An Post: How to turn a profit when you're obliged by law to make a loss
An Post invested wisely outside of its mail-handling function, sales and marketing director Liam Sheehan tells John McGee
Published 10/07/2016 | 02:30
It is probably fair to say that most Irish people take the postal service for granted and expect their delivery to come dropping through the letterbox on a daily basis, come hell or high water.
With a clearly defined Universal Service Obligation (USO) under both EU and Irish law, this poses considerable financial challenges for An Post and last year the State-owned company racked up losses of €32m as a result of these obligations - €19m of which related to both outbound and inbound international mail, with the remaining €9m attributable to the domestic market.
Despite these onerous obligations, the company recently announced that it had more than doubled its profits in 2015 to €8.6m, on a turnover that was up by €10m to €826m.
"The contributions we get from our other businesses and services essentially funds the losses in the other part of the business," says Liam Sheehan, sales and marketing director with An Post.
And while he points out that it has been fortunate enough to be in this position, he warns it might not be sustainable in the future.
"Over the longer term, however, that is going to be increasingly difficult to sustain. As in any business, it's hard to sustain losses in one market with profits made in other highly competitive markets," he says. It has a stable of business interests that includes a stake in both the companies that run the National Lottery and the Prize Bonds, as well as a slice of the firm behind the One4All gift-voucher, plus Post Mobile (which acts as a mobile virtual network operator as part of a deal with Vodafone).
Through its retail network it also offers foreign exchange services, debit cards, and insurance products.
Early next year it intends to make its much-anticipated re-entry into the financial services market, with a current account offering for customers. Other banking products are likely to appear later in 2017.
"To help offset the losses, we have had to grow the business in different directions. A lot of what we do is based around innovating and providing services and products that people want, but also at the same time leveraging off our strong customer base and distribution channels," says Sheehan.
"Our foreign exchange business, for example, has just over 30pc of the consumer foreign exchange market in Ireland and is experiencing double-digit growth.
Our model is very simple and we only carry two currencies - dollars and sterling. It's all about good value and it works," he says.
"Likewise with the pre-paid cards, we only offer them in Canadian, US and Australian dollars as well as sterling - and they have been a great success too.
The same is true with Post Mobile, which offers a simple and transparent pre-paid offering. Over the last 12 months it has more than doubled its number of customers."
Elsewhere the success of the One4All gift voucher business has also helped ease some of the pain in other areas of the business.
Its most recent accounts show that it clocked up profits of €3.7m on sales of €11.3m in 2015.
"We bought into the business about seven years ago and we've worked hard with management to turn it around. While Ireland is still an important part of the business, we now have an exclusive distribution deal with the UK postal service which we are particularly excited about, as it will bring the company to a whole new level in a very big market," says Sheehan.
"We have 1.7m people every week crossing the threshold of an Irish post office - so what we are doing in retail is broadening the range of products and services we can offer."
Not surprisingly, An Post has also built up a strong position in the direct marketing industry and is the biggest provider of direct marketing services in the country. While direct marketing has been likened to the old workhorse of the marketing sector, the arrival of digital and data to the scene has transformed it into an increasingly sought-after racehorse.
"Direct mail is still a growth area for us. It's one of the few mail areas where volume is actually increasing and for years we have been looking at how we can make it easier for companies to access direct mail," he says.
One of the products the company is banking on is Admailer, an online platform that allows companies target customers through personalised mail-shots using pre-determined geographic information. While the initial iteration of the product is several years old and lacked a lot of bells and whistles, Admailer 2.0 promises to take direct marketing to new levels says Sheehan.
Armed with the key learnings from its first iteration, the new offering was built from the ground up with its own proprietary software and technology. Marrying proprietary cloud-based data from its subsidiary Data Ireland with creative substantial creative and design capabilities, the new software as a service (SaaS) will be rolled out to corporates over the coming month.
"We took the best parts of the old system, put our own data at the centre of it and developed the creative functionality. Now we have a product which lets companies develop more efficient and cost-effective direct marketing campaigns in minutes," he says.
While initial trials of the service Ireland have proved to be successful, he says that a number of postal services around the world including the UK, Australia, Portugal and Canada, have expressed an interest in licensing the technology behind it.
"It's going to be a million-euro business by the end of the year and we are already at an advanced stage of negotiations with two postal organisations that are interested in licensing it. I'd be very surprised if we don't have one of those deals closed off by the end of the first quarter of 2017," he says.
And yes, they still sell stamps.
Sunday Indo Business