David Mills Interview – Post Office chief prepares for battle with banks
As anyone who has recently attempted to wrap up a parcel in one of its branches may already know, the ancient sticky tape which used to litter its counters has disappeared.
David Mills, chief executive of the Post Office, has in the past few months been on a spring cleaning drive in the organisation's 16,500 branches. He has called in industrial cleaners to its main post offices in cities to zap the stains from the carpets and polish their windows. Gone, too, are the mangey leaflets, which have been replaced with fresh, up-to-date ones.
"It sounds so simple, but it is very important," says Mr Mills, who was drafted two years ago this month after being head of retail banking at HSBC to try to rescue the struggling business.
He has also turned his attention to the rural sub-postmasters, who have been told in no uncertain terms that opening for a few hours a day and selling a few home-grown vegetables and yellowing stationery is no longer acceptable.
"We are obliging them to do what we want them to do to conform to the franchise. We don't want them looking all higgledy-piggledy. We don't want candlewick bedspreads hung up on the door," he adds.
A new management, made up of heavy hitters from the business world, are now in charge and they are determinedly shaking up the culture of the mammoth organisation in a bid to turn a pounds 200m loss in 2003 into a profit.
As well as the cosmetic changes, Mr Mills, whose responsibility is to revamp the Post Office – one of the three organisations which sits within the Royal Mail umbrella – is trying to turn his business into a serious competitor to Britain's high street banks. That has involved launching personal loans in the past few weeks. Motor insurance will follow in the autumn, with credit cards and mortgages expected to be available from next year.
Financial services alone should generate pounds 500m a year in profits by 2014, on Mr Mills' projections. The 60-year-old, "worn down" by a headhunter to take the job after leaving HSBC, hopes the strategy will drive the Post Office into being a powerful generator of profits.
Of the three businesses in the Royal Mail group, the Post Office has been making the largest losses. Parcelforce has also been in the red, while the letter business – also called Royal Mail – has been making money. The letters and parcels businesses are run by Adam Crozier, former chief executive of the Football Association, and he and Mr Mills both report to the chairman, Alan Leighton.
It is easy to see how the Post Office, which also plans to enter the mobile phone market and is already Britain's largest provider of foreign currency, could be a formidable competitor in the banking sector.
"We have 29 million customers, who come into a branch 42 million times a week, making 52 million transactions. We don't have to make a profit which is off the Richter scale. Because we have got so many people coming in, we can afford to be sharp in our margin structure," says Mr Mills, who left school at 14 to take his first job as a bank clerk in Barkingside in his native Essex.
He also claims that the Post Office has an advantage over some of the banks, which have disillusioned their customers over decades by offering them poor deals and bad service.
"We ran some market research over 18 months and I didn't believe it at first, but it showed that people answered more favourably about the Post Office than they did about other brands," he says. "It came ahead of Marks & Spencer, ahead of Boots, ahead of Tesco, would you believe?"
Having the Post Office's branches at his disposal – a network which is bigger than the other British banks and building societies combined – and being presented with a clean slate to work with, is a huge opportunity for this banker who spent 40 years working his way to the senior ranks of the Midland, bought by HSBC, and who created the bank's telephone and internet bank, First Direct.
The stakes are high, thanks to a decision by the Government to scrap benefits payments being collected over Post Office counters in favour of an electronic system which allows recipients to have their cash paid straight into a bank account. As a result, Mr Mills says: "We are losing 40 per cent of our income in the next two years."
On his key area of financial services, he says: "We've got to move the market share. But if you had been brought in and told there is no money, the thing is insolvent, we haven't got any capital and you are not getting any cash, aiming for 5 per cent of the personal financial services market in the next few years is not a conservative estimate."
The plan is to grow the market share through a pounds 125m joint venture with Bank of Ireland, which in many cases will involve attracting customers initially through branches and then selling them the products through call centres, which will play a crucial part of Mr Mills' new model. That said, Mr Mills has no plans to scrap more than the 3,000 urban branches which are already being closed under a programme to shut some outlets to improve the remaining network.
He is, though, unrepentant on one aspect of Post Offices that is regarded by some customers as the organisation's most annoying characteristics: the snaking queues at branches. It is a social experience for most people; they actually want to meet the people in the queue," he claims. "We have done some experiments like opening branches half an hour earlier and the queue still gets there half an hour earlier. It is a social experience for most people, they actually want to meet the people in the queue," he claims.
The spring cleaning aside, there are also no plans to try to make the Post Office's image more swanky. "People think we are more downmarket than we actually are, because they see the benefits claimants, but because the population is 57 million and we've got 29 million of them, so our customers are going to approximate the UK national average very closely," he says.
And if those millions of people do not take up Mr Mills' new range of financial services offerings, or his foreign exchange of telephone services, and the Post Office plunges further into debt? The answer is simple, says the direct Mr Mills. "We will all get sacked. We've got thousands of sub- postmasters and sub-postmistresses who have invested their life savings in this business. This is a not the civil service any longer; it is a commercial management and if we don't hit the numbers we are out," he says.
