Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 160-175)


6 JUNE 2007

  Q160  Mr Newmark: Following on from Mr Cousins' question, one aim of the OFT's campaign—and I appreciate you have not had much dialogue with them—is "inform and educate people who lost money from the collapse of Farepak to help them understand what options are available to them to save for this Christmas". What would you expect such a campaign to say about products such as yours?

  Mr Houghton: I would hope that it would portray us in a reasonably positive light, but also it is key that people's cash is protected and that they should trade with members of the CPA or another regulated body because there are lots of organisations that offer savings schemes, such as dairies and shops.

  Q161  Mr Newmark: But in language that is understandable to your target audience that is quite a convoluted way of putting the message.

  Mr Houghton: Yes. We are offering what is in effect a budgetary plan to enable people to put small sums away for a large expense at Christmas.

  Q162  Mr Newmark: What health warnings attach to that then?

  Mr Houghton: If we have Trust Accounts in place and the business is sound I do not see what health warnings we can put in place other than that the cash is as safe as we can possibly make it, and with Trust Accounts nobody within Park Group can take it for another purpose.

  Q163  Mr Newmark: The OFT also aims "to carry out a consumer education programme that will help consumers to choose the most appropriate short-term saving vehicle for their needs". Do you accept that it is likely than an official campaign such as this is likely to emphasise the value of financially regulated products?

  Mr Houghton: The value.

  Q164  Mr Newmark: The benefit of.

  Mr Houghton: I think it should emphasise that if something is regulated, be it by a trade body or by the FSA then it is inherently more secure than a business that is not regulated and informed, for instance a local butcher or newsagents who also may run a savings scheme for Christmas. So I think it should emphasise that those entities are more secure than any other form and they should trade with companies that are actually in one of those types of bodies.

  Q165  Chairman: The OFT said last December that "many Farepak customers appear to come from households on low or irregular incomes, possibly benefit dependent, and do not appear to use mainstream banking, credit or savings products". In your memo to us you have mentioned that 94% of your customers have bank accounts, 73% have a debit card and 53% have a credit card. Does that reflect a difference between the Park Group and the Farepak Group or was the OFT simply wrong?

  Mr Houghton: I do not know; I do not know if Gary wants to comment?

  Mr Woods: I think there is a slight difference between ourselves and Farepak in the sense that for a number of years now one of the main mediums we have used to recruit agents is direct response television and I think that that has actually raised the profile of the customers that we actually have. Equally, I do think that the analysis of the Farepak database is probably slightly outdated; I think it is something that you may have been able to say 15 or 20 years ago, certainly, but I think times have changed. We do have over 94% of our people with bank accounts; a lot of our people are professional people, they are teachers, policemen, and they do the scheme because it is fun, it is convenient, it is transparent and it gives them an excellent way to enjoy Christmas without going into debt. I think they are probably closer to C1s and C2s now, whereas 15 to 20 years ago they may have been more Ds and Es and I think that is the sort of inference.

  Q166  Chairman: Do you have any evidence of how many of your customers choose your products because of difficulties with financial institutions including, say, outstanding debts?

  Mr Woods: None whatsoever; it is not something we would know.

  Mr Houghton: 40% of our agents actually are registered to trade online now.

  Mr Woods: We have 85,000 agents who are registered to monitor their accounts online and 40,000 currently for 2007 are doing that. So, again, they have PCs, they all have mobile phones, they are not financially illiterate—most of them, as I say, have bank accounts and we know that some of them have ISAs, et cetera. I think it is an outdated perception of a hamper customer.

  Mr Houghton: And make an informed judgment, I think that is the thing.

  Q167  Chairman: The OFT also argued that there were parallels between the market which Farepak operated and the home credit market. Do you think that the two markets attract the same kind of customers?

  Mr Houghton: I think certainly the home credit market does offer a similar product to ours—in fact I have a brochure from one of the home credit companies—but I think the customer base is typically different. Our customer base tends to be people who like to plan and save and avoid debt and home credit company customers are people who are actually using the financial service provided by those companies.

  Q168  Chairman: Has your business expanded since the collapse of Farepak in the areas where Farepak was strong, for example in Scotland and northeast of Scotland?

  Mr Woods: There has not been a great change in the geographical profile of the database; we are still very strong, as we always have been, in what we call our hotspot areas, which is northwest, northeast. Scotland is reasonably strong for us but it was before the collapse of Farepak.

  Q169  Chairman: What proportion of your business reflects your geographical location? You mentioned the northwest—are you all over the country now?

  Mr Woods: We are all over the country. I think Chris mentioned earlier that we supply the Scottish Islands, we supply Jersey, we supply Northern Ireland—we are all over the country. The south of England has never been as strong as the north of England for us although we have made inroads, again probably down to television advertising. The northwest is about 26% of our business, 23% in the northeast and Scotland is about 10%. So we have hotspots but we are completely national.

  Q170  Chairman: Has your relationship with retailers changed over the last few years? Have they asked upfront for monies earlier than Christmas?

  Mr Houghton: I think the failure of Farepak has made a lot of people nervous, but fundamentally it was European Home Retail and not Farepak that the problem was, so we are in constant dialogue with all our suppliers and partners.

  Q171  Chairman: But have the business arrangements changed with your retailers?

  Mr Houghton: Not particularly, I do not think. We certainly pay on time.

  Q172  Chairman: You would not be here if you did not. "Save Christmas" with OFT, somebody made the point earlier, would it not have been quite good if you had been consulted by them? We have them coming before us.

  Mr Houghton: We are happy to work with—

  Q173  Chairman: We could have been able to have a good, positive input for them, something to tell them.

  Mr Houghton: I would hope so.

  Mr Woods: I would have thought so.

  Q174  Chairman: Last question, gentlemen, so that you answer for the public record. Some people have said that this is a bum business model, that people do not get a great deal; they give their money to you, it is kept until Christmas and they do not get any interest, boy! you guys are doing well. You tell me—you are here, you market yourselves to us—why is it such a great thing for people?

  Mr Woods: I think it is important for yourself and the Panel to understand that if you look at our sales they are 90% vouchers and we sell vouchers at a pound for a pound, so two of the largest retailers in the UK, we sell their vouchers and we sell them at exactly the same price that the consumer could go into the store and buy them for. Over and above that, if they are dealing direct with us or if they are an agent we give them a commission for doing that as well and we deliver them to their home, so it is excellent value. It is fun, it is convenient, it is transparent—as I say, we produce a catalogue and everything is clearly priced and clearly photographed. I think the reason that we have so many people that save with these schemes are testimony to the fact that they like us, they like what we have to offer—we offer great value for money, we offer great service.

  Q175  Chairman: Right, Chris, what do you say?

  Mr Houghton: People talk about hampers, hampers are a small part of our business but still reasonable—£10 million worth of turnover. They are quite an exciting thing and a Christmas tradition for a lot of people, I think. When you get the hamper you open it up, it is full of shredded cellophane, it comes out sparkly for Christmas and it is very exciting.

  Chairman: Can I thank you for your appearance here? We have finished two minutes ahead of time, so if your Christmas sales match your timing with this Committee you will be doing very well! Thank you very much.

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