Examination of Witnesses (Questions 180-199)
POST OFFICE
LIMITED
30 NOVEMBER 2005
Q180 Mr Hoyle: Is that as you fly or
walk?
Mr Miller: Either way.
Mr Leighton: Closing post offices
is not a popular decision anywhere and we know that. However,
the task we were given was for a commercial entity that provides
a public service. It stopped at 2,500 which means that with 500
we have said, "Actually, you're right. We'll not do it."
People still think the closure of 2,500 was the wrong thing to
do. That is a fact. In 500 out of the 3,000 we have changed our
minds.
Q181 Mr Hoyle: Was this Notting Hill
post office one that you owned or was it on a long-term lease,
or did you have to get rid of it?
Mr Miller: It was owned by Royal
Mail.
Q182 Mr Hoyle: What was the value of
that post office?
Mr Miller: I am not sure about
that.
Q183 Mr Hoyle: It has been sold, has
it not?
Mr Miller: Not as far as I am
aware.
Q184 Mr Hoyle: So it is on the market?
Mr Miller: It is part of a bigger
establishment. It has a sorting office with it. That sorting office
is still in use.
Q185 Mr Hoyle: So it could be one of
the jewels in the crown that has gone rather than a lease or a
CPO?
Mr Miller: It has got a sorting
office as part of that building and that delivers letters into
west London. It is still performing that function.
Q186 Mr Hoyle: Could you let us know
what the value is?
Mr Miller: Yes.
Q187 Sir Robert Smith: It is a Royal
Mail building, so from a post office point of view you are a tenant,
are you not?
Mr Miller: Yes.
Mr Berry: I think I ought to declare
the fact that I am a member of Amicus before I ask these questions.
Mr Hoyle: I am also a member of Amicus.
Chairman: Many of us are.
Q188 Mr Berry: Your interim half-year
results published on 18 November showed a substantial increase
in turnover and a substantially reduced operating deficit for
Post Office Limited as a whole, they were very good results. It
may be that new products are generating more income than is being
lost through the shift to direct payments. What proportion of
those gains in improvements in the position of the operating deficit
was due to better performance by DMBs?
Mr Mills: I think Roger is referring
to the entire Royal Mail Group.
Mr Leighton: No, Post Office Limited.
Q189 Mr Berry: I was talking about Post
Office Limited. The losses in the first half of the year were
reduced by about 38%.
Mr Mills: The answer in terms
of the gains is very little indeed. The directly managed branches
currently handle in the order of 19.5% of the turnover. However,
they generate in excess of that by way of their costs. The main
gains that have been made in the last two years have been by very
strenuous central cost cutting and without any cost cutting at
the front line. We have taken something in the order of 3,000
head office staff out and that is the main gain that we have had
in addition to renegotiating contracts with our suppliers.
Sir Michael Hodgkinson: The other
thing which is quite important is that the phasing out of benefits
that one could initially have assumed would happen in blocks of
six months, six months, six months and six months over the two
years has been heavily last quarter loaded and so instead of 25,
25, 25, 25 we are probably seeing nearly 50% going in this last
quarter. So what you saw in that period was less loss of the benefits
than we had thought plus some of the new products starting to
kick in as well as the big cost reductions.
Q190 Mr Berry: In relation to DMBs, are
you saying it does not say anything particularly different or
interesting about what is happening there?
Mr Mills: Not yet, but that is
because when you write new banking products it takes anything
between three to five years for that sort of activity to come
into profit. However hard they are working at this moment in time,
they are writing new losses at the moment.
Q191 Mr Berry: Amicus-CMA have called
for better incentives for managers and staff to assist in the
move from a transaction-based way of working to a more sales-based
environment. Is that part of your strategy?
Mr Mills: Absolutely. We have
to create line of sight between what people do for us and what
they receive for their activity. One of the things we have done
in particular with regard to directly managed branches is that
we have said to every directly managed branch, hypothetically
speaking, "This year you made £100. Next year you make
£150 and we will share that £50 with you pound for pound."
They actually get a direct benefit from the amount of the income
that they increase their branch by.
Q192 Mr Berry: As I recall, the CWU and
Postwatch have suggested that your performance targets should
include factors like queuing times but Amicus-CMA is not happy
about that. Would you care to comment?
Mr Mills: We very strenuously
asked Postwatch to eliminate queuing times from the criteria by
which we were measured for the very simple reason that most retailers
in the land do not try and get rid of their customers as quickly
as they can. What they try to do is to keep them before them as
long as they can so that they can sell them more things. The sorts
of products and services that we are going into are not amenable
to a sale within the first two seconds so that people can then
walk out, it is just not like that in financial services. What
we have developed is a relatively complicated customer satisfaction
index that we have shared all over the country with Postwatch
and which we firmly believe, based upon market research, represents
those things which are better in our customers' interests.
Mr Leighton: My general concern
with performance is that we will soon have more performance standards
than products. The most important thing about performance is that
it improves. Having set performance standards which are pass/fail
and take account of whether anything has improved for 220,000
people who are going through massive change does not change anybody's
motivation to do anything.
Q193 Mr Berry: Mr Mills makes the point
about retailers wanting to hold on to their customers. If you
browse around Tesco or Sainsbury's or whatever retail organisation
you want to think about for a moment, that is not quite the same
as standing in a queue at a post office. You know what you want,
it is just taking time to get it.
Mr Mills: We said earlier on that
we are persistently reviewing our top 3,000 branches. As of this
very moment in time eight and a half out of every ten customers
that go into our top 3,000 branches are out within five minutes.
Q194 Chairman: Mr Mills, you keep going
on about the 3,000 best branches. What about the 3,000 crap branches
which are the ones most of us seem to go into?
Mr Mills: In the rural network
it is typically quicker than that.
Mr Leighton: It is not the same
queuing at a post office as it is at Tesco because you have already
been in Tesco for 40 minutes before you get to the queue. If you
think about the urban post offices and the privately owned ones,
part of their success is the fact that because they sell more
products that side, ie all the groceries, papers and everything
else, you do not queue because you get some other stuff and then
you go. Queuing times is an issue for us but in a strange way
it is focusing on the wrong thing.
Q195 Richard Burden: Our discussions
today have been about consultation and we have made the suggestion
in the past that the consultation period should be longer so as
to allow what you may think are the misunderstandings to be worked
through properly. In your memorandum you said you are considering
extending the period of consultation with post offices. Is there
any reason why it could not be extended to the 12 weeks we were
recommending back in our Report on urban reinvention?
Mr Miller: Our understanding on
the 12 weeks, as it is applied elsewhere, is where there are specialist
facilities involved then it is normally a shorter period of time.
Our concern is that if you look at the areas where we are talking
about, we have people who we are talking to about franchises and
to extend to a period of 12 to 13 weeks makes it quite difficult
for them in terms of committing and being able to commit and the
degree of risk it is putting into the equation from their point
of view. We are in the process now of talking to Postwatch. Postwatch
have put some proposals to us. We would like to respond to those
obviously with a certain degree of flexibility. The 12 to 13 week
period does give us some difficulties.
Q196 Richard Burden: I do not understand
why it presents the difficulties you say because the 12 week period
is actually laid down as the standard for consultation on public
consultations. That is where we got the figure from. It was not
a figure plucked out of the air. I do not see why it is more difficult.
Mr Miller: My understanding is
that that relates to policy questions. What we are saying to people
is will you come and will you do a franchise in this post office
and they have got a whole series of things that they need to do,
they have got commercial decisions to take and the longer you
ask them to wait the more difficult and more risk there is in
those decisions for them. If we insisted on 12 to 13 weeks our
ability to attract franchisees in our view would be diminished
quite considerably.
Q197 Richard Burden: Given the experience
you have been through over the last few years not just in these
hearings but also in events up and down the country, do you not
think another couple of weeks on top of maybe what you are suggesting
might be worth it if it is going to buy one of the things that
you have failed to achieve, which is public confidence?
Mr Mills: Yes, we think exactly
what you have just said, Richard.
Q198 Richard Burden: Good. I look forward
to the response.
Mr Leighton: It does not mean
we will change anything!
Q199 Linda Perham: In the memorandum
you gave us some weeks ago you rejected Postwatch's suggestion
that Postwatch and stakeholders such as MPs and local authorities
should be consulted in advance of the public consultation and
you justify that by saying, "It would be wholly inappropriate
to introduce an advance notification in the case of change in
the directly managed network as we have a duty to engage our employees
prior to any other stakeholders in these circumstances."
I understand that, but what about informing external stakeholders
after the staff consultation?
Mr Mills: We have no problem with
that one.
| 
