Royal Mail to revamp services to suit business base

Royal Mail is to abandon all but its first and second class postal products and replace them with services it believes serve better the needs of its mostly commercial customer base.

The move by Royal Mail, which yesterday reported record operating profits of Pounds 537m and an improved performance, is aimed at defending its market share before the industry opens to full competition in January.

Testing of the new products on customers is to begin in June with an eye to a launch before the new year competition deadline.

Royal Mail would not give details of the products but they are expected to focus on guaranteed delivery at specific times rather than speed. For instance, a mailshot delivery might be split over weeks rather than at once.

Adam Crozier, chief executive, said: “Most of our (current) targets are based on speed but most of the time this isn’t what our customers want.” The results mark the end of a three-year renewal plan in which Royal Mail has gone from losing more than Pounds 1m a working day to profits of Pounds 2m a day.

Although Royal Mail missed 11 of the 15 performance measures set by Postcomm, the regulator, for the year, it beat the targets for the proportion of first and second class letter deliveries made on time in the last quarter of the financial year.

Use of postal services increased, helped by the growth of online shopping, pushing up Royal Mail revenues by 3.7 per cent to Pounds 8.96m during the last year.

However, the organisation still faces a number of hurdles, not least its Pounds 2.5bn pension fund deficit.

The Post Office business lost Pounds 110m during the last year despite a restructuring, including 2,500 branch closures, 3,000 job losses and the introduction of new products.

Almost 33,000 jobs have been cut since the renewal plan began, or about 14 per cent of the workforce, and new technology and processes have been introduced to raise efficiency.

The Communication Workers’ Union said staff had gone along with the changes because basic pay had risen by 18 per cent.

Mr Crozier said Royal Mail would need to invest at least another Pounds 2bn in the next five years to further improve performance. He noted that Royal Mail’s profit margins, at 4.1 per cent, lagged behind the double-digit figures achieved by DHL and TNT, the German and Dutch operators respectively, which operate in the UK.

Postcomm is expected to announce the results of its consultation on a new pricing regime within the next two weeks. However, senior executives are pushing the government to launch its promised review of the structure of Royal Mail in light of full competition.

Allan Leighton, chairman, wants ministers to support his plan for a partial privatisation in which staff would share a 51 per cent stake.

The government made an election manifesto commitment that there were “no plans to privatise” Royal Mail. However, officials at Royal Mail believe there was enough “wiggle room” in this statement to allow partial privatisation to proceed.