Death is a growth industry in Japan and everyone from railways to retailers wants a slice.

The ¥1.8 trillion funeral industry is expanding as Japan’s population ages faster than any other nation. The number of people who die each year in the country will rise to 1.66 million in 2040, from about 1.14 million last year, according to the National Institute of Population and Social Security Research.

As Japan emerges from its worst postwar recession, undertakers like San Holdings Inc., Tear Corp. and retailer Aeon Co. are taking advantage of the growth with cheaper funerals, snatching market share from the “mom-and-pop” parlors that dominate the industry.

“There aren’t many businesses where you’re guaranteed a growing market and increasing demand,” said Norihisa Tomiyasu, founder and president of Tear Corp., a publicly listed funeral home operator.

Tear’s sales have risen for eight straight years, boosting revenue almost sixfold to ¥5.9 billion in the year that ended in September 2008. The Nagoya-based company tied up with Osaka-based Nankai Electric Railway Co., a construction company and gas-station operator, to franchise its brand through funeral halls built on the partners’ land.

Aeon, the nation’s second-largest retailer, began offering funeral services last month in a tieup with 400 undertakers, to cut costs by at least 40 percent by buying funeral-related items in bulk.

Aeon aims to win 10 percent of the market within three years, with up to 110,000 funerals a year, said spokesman Satoshi Otsuka. San Holdings currently has the largest market share, at 1 percent.

Most operators are family businesses that mark up prices as much as 90 percent and take payments for referrals from priests, flower shops and other suppliers for the traditional two-day Buddhist ceremony, said John Kamm, owner of All Nations Society Funeral Directors, the first foreign-owned burial company.

More than 70 percent of funeral companies had less than 10 employees in 2006, according to the 2006 Establishment and Enterprise Census of Japan.

Traditionally, families hold a wake at the deceased’s house. A funeral company helps wash the body, and prepare it to be put in a casket, which is placed in front of an altar with flowers and pictures of the deceased. A Buddhist priest chants while the family burns incense.

The body is taken the next day to a temple for the funeral and the deceased is given a Buddhist name before being taken to a crematorium. Mourners bring condolence money of around ¥5,000 to ¥30,000 to the funeral.

Companies charge an average ¥2.3 million for the whole package, including payment to the priest, according to a 2007 survey by the Japan Consumers’ Association. Funeral companies aren’t required to provide a detailed invoice.

“Funeral companies control the entire process from when a person passes away at the hospital to discussions with the chief mourner, and gifts at the funeral,” Aeon’s Otsuka said. Aeon wants to sell more gifts and funeral items, he said.

“Once you have that body, then you can charge whatever you want,” said Kamm. Funeral companies make “huge money” from commissions by referring business to flower shops, gift companies and monks, he said.

Kamm said his company doesn’t follow this practice. Osaka-based San Holdings also doesn’t take money for referrals, said director Toshikazu Suzue. Aeon spokesman Satoshi Otsuka said his company gives no rebates but receives an “introductory fee” from undertakers for business it refers. Tear’s Tomiyasu said his company doesn’t take the commissions.

“Paying money to hospitals and temples was predominant in the past and still exists today,” Tomiyasu said. “We’d like to see the whole practice disappear.”

Keishi Oda, president of Beauty Kadan Co., which sells flower-arrangement altars for funerals, said the florist pays funeral companies a “fair commission” for taking orders for flowers and collecting payment from mourners.

As Japan’s population ages and religious practices wane in larger cities, more people are looking for a cheaper option. In Tokyo, a third of families choose to cremate without a funeral service, said Midori Kotani, a senior research director at Dai-ichi Life Research Institute Inc.

“People are very concerned about the money,” Kotani said. “They don’t want the family to spend hundreds of thousands of yen to pay a priest to chant Buddhist scriptures they don’t believe in.”

Local funeral operators that can survive on a ¥3 million funeral every one or two months will go bust if the price falls to a third of that, Kamm said. Direct cremations are available through the Internet for as little as ¥98,000.

Undertakers were treated as outcasts during Japan’s feudal history because of Buddhist mores against taking life and Shinto conceptions of pollution. Tear’s Tomiyasu said a shop customer warned him he wouldn’t be able to find a wife.

The taboos contributed to a lack of regulation that allowed undertakers to rack up customers’ fees, said Beauty Kadan’s Oda.

As competition intensifies, funeral companies are looking at ways to get contracts earlier. San Holdings aims to get customers through tieups with old age homes, said Suzue. Funeral homes have traditionally had alliances with hospitals, he said.

In big cities like Tokyo and Osaka, competition is “fierce” Suzue said. “We’re taking our approach upstream.”