The founder and MD of London-based international courier ParcelHero, Roger Sumner-Rivers, thinks news that the government is to sell-off its remaining 30% stake in Royal Mail is a double-edged sword.
On one hand it will free the company to make urgent investment in its ageing infrastructure. But at the same time the new company would be a ripe candidate for a takeover.
This announcement looks to be good news for customers, who will benefit from the more commercial and competitive approach that Royal Mail will be able to make to the letters and parcels market. However, I question whether the fully privatised Royal Mail will be able to afford the urgent investment it needs; or whether it will ultimately need to find a buyer to secure its long term future.
Potential investors might not find Royal Mail shares to be as good a long-term investment as the current share price would seem.
Royal Mail faces some tough challenges, and these have not gone away. It urgently needs modernising, its infrastructure is creaking; and, newly-privatised, the company might find difficulty funding the urgent improvements needed. It has just reported a 4% fall in letter volumes, and as the recent demise of Whistl’s door-to-door letters service shows, it’s extremely hard to make money in the postal market today.
It’s hard to make money in a business which has to deliver a letter to the Highlands & Islands for the price of a stamp.
Perhaps even more significantly Royal Mail’s parcel business, Parcelforce, is not growing in line with the market, because of a lack of innovation and competitiveness. Its parcel revenue growth of just 1% is very disappointing in a fast growing market, and until Royal Mail becomes more responsive to customer needs we fear they will continue to be the laggard in a sector that grew by 9.5% last year.
Royal Mail has a long and proud history. But it needs to invest significantly and develop its offering more. From click-and-collect access points to one-hour delivery slots and SMS notifications, there are plenty of examples of how innovation is changing our market. It’s hard to see how Royal Mail can go it alone and fund all of these urgent improvements.