For the past 300 years the Post Office Network has been an integral element of Irish society; at the forefront of economic and social activity in towns and villages across the country. But evolving technological and behavioural changes place the future of the Post Office Network under increasing pressure. Despite these trends working against An Post, there are reasons for optimism.
As other industries consolidate and contract, gaps are emerging that An Post and Postmasters can take advantage of, provided they can identify commercial business models and act quickly and effectively. Income for the Post Office Network is driven by two primary sources of business – the Department of Social Protection (DSP) social welfare contract and the NTMA State Savings contract.
Taken together, they make up more than 55% of revenue. The dependence of the Post Office Network on the DSP revenue stream has always been critical to the sustainability of the Network, even more so in recent years.
The Government’s digital strategy is moving rapidly towards electronic payment of all Government monies, including ultimately DSP payments. While customers will ultimately choose which option they prefer in the long run, in the short term this strategy has the potential to move DSP business from post offices to the banks. While it would be futile, and inappropriate to suggest that the Government should consider rolling back its digital strategy, the Group recognises that the strategy constitutes a threat to the Network.
To ensure the viability of the Network a solution must be found whereby Post Offices continue to perform a key role in the provision of DSP payments on behalf of the Government.
This can involve a mixture of continued cash payments and the development of a Basic Payment Account. It is evident that all parties involved in the Group fully understand the challenges that the Network faces and are actively looking for a means to engage in charting a new direction for it. Perhaps the biggest challenge facing An Post, the Postmasters and ultimately, Government is that with falling mail volumes and changing consumer preferences the Network may simply be the wrong size and shape for modern Ireland. Before coming to this conclusion, the Group discussed this issue extensively and assessed a wealth of data prepared by An Post.
One of the most EXECUTIVE SUMMARY Executive Summary 6 telling statistics is that 48% of post offices only completed 12% of the business undertaken by the Network. The Group believes that it is important that An Post, following consultation with Postmasters, and the Shareholder, should review and amend the five year strategy for the Network, taking on board the Group’s recommendations.
This process should be independently Chaired and facilitated. In advance of this activity being completed, the Group has attempted to broadly categorise all post offices into three groups – Retail+, Service+ and Community post offices. The Retail+ grouping is made up of post offices with the largest footfall and accounts for 66% of the retail business. The second group, Service+, is made up of post offices whose activity levels place them in the range of loss making to marginally profitable. This category accounts for 26% of the business. The final grouping, Community post offices, is made up of all other post offices where the economic rationale for their retention is less compelling.
This is not to say, or recognise, that there may be strong social reasons for their retention, but it is more a recognition that their continued viability may be more a reflection of the individual postmasters’ desire to retain the service in the community rather than a compelling financial reason to keep them open. Post offices in the Retail+ and Service+ categories should co-locate with other services in order to ensure their continued survival.
The importance of financial services was recognised early on by the Group as fundamental to the future viability of the Network. Financial services are a critical business area, accounting for 76% of the retail business revenue earned by the company and 68% of transaction earnings of Postmasters. The biggest opportunity for An Post and the Network lies in the provision of an extended suite of banking/financial services.
To date, the Company has focused on providing thirdparty services while examining whether to provide products such as the Basic Payment Account. The Group believes that An Post need to develop their own portfolio of products and services over which they could maintain greater influence than third-party services. Government services have long been a vital element of the revenue generation for post offices.