If one is to take a look at Australia Post on face value it would seem as though it has made a successful transition from Government postal service to a modern , thriving logistics company riding the e-commerce delivery wave, however the recent announcement of a predicted $500m loss and 1,900 job cuts in the midst of an industry boom begs the question why?
Australia Post is the longest running Australian government department with origins dating back to 1809 and today with over $6.3 Billion in revenues and $103m profit before tax (1.6%) for the 2014 financial year. This is down from the previous years results of $311m profit before tax (or $174m depending on which
marketing annual report you read). It is wholly owned by the Australian Federal Government and is subject to legislative requirements which include delivering mail 5 days per week and maintaining a network of over 4,000 post offices across the nation.
Australia Post maintains that this legislative requirement is a burden that they pay dearly for, however of the $6.3B in revenue, letter delivery accounts for approximately $2B and parcel delivery $3.5B. Generally people would look at Australia Post and think that the business of sending letters has been replaced by email, however the growth in parcels due to online retail should more than replace those revenues.
Force the governments hand
1.6% return to shareholders may seem unacceptably low, but there is a sense that with the only shareholder (federal government) being responsible for the legislative change that would enable the business to produce a profit in the letter business, there appears to be a political stand off until the loss making aspect is rectified, and understandably so. It would only make sense that the business reinvested as much as possible back into it’s own development rather than giving the profits away, at least until the letter business has the capability to be self sustaining. This seems to be their current political strategy, as evidenced by the pending loss (in the midst of heavy infrastructure spending) for the first time in 30 years.
The parcels business represents 55% of revenues and generated $337.5m (9.7%) EBIT in 2014, compared to major competitor Toll with 5%. So if Australia Post is leveraging its capabilities to generate a profitable business, then once the legislation is amended to enable the letters business to be self sufficient, what’s not to like?
Australia Post is in the best position to leverage its capabilities and grow, and yet they are losing market share.
In 2014 Australia Post parcel volumes were growing by around 12.8%, and yet the market for domestic retail e-commerce sales grew by 17.3%. In 2013 Australia Post volumes grew by 9.3%, whilst Australian retail e-commerce sales grew by 11.6%.
What’s not to like?
What’s not to like you ask? In 2013 Australia Post ceded 2.3% of the growth in domestic parcel market share, and then lost a further 4.5% in 2014. A peek into the first 6 months of 2015 financial year shows that revenues for the parcel business have only grown 5% in the midst of domestic e-commerce sales of 14.4%.
It might seem to be a cash cow saviour to offset the transition to email and reduction in letter revenues, and that once the ‘letter problem’ is solved that Australia Post will be a fundamentally good business. Some say that the only strategy of Australia Post is to unshackle itself from government ownership, and that losing money is one tactic within that strategy.
Lets take a look from a strategy perspective.
If the essence of a compelling strategy is to do something different from your competitors, which meets the customers need and is built upon the organisations Core Competencies, it is questionable.
If the essence of a compelling mission, or BHAG is to live your purpose, do what you have the capability to be the best in the world at and do what drives strong profits through your economic engine, it is definitely questionable.
What does the Australia Post customer need? With 87% of revenues coming from parcels and letters, lets assume that the Core Customer needs to get a parcel or letter from one location to another as quickly and cost effectively as possible. If the bulk of growth is occurring through internet businesses, it would be logical to develop a strong team of account managers who deal with these businesses, are empowered and can adapt to meet the customers needs. Something the competition are doing and is being called for. Making modest improvements will not suffice, to proudly boast about taking your Net Promoter Score from +12.6 to +15.8 is marginal when Yodel the largest independent parcel delivery service in the UK went from -10.45 to +47.25.
Core Competencies of Australia Post
With 4,417 post offices, 15,805 street post boxes and a fleet of 12,400 vehicles the essence of Australia Posts Core Competencies is distributed logistics. This is a significant advantage against any competitor who would want to enter the space.
The primary difference between Australia Post and competitors such as Toll is the physical presence of street boxes and post offices.
How could Australia Post build a strategic advantage to take market share?
1. Build an empowered sales team of account managers to manage the businesses who are providing internet parcel deliveries. I am not suggesting a call centre, I am suggesting a first class sales team that leaves customers delighted.
2. Offer delivery to the local post office at a significantly cheaper rate, ideally with a way to collect after hours for members of the public without a PO box. If it costs $80 to send a parcel to your house and $30 to send it to the local post office it is a strategy that the competition are unable to compete with.
3. Consider shipping parcels by drone, or autonomous vehicle. Someone will do it and it is the ‘killer app’ against Australia Post.
The purpose of Australia Post
This is where it gets confusing.
Is Australia Post a
- Logistics Company?
- Online storage (dropbox) substitute?
- Bill Payment facility?
- Insurance company?
- Banking company?
I actually wonder if anyone knows, however the question to ask is which of these offerings leverages its Core Competencies (logistics), and what can it truly be great at? With 87% of revenues in logistics are the other items simply a distraction? Perhaps the purpose is as simple as to build the best logistics to transport letters and parcels for Australians.
If you try to be all things to all people, sometimes you end up being nothing to no-one.
Capability to be the best
In a rapidly growing market, with a strong competitive advantage and brand what does Australia Post truly have the capability to be the best in the world at? In order to capitalise on its Core Competencies it would leverage the physical presence in every suburb and the fact it passes (almost) every home in the country 5 times a week.
If it can survive the transition from government department to private business it has the potential to build a best in the industry business. However it must meet the customer need and improve technology, of course not by building Dropbox or banking replacements, but by shipping items faster, cheaper and more reliably. When Fedex took market share from the US post office it used a brand promise stating that your parcel will be delivered before 10.30am the next day.
Therefore it is possible that Australia Post has the potential to be the best in the world at / should have a Brand Promise to deliver letters and parcels at the lowest price and as quickly as possible to anyone in Australia.
It may be logical to consider the profit per x or economic engine driver of Australia Post is profit per delivered item. This of course begs the question why do they sell toys and chocolate, however as a logistics company it is difficult to come to another alternative.
Australia Post Hedgehog
This provides us with a potential set of Hedgehog questions for Australia Post.
1. Are we building the best logistics to transport letters and parcels for Australians?
2. Does this help us deliver letters and parcels at the lowest price and as quickly as possible to anyone in Australia?
3. Are we increasing the profit per delivered item?
Where would Australia Post be in 10 years if every major decision in the business could only be approved by saying yes to each of these 3 questions?
Looking for growth options in your industry?