The Hidden Nasty In Royal Mail PLC's Latest Results

[TrueBlueTerrier]

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The recent deal between Royal Mail (LSE: RMG) and the Communication Workers Union looks like it should solve most of Royal Mail’s industrial relations problems.

However, I recently took a closer look at the firm’s latest results, which confirmed my suspicions that the business has a bigger problem; one that could seriously affect its long-term growth prospects.

Volume vs price
Royal Mail’s letters business reported a 5% decline in volumes and a 3% decline in revenues during the first nine months of last year, but investors shrugged this off. After all, we all know that letters are history, and the new growth area is parcels from internet retailers, right?

Well, yes. According to the CAP Gemini e-retail sales index, the online retail market grew by 16% in 2013. You would probably expect Royal Mail to have picked up a slice of that action. But it didn’t.

That’s right — Royal Mail’s parcel volumes were flat during the first nine months of its current financial year, which included Christmas. Although Royal Mail reported an 8% increase in parcel revenues, this was simply the result of price rises and new, size-based, pricing.

Price hikes like this can’t be repeated very often, and although Royal Mail handles more parcels than anyone else, it’s losing market share to its competitors, who are reporting rising volumes.

Ignoring the internet?
One problem may be that Royal Mail’s exclusive contract with the Post Office means that it cannot sell its services anywhere else.

This means that it is shut out of the entire online parcel shipping market, and is excluded from the rapidly-growing parcel drop-off market, where couriers collect and deliver parcels to a network of drop-off points, such as the 5,000+ branch CollectPlus network run by Yodel.

Although Parcelforce Worldwide services are available online, Royal Mail’s parcel services are restricted to the Post Office, which also refuses to do business with online parcel services, forcing customers to visit its branch network if they want to send parcels.

I know what I think
As a regular user of both Royal Mail and courier services, I increasingly choose the online option and send via a courier.

For all but the smallest parcels, it’s just as cheap, and the convenience of booking online and having a collection from my home makes the tedium of lunchtime queuing in my town centre post office completely unnecessary.

Of course, if you picked up Royal Mail shares at 330p in the firm's initial offering, then you're sitting on an 80% gain and can look forward to a 5% yield. So why worry?

In the short term, I'd agree, but for the long term, I think there are better options elsewhere,

[osgoody1970]

well, we gotta go online then.... and see our profits soar... we are the best out there!!!

[pinstripe]

"Ignoring the internet?
One problem may be that Royal Mail’s exclusive contract with the Post Office means that it cannot sell its services anywhere else.

This means that it is shut out of the entire online parcel shipping market, and is excluded from the rapidly-growing parcel drop-off market, where couriers collect and deliver parcels to a network of drop-off points, such as the 5,000+ branch CollectPlus network run by Yodel."

That is not true.

On eBay, you can not only print your own postage labels with the full variety of services (ok, letters you have to take it to a post office to post it if you want a proof of posting, or recorded/special delivery bar code), but if you are using Parcelforce, you can arrange collection from an address of your choosing.

I like bashing RM when I can, but at least give me something factual to froth other.

[Chitchat]

Royal Mail lost a lot of the uneconomical parcels which was the idea of the price increase so they could concentrate on the profitable packages. I would be inclined to wait till the next results so the price increase has worked its way through. And see how volume growth looks then.

[Budfrog]

On eBay, you can not only print your own postage labels with the full variety of services but if you are using Parcelforce, you can arrange collection from an address of your choosing.

There is a problem here for eBayers wishing to use the Royal Mail online postage system for parcels.

Yes you can weigh, measure, pay for and print out/attach the postage label which is very convenient. But then you have to still visit the PO, who will then check the size and weight before accepting the item, you may as well just pay for it there as well !!! There really needs to be drop off points for parcels paid for online ... I know that counters is the 1st line of defence for revenue protection but RM need to be adapting to the customers needs and not require them to adapt to ours. When you use Hermes/Collect+ the only reason you have to wait is to PU the track and trace documentation/receipt which comes free with their services. .

[newtimes]

On eBay, you can not only print your own postage labels with the full variety of services but if you are using Parcelforce, you can arrange collection from an address of your choosing.

There is a problem here for eBayers wishing to use the Royal Mail online postage system for parcels.

Yes you can weigh, measure, pay for and print out/attach the postage label which is very convenient. But then you have to still visit the PO, who will then check the size and weight before accepting the item, you may as well just pay for it there as well !!! There really needs to be drop off points for parcels paid for online ... I know that counters is the 1st line of defence for revenue protection but RM need to be adapting to the customers needs and not require them to adapt to ours. When you use Hermes/Collect+ the only reason you have to wait is to PU the track and trace documentation/receipt which comes free with their services. .

Drop & Go Branch Service

Sign up for a Drop & Go account in your nearest participating branch – it only takes a few minutes to complete. Then top-up your account.

Next time you’ve got mail to send, simply visit the fast-track counter and drop off your mail with us. We’ll do a few quick checks to make sure everything looks fine – checking you’ve enough money in your account for example - and you’re then free to go! There’s no queue and there’s no need to hang around waiting for us to process your mail.

We’ll then take care of the mail later in the day, taking the cost from your prepaid card as we go. If you’re sending anything tracked or if you need any certificates of posting, that’s no problem – we’ll keep those receipts ready for you to collect the next time you come and see us.
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[UnhappyGremlin]

For once, this is a bullshit article.
Full of misinformation, and lacking other important information.

It also fails to mention the fact that many other couriers have VERY bad ratings in customer surveys.
I have a friend who dispatches for a well known company, and they moved to YODEL about 10 months ago.
They have a 1 year contract that they are not renewing due to severe under performance.
They saved a lot on postage, but customer complaints/missing parcels went through the roof.
They're switching back.

Though, I still think the price changes were the biggest mistake RM have made recently, which they all but admitted by changing the prices/sizes again in about October last year.
Though it's still not enough.