Sci Growth Strategy till 1980

SCI Growth Strategy till 1980

SCI was founded by Robert L. Waltrip in 1953 as a single funeral home. He purchased two nearby funeral homes in 1962 and successfully started the “cluster” strategy which was their main strategy for more than 30 years after that. As the market growth for this particular industry was lesser than 1%, growing through acquisition was preferable.

With the cluster strategy, they reduced the fixed costs through economies of scale. A typical home required funeral director, embalmer, back-office and reception staff, funeral supplies and couple of hearses. In the cluster strategy, funeral homes in a single geographic location shared the costs of cremation, transportation, personnel and inventory. Not only did the cluster strategy succeeded in reducing the fixed costs but also reduced variable costs of the caskets and hearses by increasing the buyer power.

The SCI’s funeral homes increased the revenue by providing a wider range of products and services than a typical home could provide. It was successful in creating a new market for high end products among the people. This net effect of this cluster strategy was a dramatic change in cost structure and an increase in revenue.

After acquisition SCI refrained from rebranding the funeral home as the death care industry flourishes on close relationships, and SCI valued the level and degree of service that the local death care operations offered.

 The new cluster was usually created by acquiring the largest or second largest heritage business in a given market along with multiple smaller independent homes.  

SCI Growth Strategy post 1980

SCI’s strategy in the 1980s changed from just horizontal consolidations to both horizontal and vertical consolidations. It opened a chain of free-standing flower shops in 1982 and acquired a manufacturer of caskets embalming fluids, burial clothing and mortuary furniture in 1986. It founded Provident Services in 1988 to provide debt financing to independent funeral homes and cemeteries. It failed to create any value except for the Provident Services. In 1989 SCI decided to stop its vertical integration and it had to write off almost $100 million which caused a los of $48 million on revenue of $519 million. The stock prices also fell to $9 from $20. Management was worried about the decline is share prices as it could have become target to any takeover.

In 1990 the company’s strategy was redirected to return to the roots by focusing on the funeral homes and cemetery business with emphasis on metropolitan areas. It also sold its funeral supply and insurance business to narrow its focus. Future growth of the company was strategized to occur on a property to property basis known as “fill-in” acquisitions. SCI accounted for 8% of the country’s funerals in 1993.

In 1992 SCI acquired the Pine Grove Funeral Group and several small funeral homes implementing the cluster. Even though it soon owned 20% of the Australian marker, it did not implement many cost saving ideas and the political environment and business culture there.

SCI created standard guidelines for future international acquisition after its Australian success. Four guidelines were: Target market with similar funeral customs, target country should have high personal income, should be able to hedge all the currency risk and should be additive to SCI’s earnings per share in the first year.

After initial market analysis, it decided to enter UK with great promise from the UK market. Its latest acquisition of the Pompes Funebres Generales and Omnium de Gestion et de Financement made SCI the largest death care provider in Europe.