The coffin industry in America has a new worry. The Chinese are making and selling inexpensive coffins. Uh-oh.
To back up a bit, major makers of coffins (euphemistically called "caskets" in the industry) include Batesville Casket, a subsidiary of Hillenbrand Industries (NYSE: HB); The York Group, a subsidiary of Matthews International (Nasdaq: MATW); and the privately held Aurora Casket. These firms are probably not thrilled to see China exporting coffins, as funeral homes and coffin purchasers will surely be attracted to lower-priced offerings from Asia. They already had problems.
For starters, for those in the casket-making business, it's not easy to grow quickly. You can't expect consumers to buy many more coffins than they'd normally buy. Companies such as ExxonMobil (NYSE: XOM) are in the same boat. To grow, they mainly need to steal market share from competitors.
Making matters worse, medical advances have been helping people live longer. This means they die later, thereby delaying their need for funeral services. Another recent problem has been the rising popularity of cremation. And then there's the spiking prices of wood and steel, key components of coffins, which have reduced profit margins and are leading coffin makers to hike their prices at perhaps a suboptimal time.
In such an environment, coffins made in China are priced some 30% to 50% below similar U.S.-made items, and will therefore be attractive to many buyers. The Casket and Funeral Supply Association estimates that Chinese imports made up some 2% to 3% of the 1.85 million coffins sold in 2003 -- amounting to roughly 45,000 coffins.
Still, American coffin makers do retain a few advantages. They can generally deliver their products faster, though funeral homes may begin buying large quantities of foreign-made products early to store for when they're needed. Another advantage is the wide variety of styles offered, including the possibility of customization. A recent Reuters story noted a Batesville spokesperson citing another differentiating factor for American makers -- their ability to innovate due to their knowledge of their market.
Investors interested in the death-care industry should note these developments and keep an eye on them. As an alternative to coffin makers, check out those firms engaged in the service end of the business, such as Service Corporation International (NYSE: SRV) and AlderwoodsGroup (Nasdaq: AWGI). Or look for companies in cheerier industries -- we'll recommend some to you each month via our investing newsletters.
Fools have been writing a lot about China recently. Learn much more in Jeff Hwang's article on China and beer, Brian Gorman's article on Procter & Gamble (NYSE: PG) and one on Viacom (NYSE: VIA), and my article on credit cards and China.
Less recently, but still interesting, Rex Moore wrote about Yahoo! (Nasdaq: YHOO) and China, and Rick Aristotle Munarriz wrote about a successful Chinese Web portal.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
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