Memorandum submitted by The Co-operative
Group
This submission is made by The Co-operative
Group on behalf of the Co-operative Retail Trading Group and The
Co-operative Financial Services.
Consumer-owned retail Co-operative Societies
have a significant commercial interest in the future shape of
the Post Office network. Collectively, we operate more than 500 Post
Offices, making us the largest operator of Post Offices in the
UK.
In the UK the consumer co-operative movement
includes 26 retail Co-operative Societies operating some
3,200 food stores throughout the UK. These aim to create
value for our members by providing them with the best possible
services and to invest in the communities in which they trade.
The Co-operative Group is the largest Co-operative Society in
the UK with a combined turnover of more than £9.4 billion
and 87,000 employees serving around 10 million customers
a week through food, healthcare, travel, funeral care and financial
services. The Co-operative Group is the largest community food
retailer in the UK and has an unparalleled position at the heart
of thousands of those communities.
Through the Co-operative Retail Trading Group
(CRTG), an organisation of Co-operative Societies, The Co-operative
Group provides the buying and marketing functions for all these
UK consumer-owned co-operatives. The CRTG Post Office Group enables
Societies to share best practice in the delivery of Post Office
services.
The Co-operative Financial Services offers transactional
banking through the Post Office, and the Post Office network is
recognised as a valuable channel for their customers.
THE POST
OFFICE NETWORK
AND CO
-OPERATIVE SOCIETIES
The Government and Post Office Limited have
recognised the benefit of co-locating Post Offices with retail
outlets such as Co-operative stores in local communities. The
combined Post Office and retail store should drive footfall for
each other, which enhances the sustainability of both the Post
Office and the community store.
We have been a significant supporter of Post
Offices and have taken over the operation of Post Offices in communities
throughout the UK. Where it is commercially viable to do so, we
would be happy to consider operating more Post Offices, committed
to being key to the future shape of a vibrant and sustainable
Post Office network. In recent years, multiple operators such
as ourselves operate an increasing proportion of the network and
we bring our own retail expertise and resources to the development
of the Post Office network. Although Post Office Limited have
identified The Co-operative Group as a preferred partner, indicating
the strength of our relationship, we believe that our potential
as a true partner remains untapped. There are aspects of our current
operational and contractual relationship with Post Office Limited,
which are a barrier to the development of such a strategic partnership.
In particular,
— Despite being the largest operator, and
our potential for further partnership working, in many cases,
Post Office Limited do not take account of our existing retail
business and the needs of our customers when working with us.
We believe that the Government should give Post Office Limited
the flexibility to work with individual multiple operators in
different ways appropriate to their own underlying businesses.
— Post Office Limited only has a statutory
responsibility to negotiate with the National Federation of sub-Postmasters
(NFSP), and, as we are not members of NFSP and they do not represent
our interests, we have no input into these negotiations. We believe
that the Government should encourage Post Office Limited to negotiate
with all operators, not just the NFSP.
— In some cases Post Office Limited working
practices are inappropriate for a large multiple retailer such
as ourselves. For example, Post Office Limited has invested in
their own business development resource, which aims to provide
all operators with support for Post Office sales campaigns. However,
these campaigns are often inappropriate for our business and conflict
with our own planned sales activities.
— Given our scale and reach throughout
the UK, and the strength of our shared trusted brands, we believe
that the lack of true partnership working is a missed opportunity
to embed a vibrant and sustainable Post Office network with the
UK's leading community retailer.
As the UK's largest operator of Post Offices
we welcome the opportunity to contribute to the BERR Select Committee
inquiry into the future shape of the Post Office network. We recognise,
that a sustainable Post Office network requires innovative thinking
and consideration of how Post Office services can be delivered
more effectively through retail channels and roll-out of new national
and local Government services rather than a focus on the delivery
of additional commercial products, which often compete with our
existing retail and financial services offerings and threaten
our long term partnership with Post Office Limited. We would welcome
the opportunity to provide oral evidence to the committee.
We have outlined our response to the Committees
specific areas of interest below:
1. What services should the Post Office network
offer,
from government,
We believe that Post Offices could regain their
role as a "universal hub" for the delivery of Government
services. We welcome recent indications such as the decision to
award the Post Office Card Account contract to Post Office Limited
and suggestions that the Post Office will be one of the organisations
delivering the Saving Gateway. We also believe that the Post Office
network could be a key component for the implementation and maintenance
of the new national ID card scheme.
We would welcome any Government moves to provide
additional services through the Post Office. However, for these
services to contribute to a sustainable Post Office network, the
level of funding (eg the fee per passport check) needs to be commensurate
with the time or work involved for both Post Office Limited and
the operator of the Post Office.
from local authorities, and
In some areas Co-operative Societies have already
established excellent working relationships with local authorities.
For example, in a specific part of Portsmouth, Southern Co-operatives
sells parking tokens on behalf of the local authority. The local
authority approached the Post Office, which was co-located in
a store and asked if we could sell the tokens. The scheme is an
agreement between the council and Southern Co-operative Society
rather than with Post Office Limited and the Society chose to
operate the scheme across the Post Office counter because of technical
and staff training issues.
We recognise that there is potential for more
local authority and other "state" services to be delivered
through Post Offices. In addition to traditional local authority
services, we believe that there is a role for the Post Office
network in the provision of local enforcement services, such as
the presentation of documents for the Police or payment of parking
fines
However, as outlined above, the level of funding
will need to commensurate with the time or work involved. In addition,
our experience is that each local authority operates many of their
services in different ways and with different services. From the
point of view of a national operator such as ourselves, the most
effective and efficient local authority services to be delivered
through the Post Office will be those which have the same process
or utilize a national system.
We do have concerns about the recent development
of local authorities starting to operate Post Offices, as there
is a risk that this will result in a hybrid commercial and non-commercial
network. We believe that, if there is continued growth in the
development of, effectively locally subsidised, Post Offices,
these will dilute the volume of business within the network and
undermine the development of a sustainable network. This combination
of risks will threaten our on-going commitment to the future of
the Post Office network. There is also a risk that the local authority
operation of Post Offices will be impacted by political decisions
around budgets and the need to deliver such services in certain
communities.
from other sources including services in competition
with Royal Mail Group
If Post Office Limited is separated from the
Royal Mail mails and parcels business, we do not see a reason
why Post Office Limited could not offer collection and dispatch
services for other mails and parcels operators. This could result
in more commercial opportunities for the Post Office as a provider
with an unparalleled reputation.
Post Office Limited currently operates a restrictions
policy, which restricts the ability of partners to offer services
such as mails, bill payments, national lottery, financial services
and foreign exchange other than over the Post Office counter.
We believe that these are restrictive covenants on our retail
and business and we consider many of these services to be part
of our own core consumer offering. For example, we have a contract
with Paypoint to offer bill payment services in nearly all of
our retail outlets. In many cases, where these services are restricted
to the Post Office counter by Post Office Limited, there is limited
access due to the opening hours of the counter, as opposed to
the more flexible consumer choice at the store's kiosk or at the
till. We believe that the Post Office Limited restrictions policy
reduces competition and is against the consumer interest.
We believe that, in order to support consumer
choice, where there has been a decision to offer services through
the Post Office network, these are offered on an unrestricted
basis and in parallel to those being offered by the "host"
retailer.
Post Office Limited should be a natural strategic
fit for The Co-operative Bank, part of The Co-operative Financial
Services. The Co-operative Bank has offered transactional banking
through the whole of the Post Office network. This service channel
is highly valued by many of our customers and extends the reach
of our own branch network. The Bank and other partners, such as
credit unions, could work with Post Office Limited to play a key
role in supporting the development of social banking with the
Post Office network. However, in recent years Post Office Limited
has placed the provision of its own branded financial services
at the core of efforts to improve the network's profitability.
There is a risk, as this continues to expand and compete with
our own financial services offerings, it will threaten the appetite
of partners, such as The Co-operative Bank to continue working
with Post Office Limited.
To what extent would these increase the network's
commercial viability? Is there a case for any service to be subsidised,
and if so, to what extent.
As long as the funding for activity involved
with the delivery of Government and local authority services is
commensurate with the time or involved, these should increase
the network's commercial viability. This should remove the need
for a specific subsidy for individual services.
Where, despite the increased network's commercial
viability, individual Post Offices in certain areas such as those
in rural or deprived communities, are still not commercially viable,
there is a case, on an exceptional basis, for that Post Office
to be subsidised by the Government in order to maintain the Post
Office service in those communities.
Post Office Limited have recently launched Post
Office Essentials, which offers 85% of Post Office services through
the retailer's own tills rather than over the traditional Post
Office counter. This represents an interesting development, moving
away from a "bricks and mortar" Post Office to offering
Post Office branded services through other providers. However,
there is a risk that Post Office Essentials threatens our existing
Post Office network in more than 500 stores, as the move
in the Essentials business model from the funding of fixed costs
to variable costs is more risky and less commercially viable than
our current relationships. Given our position as the leading operator
of Post Offices it would have been better if we had had the opportunity
at an earlier stage to contribute to the development of a more
commercially sustainable model, which was better suited to Co-operative
Societies own retail operations.
Finally, we also understand that Post Office
Limited intend to use the Essentials "model" to open
new Post Office outlets. Again, if they do extend Essentials to
new outlets, there is a risk that this expansion will dilute the
volume of existing Post Office business, threatening the sustainability
of the existing network.
2. How much account should be taken of
(a) costs to the taxpayer in providing
services through the Post Office rather than through cheaper channels;
and
We recognise that there will be some Government
or local authority services, which benefit society from the reach
and scale of the Post Office network, even if they could be provided
through cheaper channels. For such services there will have to
be a political decision for the taxpayer to pay the cost of delivering
them through the Post Office network, which can be balanced against
any potential efficiency savings eg reducing the cost of failed
passport applications through the "Check and Send" service,
which should be taken into account when assessing the cost of
the providing these services.
(b) consumer preference for alternative
channels
It is important to recognise that many people now
access services, which were traditionally delivered via the Post
Office network, such as the renewal of road fund licenses, through
alternative channels such as the internet. This is a matter of
consumer choice and preference. However, the Post Office network
should continue to play an important role as a "universal
hub" for the delivery of face-to-face Government services,
particularly as some customers do not have the capability to access
the internet or prefer to access such services at the Post Office
counter.
3. To what extent would a desire for the
presence of a Post Office or Post Office services translate into
actual use of those services?
There is often a disconnect between the desire
of a local community for the presence of a Post Office and their
actual use of those services. Post Office Limited should aim to
provide services such as those required by Government and local
authorities, which are unique to the Post Office or complement
their existing trusted brand. However, Post Office Limited, in
the spirit of true partnership working will need to recognise
that on occasion, partners such as Co-operative Societies, who
co-locate Post Offices within their retail outlets will offer
some of same services. This should be seen as a positive partnership,
which offers the consumer greater choice, rather than restricting
the ability of the retailer to offer those services.
4. What are the impacts of the availability
of post office facilities for businesses, and local residents;
and in particular how significant is the network in aiding social
and financial inclusion;
We recognise the importance of the Post Office
network to provide facilities for local businesses and local residents.
In many areas, the local Post Office provides cash handling and
banking services for small businesses, which are often key to
the very survival of the business itself.
We also recognise that the POCA account is well
used and valued by many of those who receive pensions and benefits.
Many POCA users do not have a bank account and POCA provides vital
access to pensions and benefits.
5. What level of subsidy-if any-per Post
Office would be reasonable in the long term; for example, should
it be £20,000 or £200,000?
Post Office Limited should aim for a commercially
sustainable network, which, in the medium to long term, does not
require any Government subsidy. However, in some areas, such as
those Post Offices in rural areas, or in some deprived communities,
where the Post Office is not commercially viable, but Post Office
services are provided due to the requirements of local need and
the access criteria, we believe that a subsidy should be provided.
The level of subsidy required will depend on the shortfall in
commercial sustainability.
January, 2009
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