HDN vs Royal Mail: Let battle commence…

The 2010 UK parcels market is wide open as Home Delivery Network gets ready to go toe-to-toe with Royal Mail. “A transformational deal.” That was the view of Gary Monk, Home Delivery Network’s chairman, as he commented on his company’s acquisition of DHL’s parcel business in the UK.

The undisclosed deal- concluded this week -will now see HDN’s market share rise to 17%, and although that still leaves the company firmly behind Royal Mail (who has the leading market share of business at 30%), it provides a statement of intent – Royal Mail could be on the rocks and HDN is ready to capitalise – the foundations for “transformation” are in place as HDN doubles in size. The combination of the two businesses will now deliver more than 180m parcels a year, leading to an estimated £600m turn over.

One cannot underestimate the damage caused to the Royal Mail brand by the series of strikes that have dogged the national operator since the summer months of 2009. The dispute with the Communication Workers Union not only led to a drop in confidence in the Royal Mail, but also saw a number of retailers fall into the lap of their rivals – with HDN one of the companies to benefit most.

Firstly, HDN has recently won contracts from Amazon and Asda, as well as renewing a five-year deal with Home Retail Group, the owner of Argos. Secondly, HDN’s sister company, Shop Direct Group, recently reported a rise of 6.3% in Christmas sales, which also generated the delivery of 8m parcels. HDN itself says the online delivery market is growing by up to 15% a year. Both companies are owned by Sir David and Sir Frederick Barclay.

The recent contract wins, together with the e-commerce boom, has seen HDN cope with the recession better than most, and certainly better than the business it is buying. This was echoed by Monk when speaking to the media about the contrast in fortunes between HDN and DHL Domestic in recent times. He said: “It’s no secret that [DHL Domestic] has not been particularly successful in the last couple of years but it’s been on an improving trend.”

A DHL spokesman also suggested that the time was right for DHL Domestic to benefit from a strong business partner. He said: “The UK domestic parcel delivery marketplace is all about scale and high volumes, which in turn drives operational efficiencies, and is highly competitive. Despite the recession, our management team has been very successful in substantially improving the performance of the Domestic business in the past year. However, we believe the time is right to divest the business to a strong UK operator.”

Ken McCall, CEO of DHL Express UK, said: “It was important to us to divest our own parcel business to a company that we can trust. HDN is a strong and well-respected player in the B2C field and thus ideally complements the B2B focused services we currently offer. This will certainly create an unrivalled service for all UK domestic parcel customers.”

Deutsche Post originally took a 50% share in Securicor Distribution in 1998, before merging the business with its DHL brand after taking full control. It is widely believed that the integration of the businesses was not as successful as first thought – with DHL’s express division not living up to its billing. Only last year, express sales in Europe were down by 17.4% – with the UK exchange rate also hampering business. McCall suggested that the transition – a crucial time for HDN’s new venture – will be carried out efficiently. He said: “We remain committed to ensuring our domestic parcel customers receive DHL’s usual high standards of service and will work closely with HDN to ensure a smooth transition process. It will absolutely be business as usual for these customers.”

If the integration of the businesses is carried out “smoothly” then 2010 promises to be an interesting year. Whilst Royal Mail contends with quick jabs from the CWU, they should be keeping a wary eye on HDN’s knockout punch.

Chris Dolan

How will 2010 unfold for HDN? Is the acquisition a good move? Or is it maybe a step too far? Please comment below…