options, but this doesn’t go far enough to make up for years of above inflation price hikes," it added.

The watchdog also highlighted cremations, pointing out that despite accounting for 77% of funerals, there are limited choices for most people and fees charged by crematoria have risen by on average 84% in the past 10 years, which is more than three times the rate of inflation.

Shares in funeral services provider Dignity were down 14% to 869p at 0910 GMT.

Peel Hunt downgraded the stock to 'sell' from 'hold' on the news, citing greater risk on pricing. The brokerage said it was already concerned that price competition was becoming a way of life for Dignity rather than resulting in a short term re-basement of forecasts.

"However, the CMA’s language is significantly more strident than expected and includes crems as well as funerals. In addition, the spotlight is firmly on Dignity and the Co-op with the focus on the larger chains as well as reference to recent price cuts.

"The best case scenario is that the CMA just ends up asking for greater visibility on pricing. However, the tone of the statement suggests greater remedies will be required. This will put further pressure on pricing in funerals, but opens a new risk in crems. This is not a happy position for a business with net debt:EBITDA of 5.7x. There is no immediate risk on financing given that the company is well clear of covenants, but a further material reduction in profits will raise this as a concern."