Britain’s competition authorities have launched a full review of the UK funeral business, citing a 6% annual rise in the cost of burials for the past 14 years.
Costs for cremations have risen even faster, said the Competition and Markets Authority (CMA), with the private operators raising prices by 6-8% a year for the past eight years along with some local authorities.
The CMA also cited a reluctance of firms to publish/disclose clear prices or to provide comprehensive information on quality and range.
Dignity PLC (LON:DTY) welcomed the investigation saying it can help raise standards, though brokers were less certain it would be a positive for the funeral services group.
AJ Bell said: “Dignity has spent many years making large profits from charging high prices for funerals.
“In such situations, it almost seemed inevitable that a) someone would try to undercut its prices in order to scoop up market share and b) the competition authorities would take a close look at whether consumers were being asked to pay too much.”
Even though Dignity has already introduced cheaper funeral plans it dominates the market alongside the Co-op.
Tighter regulation ahead?
“One of the big risks for Dignity is that the regulator has already commented that the introduction of lower-cost funeral plans doesn’t go far enough to make up for years of above-inflation price increases," said AJ Bell.
“It suggests there could be tighter regulation in the market that could really hurt Dignity’s future profitability.”
Peel Hunt has a 'sell' recommendation on Dignity, adding there a considerable pricing risk while the investigation continues.
The initial report will be published by September 2020 said the broker.
Next news will an issues statement to be published next month that will set out the features of activity that might be adversely affecting competition and potential remedies.
Shares in Dignity fell 3% to 669p.