Funeral service is in another building boom. The last major building boom was in the 1990’s, and while it slowed during the recession, it has picked up in the last couple years. One of the reasons for this is that consolidation and the closing of old facilities is creating opportunities for new facilities, but since our economy is healthy, commercial real estate and building costs are high.  Building a new facility is always a risk. In fact, it’s the greatest risk in the funeral industry – even risker than acquisition, which almost always results in an initial drop in volume.

Having conducted hundreds of prospective trade area research studies and working with clients to turn around failing facilities, we have some advice to offer if you’re considering building.

Many new facilities are typically built by contractors or others not familiar with the funeral industry. They often choose to build on less expensive commercial property located between two mid-size or smaller communities. The problem with this strategy is that no one cares about how convenient a funeral home is for a town. They want the most convenient funeral home for them. This is never out on some commercial highway, which is often where the less expensive land is found. And while there might be some strategies for overcoming the challenge of a poor location, not even lower prices will be a solution because low prices demand high volume. The challenge becomes even harder if there is already a well-known local funeral home families have been going to for years. Your best solution – don’t build it there. If you already have, start looking for a buyer with an alternative use for the building.

MKJ market research studies includes a “why not” question, referring to why a family would not choose a certain funeral home. A very common response is that it is located on a busy road with lots of big box stores and shopping malls.  Seniors are not comfortable driving on these high traffic roads; the parking lots are difficult to exit because it’s necessary to build speed very quickly. Funeral homes can do very well on side streets off the commercial highways. This is great because property there typically costs less and allows for easier entrance and exit.

The challenge you find with a side street location is making the consumer aware of the facility. The best solution is a billboard on the main highway. The message can be as simple as “Gould Funeral Home. 2 blocks away.”

Locations near hospitals, particularly regional medical centers, can help you build a relationship with the hospital administrators. This can create a continuous stream of business; however, it is typically cremation without services and transfer business. As such, it alone will not sustain a full-service funeral home, but can contribute nicely to a firm that also has a solid local business.

Location can be particularly important for niche funeral businesses. For instance, discount funeral homes thrive in blue collar neighborhoods, but do very poorly in higher income communities.  Likewise, well-branded, minimum cremation businesses with higher prices will do better in affluent communities. Contrary to what many believe, the foundation for the most successful cremation businesses is affluent consumers that prefer not to have traditional services, or plan to hold memorial services at an alternative location.  They are willing to pay more for the peace of mind of knowing the deceased received dignified and professional services.

The strongest recommendation for any business considering building a new facility is to commission a prospective trade area research study.  Certainly, research is not inexpensive, but the cost is justified when compared to the cost of building a new contemporary funeral facility.  Over the years, the data collected from prospective trade area studies have convinced 50% of the clients not to proceed. The reasons vary: sometimes the population is not sufficient to support a new facility or the commitments to the existing funeral homes in the area is too strong. It’s very hard to convince families to pay more when the community is satisfied with the existing firms’ lower prices.

You might find locating an existing building is a better choice for you. For example, empty churches may present a very viable option, particularly for those in urban areas.  Just like many businesses, many churches have not successfully adjusted to contemporary society and have found it necessary to close. The facilities are large, with many side rooms in addition to the large chapels. As such, they lay out well for funeral home use but not well for most businesses.  They may need significant remodeling, but the purchase prices are typically well below most commercial property.

The bottom line? Know before you buy AND before you build. If you’re thinking of building a new building, come to us. We can help you figure out if the risk is too great.