Whistl suspension hits market evolution

By Sarah Cosgrove, Monday 18 May 2015

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The decision by the UK’s second biggest postal services provider Whistl to suspend final-mile delivery services last week, putting 2,000 jobs at risk, has put back the evolution of a market economy for letter delivery.

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Since 2012, the company, part of Dutch mail group PostNL and formerly known as TNT Post UK, had been pitching itself as an alternative to Royal Mail in Manchester, Liverpool and London, but had plans to expand its end-to-end (E2E) delivery services to 42% of UK addresses by 2019. 

Whistl’s “difficult decision” to suspend deliveries last Monday, came after its expected funder, private equity house LDC, a division of Lloyds Banking Group, pulled out citing uncertainty in the regulatory environment.

“From the time of our original agreement almost 18 months ago to our decision to end discussions last month, the market landscape had evolved significantly. Alongside declining postal volumes and ongoing regulatory uncertainties, the long-term viability of achieving the original E2E rollout projections looked challenging,” LDC said in a statement.

Whistl is now conducting a month-long review of the viability of the roll-out, with 2,000 members of staff being consulted on redundancy.

The news has produced a range of reactions in the direct mail sector. Privately DM printers tend to sympathise with Royal Mail, which must comply with the terms of its Universal Service Obligation while other companies can cherry-pick profitable routes. Additionally, Royal Mail believes that DSA firms could cost it as much as £200m in 2017/18 in revenues by taking the most profitable bits of the business.

In January 2014, Royal Mail divided the country into four pricing areas: urban, suburban, rural and London and wanted to raise prices, prompting a complaint to Ofcom from Whistl. Since this move would have impacted on Whistl’s – as the only other major provider providing an E2E service – ability to act as competition to Royal Mail. Ofcom opened an investigation under the Competition Act in December, which is still ongoing. 

Ofcom wants to encourage Royal Mail to be more efficient, which would lower its costs and have a knock-on positive effect to downstream providers.

An Ofcom spokesman says the regulator could not comment on the Whistl announcement – “a difficult situation where jobs are at risk” – as it was still not clear what would happen as a result.

“Generally we are concerned that if there is no competition in the postal market then that would mean Royal Mail would not have as much incentive to pursue efficiencies. We’re keen to see a healthy level of competition in the market.”

He adds: “There is strong competition in large parts of the market and it’s important to remember that.” 

The direct mail sector is also keen to see competition in the market. 

“Monopolies are never a good thing. We want to have a choice of supply where we can provide the best service to meet our clients’ requirements and have that choice,” says Latcham Direct sales and marketing director Kevin Pembroke. 

“It’s not come as any surprise to people,” he added of the Whistl service suspension. “They specialised in a highly niche market of conurbation distribution. And we don’t get to pick and choose.” 

Latcham Direct works with all downstream access providers and Royal Mail.

“I don’t think it will have a great impact on us. What’s having an impact on business is the shift from mail to alternative channels,” Pembroke says. “But we specialise in helping clients migrate to other channels. We’re channel agnostic.” 

One transactional printer was disappointed by the news. “The service could have been step forward in terms of investment,” he points out.

But according to director of external affairs at the Direct Marketing Association Mike Lordan “they were too small to have any effect on the overall market, I think less than 1%. At the letterbox level Royal Mail is the only supplier now; they have a monopoly, so this just brings us back to the status quo. The biggest impact is renewed pressure on Ofcom to ensure that Royal Mail is run properly.”

Both Royal Mail and Whistl are DMA members.

Lordan adds: “We’ll be having meetings over the next few weeks and months. I think we’ll have a fairly healthy debate. The concern of a lot of our members is to have a monopoly that’s handled properly by regulators.”

CFH Docmail, which recently printed and mailed over nine million ballot papers, poll cards and postal packs for the General Election – 15% of the voting market – believes its two-wheeled Velopost is now the second largest postal operator in the UK. 

The company delivers in Bristol, Bath and Edinburgh. Managing director Dave Broadway says: “It’s a shame that we won’t now see a genuine large-scale competitor for Royal Mail as all businesses need competition to bring out their best. Hopefully, the small-scale competition that we continue to provide will at least keep Royal Mail honest.

“The UK really needs a strong guide from Ofcom on competition in the postal sector.”

Royal Mail, whose financial results are due on Thursday, says that it is ready to take on the additional postal volumes that Whistl is no longer delivering into its network. 

“We will ensure delivery meets our usual high standard of service. We are liaising with Whistl to make certain customers aren’t impacted in any way,” the group says.

Whistl has not definitively decided not to pursue its E2E business – other aspects of its business such as parcel delivery continue to trade as normal – but the signs are not looking good.

However not everyone thinks the news is negative. 

“Ironically the demise of Whistl from the E2E market may actually help the mail channel as a whole to grow faster,” says Mike Colling, founder of media agency MC&C. 

“The ‘customer growth incentive’ recently introduced by Royal Mail has proved very popular with advertisers across the board

“It rewards clients for growing their mail volumes, whether these are booked directly with Royal Mail retail or via an access provider like Whistl but it did not reward advertisers for the volumes delivered end to end by Whistl.

“These volumes returning to the Royal Mail final mile may well qualify for this incentive, and make mail even more effective as a medium for advertisers. We would urge advertisers to check if this is the case for their campaigns.” 

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