As a prelude to its privatisation, Royal Mail has this week announced they have made a considerable profit – quite surprising when you take into account the apparent decline in traditional mailing operations.
Royal Mail has reported a 60% increase in pre-tax annual profits, as the government prepares to sell off the 497-year-old postal service in the most ambitious privatisation since British Gas.
The company, which ministers hope to float on the London Stock Exchange within a year, said its pre-tax profits in the year to the end of March increased to £324m from £201m a year earlier. No doubt the 30% increase to the price of stamps last year played an important role in this.
The surprising performance is expected to encourage the Government to cash in on the turnaround by pressing ahead with a privatisation, despite opposition from unions. While it’s great to see Royal Mail reporting a rise in profits, the organisation still faces lots of challenges which will provide for a bumpy ride.
Since 2006 Royal Mail has been thrown into a profits crisis by government-rigged competition, where private operators like TNT and UK Mail cherry pick the profitable bulk mail accounts, collecting and processing mail from banks and big business, but then using Royal Mail to deliver the mail at below cost prices dictated by the regulator. Meanwhile Royal Mail is obliged to bear the heavy costs of fulfilling the Universal Service Obligation (USO), delivering to every address, every day across Britain.
On top of this, Royal Mail has to battle with the fact that the letter business is dying as more and more of us turn to the likes of email and social media as a more effective way to communicate. The average household in the UK today spends around 50p each week on post, equivalent to just 0.1% of expenditure. Today’s postal service is all about parcels and ecommerce. If we were to rely on letters only then Royal Mail’s future would not be a bright one but with ecommerce growing ever faster, delivery services aren’t going to become redundant any time soon.
There has been speculation as to how Royal Mail will combat the spiralling declines in letters; after all there are only so many price increases and cost cutting exercises that the general public will stand for. What needs to happen now is for the business to become more aggressive in grabbing some of the opportunities which lie right beneath their noses. Within the parcel delivery and ecommerce sector the answer is obvious – data assets.
As the more successful modern companies like Google, Amazon and others are demonstrating, the key to growth lies not just in the product that you’re offering, but being able to exploit the data from the various customer interactions.
Royal Mail, along with other postal service providers, is one of the few organisations of its kind that can genuinely claim to interact with everyone in the country. It is a hugely valuable asset which, if exploited properly, could make the difference between whether the business has a future or not.