Examination of Witnesses (Question Numbers
80-93)
THE CO
-OPERATIVE GROUP,
PAYPOINT
PLC
24 MARCH 2009
Q80 Mr Wright: I also declare that
I am a member of the Co-operative Party. One of the things that
the Committee is looking at is an alternative to the challenge
to the Post Office network. Clearly, one matter that gained a
lot of publicity was the Essex model in terms of passing a number
of post offices over to the local authority with local funding
and accountability. Do you think that is a sustainable and viable
project?
Ms Wood: I have concerns about
it. Obviously, I have not been involved in the conversations that
have taken place between Essex County Council and Post Office
Ltd, but in principle we supported the network change programme.
I have been associated with post offices for many years and have
seen the decline in products and services and the more challenging
environment in which we operate to generate profitability within
our businesses. Given that we have supported in principle the
network closure programme and are reducing the network, I did
not understand why we were giving opportunities to county councils
to keep open those post offices. Let us forget which post offices
they are and consider the principle of reduction of the network.
I am not confident that should there be government changes in
future or budgetary constraints those post offices can be sustained,
in which case we are back to square one. If we allow councils
or others to reopen post offices does it not defeat the whole
object of the network change programme for the remaining network
to be sustainable? I do not understand how that will work. Even
to this day it does not make any sense to me. Why would we aim
to reduce the network but then let somebody retain some offices
because they have some cash available at the time and can commit
perhaps for two or three years and the rest of the network has
the same amount of work to distribute among them?
Q81 Mr Wright: Surely, the whole
principle is about giving people in rural communities and other
communities that are relatively deprived access to commodities
and a well-known brand rather than the issue of profitability.
We understand that in the whole network there are only 4,000 that
would make a profit. If we went right down the road to say that
it had to be sustainable and deliverable surely we would be closing
another 7,500 post offices which would be an absolute disaster.
Ms Wood: I agree. Perhaps we need
to question the selection criteria and the process by which post
offices are selected for closure. If it will deny a community
a service that the council is expecting to maintain maybe we should
be challenging the selection criteria. Should they have been there
in the first place? We will have post offices even within our
own network that for ever and day will find it very challenging
to be profitable, but they deliver a very valuable service to
the community and so we support them. In terms of subsidising
those post offices my feeling is that we should be looking at
what else we can bring into the Post Office products and services
that the community needs so that remuneration is commensurate
with the skill and time taken to deliver those services and it
is a win-win situation. Maybe then we can start to look at reducing
subsidies because we are generating enough income to sustain the
business. Although our co-operative principles are very much community-based
it is still a business; it must generate enough income to sustain
the Post Office service for the community. We can do that only
if we have the right products and services which the community
requires at the right level of remuneration so we can sustain
the business.
Q82 Mr Wright: Surely, from your
experience you know that however many services are offered there
will still be a significant number of post offices that will never
become profitable because of their footfall?
Ms Wood: Yes, and we may have
some of those offices in our own business environment. Therefore,
that may be a case for subsidy, but there must be a model or transparency
as to the level of subsidy they should receive.
Mr Wright: Do you know how many of the
post offices in the Co-op would be considered profitable purely
on the basis of post office business?
Chairman: Profitable for the Co-op?
Q83 Mr Wright: Yes.
Mr Bowdler: We have quite a number
that lose a little bit and make a little bit. Overall, our post
office business makes a contribution and is profitable to us,
though not fantastically so. In total terms they are profitable,
but within that there are horses for courses; some are very profitable
and others are not so good. There is a large number that make
a little bit and lose a little bit.
Q84 Mr Wright: We visited Devon last
week and a community of 32 properties. You would not have a Co-op
store there, but there is a small shop with a postal access point
there. Therefore, in comparison with a small village store quite
clearly your footfall would be substantially higher. I would expect
that if there are some that are still marginal loss-makers the
extra business that I know the Post Office is trying to put forward
to them would probably tip the balance in favour of those Co-op
stores, whereas it would not in that village store in Devon.
Mr Bowdler: Obviously, we would
hope that the convenience store would be a good contributor. The
post office within the convenience store can sometimes lose a
bit or make a little, but in overall terms those post offices
taken as a business unit make a contribution to the Co-operative
Group.
Q85 Mr Wright: I turn to the Post
Office Essentials model. What do you consider would need to change
for that model to make it commercially sustainable?
Ms Wood: In principle it looks
a good format, but I believe that at the end of November a 12-month
pilot got under way, so it is early days. I have had feedback
from some people who are involved in the pilot. Clearly, some
issues have arisen that need to be resolved, but that is what
pilots are for. I am reserving judgment and comment until a little
bit further into the pilot once the business has had the opportunity
to iron out some of those issues and deliver the format as it
will be going forward. I would like to see a period where once
the pilot is finished there is some reflection on it rather than
a straight roll out. My other concern about Post Office Essentials
is that, to go back to the existing network, we have just concluded
a closure programme. If post offices in addition to the existing
estate were to spring up that would dilute the volume of business
currently available. I would want to understand the longer-term
strategy for that format and how it will impact on the network
as a whole.
Mr Bowdler: The key point here
is what vision the Post Office has for Essentials. Is it to help
in the very small rural areas that cannot possibly justify a full
post office with its cost base? If that is the case there could
be a way to go with that format, but if they see it as a way of
diluting the current business we would have problems with that.
Ms Wood: It could be a really
good solution to those post offices that will never achieve viability;
it could give them an opportunity to move further in that direction.
Q86 Mr Wright: In your opinion the
jury is out at the moment. What you will be looking at is the
question of whether or not it will dilute the resource already
there and make the position worse. Overall, what is your opinion?
We are talking about fixed costs against variable costs.
Ms Wood: The jury is still out.
Another area of which we need to be aware is the format that is
being offered at 80% to 85% of the current Post Office range of
products and services. Where does the customer access the other
15% of services? It is a longer-term strategy. Where will the
Essentials models be placed and where will the full range of Post
Office services be placed? How clear will it be to consumers where
they can access those products and services? How frustrating will
it be when they get there and realise that it is not a full service
offering? For me, there are lots of questions still up in the
air at the moment. I still err on the positive side; there is
room for this format, but I should like to see a little more detail
about its operation with feedback from the consumer and how it
has worked for the pilot group.
Q87 Mr Wright: In the last network
change did the Co-op lose any post offices?
Ms Wood: The Co-operative Group
lost 34 post offices from the estate.
Mr Bowdler: Overall, I think the
Co-op movement lost about 40 as part of the network change programme.
Q88 Mr Wright: Did you appeal against
those or consider that they were justifiable?
Ms Wood: There was lots of action
on our part and on the part of local consumers. Obviously, some
areas were much more energetic in their responses than others,
but we got three post offices reprieved, so that was quite successful.
For the remainder, it was a little difficult to understand the
criteria by which they were selected. Some of those branches were
profitable for us.
Q89 Mr Wright: But not necessarily
profitable for the Post Office.
Ms Wood: Yes, because of the cost
to the Post Office of supporting their operations, but there was
not as much transparency around that as I would have liked to
understand why those branches were selected.
Q90 Anne Moffat: Small businesses
in the current economic downturn are very important to the economy.
The Post Office provides cash handling and banking services to
small businesses but it does not appear that PayPoint does. Is
that the case?
Mr Taylor: That is correct; we
do not provide cash-handling services for small businesses.
Q91 Anne Moffat: Is that something
that you may consider?
Mr Taylor: There are lots of areas
in which we can look to expand our service, and indeed we are,
but it is not an area in which we currently provide a service.
As I am sure you will understand, just under half that total network
are themselves small businesses and are in the very difficult
retail sector to which you alluded. We know through research that
they value the proposition PayPoint provides: the footfall benefits,
the spend per customer and so on. When customers visit those stores
aside from paying their bills they do extra shopping and so on.
We know from that process that we are very much a staple proposition
for these convenience retailers and that is probably why in excess
of 5,000 retailers have applied for a PayPoint agency and are
waiting to take it on.
Q92 Anne Moffat: Would you be surprised
to know that approximately 80% of small businesses surveyed felt
they could not survive if they did not have post office support?
Mr Taylor: I would not be surprised
to hear that because to a large extent the Post Office provides
them with a salary-based income stream. But if you look at the
PayPoint footfall in a different way—we pay them only on
a per transaction basis—that is recognised through research
as also contributing to those businesses.
Q93 Anne Moffat: One of the very
first questions you were asked was what you could provide that
the Post Office provides now. You referred to the Post Office
card account. You would be allowed to do this but you are not
in a position to do it?
Mr Watkin Rees: Currently, we
do not do that but clearly we could enter into an arrangement
with the bank that allowed the counters to be used for cash banking
and to set up an infrastructure that allowed for that. It would
have to be trunked into bullion centres or whatever was necessary,
but it is not something that we currently do; it is not to say
it is something that we could never do.
Chairman: Thank you very much. We are
grateful for your time and the answers to our questions. We have
overrun slightly but even so we have scratched the surface of
only some of the issues today. The more you look at this issue
the more complicated it is and the more you realise that the different
interests of Post Office Ltd, post offices and communities are
not always overlapping and are often in tension with one another.
This has been fascinating session. We have a lot more to learn.
If there are things that you feel you should have said to us or
you would like to clarify we always welcome a further written
note from you.
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