Memorandum submitted by the Postal Services
Commission (Postcomm) (POS 14)
1. Postcomm would like to respond to the
Select Committee's inquiry in relation to the future of the network.
In particular, Postcomm is concerned that:
— the top priority for the future should
be to develop a sustainable network by securing customers through
a mix of products and services;
— Post Office Ltd needs greater commercial
freedom to win new business and keep existing contracts;
— Sub-postmasters and Crown post office
staff need proactive sales training and support to tackle the
challenges facing the business;
— Post Office Ltd should improve the
customer experience by negotiating tougher service level agreements
with large franchisees and modernising the Crown post office network.
INTRODUCTION
2. Postcomm is supportive of the restructuring
programme that is now being implemented and welcomes the Government's
commitment to recognise the social and economic role of post offices
in the community. This is a considerable challenge for all concerned
and the changes implemented over the next two years will have
an impact on the future viability of the network. Our concerns
are particularly focused on the steps needed to secure the future
viability of the post office network by ensuring that it has a
range of products and services that will attract and retain customers.
Postcomm would like to see the long-term sustainability of the
network as the top priority both for the Government and Post Office
Ltd.
FUTURE OF
NETWORK DEPENDS
ON RIGHT
PRODUCTS AND
SERVICES
3. After the restructuring programme, the
Post Office network will comprise around 370 directly-managed
Crown offices and around 12,000 branches owned and operated by
franchise owners. These post offices will no longer be able to
rely on the "captive customer", deriving the majority
of their income from benefits and payments, and will need to become
more innovative and sales orientated in order to survive.
4. In 2007, Postcomm commissioned independent
research for its Annual Network Report, to look at current
and future trends on access to postal services. Our research found
that 80% of people perceive themselves to be within a mile of
a post office branch and over 90% perceive their branch as easy
to reach. 43% of people said that they used a post office at least
once a week to access postal services and more than 75% said that
they expect to continue to use the same amount of postal services
in future. The reasons why they expect to use the network are
mixed—staying in touch with friends and family, paying bills,
buying online and because they expect to use it more as they age.
5. For the future, customers (particularly
in urban areas) said that the things that would make them use
their branch more included, longer opening hours, shorter queues
and more convenient locations—rural customers said they
would like a wider range of services. The research also found
a high level of trust amongst postal users to use the network
to collect packets and parcels rather than alternative locations
such as a garage. This is an important growth area for mail and
a key strength for Post Office Ltd to build on now and in the
future.
IMPORTANCE OF
POSTAL SERVICES
TO ENCOURAGE
FOOTFALL
6. One of the continuing themes in our research
and discussions with stakeholders is the importance of postal
services as a key product to bring in customers into post offices.
Postal services represent around 26% of Post Office Ltd's business
and mail is the one product offering that helps the post office
stand out among other retail networks. Although mail volumes are
now showing a gradual decline, the internet has driven a rapid
growth in online shopping. Verdict Research estimated that in
2006 consumer shopping online increased by 33.4% to £10.9
billion from the previous year and is predicting online sales
of around £29 billion in 2011. This rapid growth is shown
in the table above. The growth in fulfilment mail such as packets
and parcels is important for the post office network as our research
shows that customers see their local branch as the preferred location
for delivery if they cannot be reached at home. Post Office Ltd
has shown some initiative in terms of exploiting new mail opportunities
through internet shopping, for example, working with Argos, to
offer their internet customers a collection facility at their
local post office.
7. Postcomm believes that the opening of
the UK postal market to operators other than Royal Mail, and providing
a collection service for mail order and internet goods, has the
potential to provide a business opportunity for Post Office Ltd
and for subpostmasters. Postcomm urges the Royal Mail Group to
allow Post Office ltd to enter positively into negotiations to
prevent business being lost to supermarkets or other networks
such Mail Boxes Etc or bill payment networks such as Paypoint.
Post Office Ltd is just as dependent as Royal Mail on the health
of the mail market and may be better placed to respond to the
needs of customers, for example through the fulfilment of internet
shopping.
8. At present, Post Office Ltd has an exclusive
trading arrangement with Royal Mail that restricts to Royal Mail
the authority to negotiate with other operators or companies who
may want to use the post office network as a collection or delivery
point. The sub-postmasters, in turn, have a contract with Post
Office Ltd that allows them to provide postal services only for
Royal Mail and Parcelforce. In Postcomm's view, the post office
network and customers could benefit from a much more open approach
than has been shown hitherto in welcoming and attracting the business
of other mail operators.
GREATER COMMERCIAL
FREEDOM FOR
POST OFFICE
LTD
9. One way this might be achieved is by
giving Post Office Ltd greater commercial freedom through further
separation of Post Office Ltd and Royal Mail's letters business.
Separation of Post Office Ltd from the Royal Mail Group could
contribute to establishing a sustainable network for the future
by giving the company greater commercial freedom to secure new
business. For example, separation could make the network more
attractive to other operators (mail, courier and express) and
allow Post Office Ltd to negotiate directly with Royal Mail and
its competitors which could mean better value for money and choice
for customers. Separation could allow Post Office Ltd to align
itself more closely with a wide range of other businesses such
as financial services (eg insurance/loans), IT (eg broadband,
government (eg identity cards), as well as postal services.
10. Focus and a clear vision are key requirements
for the successful implementation of major change. Post Office
Ltd and Royal Mail's letters business already have separate management
structures, but to succeed in a period of profound change they
need to concentrate on developing their core businesses. Post
Office Ltd is essentially a retail business—one of the largest
in Europe, while Royal Mail is a communications and logistics
business. Post Office Ltd is a commercial retail business which
is run as a service with a clear recognition that it continues
to meet certain social requirements (for example, access to cash)
which require State Aid financing. Royal Mail's letters business
is a commercial enterprise that is expected to operate without
the need for external finance. Post Office ltd is getting on with
the network change programme, while Royal Mail's transformation
plan continues to suffer from implementation delays.
11. If separation of Post Office Ltd and
Royal Mail Group was considered by government (this is beyond
the scope of Postcomm's powers under the Postal Services Act 2000),
the close links that exist between Post Office Ltd and Royal Mail
letters business would need to be reflected in transparent and
long term contractual arrangements. As part of its 2008 Annual
Report on the Post Office Network, Postcomm is examining the pros
and cons of separation of Post Office Ltd from the Royal Mail
Group and seeking views from stakeholders.
TRAINING AND
SUPPORT TO
ACHIEVE A
SUSTAINABLE FUTURE
12. Postcomm recognises that some of the
current Post Office Ltd franchisees are finding it a challenge
to adapt from the "captive customer" environment to
one where they now have to fight hard for business with their
High Street competitors. In some cases they may never be able
to make this cultural change. However, for the majority the key
issue in becoming more innovative and sales oriented for their
customers is that they get the right training and support from
Post Office Ltd.
13. Post Office Ltd is investing in training
for Crown post office staff, but it is vital that the quality
and availability of induction and training for all sub post office
staff is improved. Sub post office staff also need long term support
from Post Office Ltd's business development and sales managers
to help develop a consistent level of customer service and a sales
orientated environment. This is particularly important where branches
will be expecting to cope with increasing numbers of customers
following the closure of neighbouring branches under the current
restructuring programme.
RELATIONSHIP BETWEEN
POST OFFICE
LTD AND
ITS FRANCHISEES
14. If it is to secure a sustainable network
for the future, Post Office Ltd needs to manage its franchisees
as actively and progressively, as any other large franchise owner
would do. Postcomm would like to see more service level agreements
brought into contracts, to ensure that the customer is always
provided with a positive experience when using a post office.
This means developing the relationship between Post Office Ltd
and its franchisees (large multiples and individual sub-postmasters)
to ensure a standard service level and appearance and to help
them to grow their business.
15. The remuneration structure must also
continue to change so that rewards for staff is better linked
to the degree of sales effort required and the value of the business
won. Postcomm recognises that putting the relationship between
Post Office Ltd and its franchisees onto a more forward looking
basis will require commitment from Post Office Ltd, the National
Federation of Sub-Postmasters and each and every subpostmaster.
BACKGROUND
16. Postcomm's role in relation to the Post
Office network is limited to monitoring developments and reporting
to the Secretary of State for BERR in an annual report on the
network. The report is laid in the libraries of both Houses of
Parliament. Postcomm has a duty to advise about the accessibility
of post offices to customers, with particular regard to the interests
of those living in rural areas, the disabled or chronically sick,
those of pensionable age and those on low incomes. Decisions on
the future of the network are a matter for Government. Postcomm's
main statutory duty is to ensure the provision of a universal
postal service and to further the interests of postal users in
the UK, where appropriate, by introducing choice through competition.
Key facts from the Annual Post Office Network
Report—October 2007:
— At the end of September 2007 there
were 14,118 post offices in the United Kingdom (including satellites
and sites where the mobile vans stop once a week), an overall
reduction of 145 from the same period last year.
— Despite the 458 crown offices making
up such a small proportion (3.22%) of the total estate they were
responsible for £70 million of the £99 million 2006-07
losses. This is in contrast to a £50 million loss they made
in 2005-06.
— In the year ended March 2007 Post
Office Ltd made an operating loss of £99 million, compared
to a loss of £111 million in 2005-06. The result included,
for the first time, six months worth of the Government's £150
million annual social network payment to support the costs of
loss-making branches.
10 January 2008
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