Czech Post looks to deliver new strategy

State-owned postal operator Czech Post has one of the densest branch networks in Europe for a population which is not that keen on writing letters, postcards, or sending parcels. Cost cutting has helped the service turn modest profits in recent years but Czech Post now faces operating losses if changes are not forthcoming. One move is to franchise off most of its branch network. Another is to fix a new formula to compensate Czech Post for countrywide public service.

Photo: Filip Jandourek

The British animated children’s series Postman Pat, which follows the adventures, and often, mishaps of the postman and his black and white cat as they try to deliver letters and post through the northern English hills and dales, is a popular hit on Czech Television.

And the state owned postal service Czech Post is now looking to inspiration from Britain, through presumably not from Pat’s bungling performance, and other European countries as its seeks to shake up its services and face stepped up competition. One idea unveiled at a press conference last week is for a large part of the post office branch network to be franchised out.

At the moment, Czech Post has a network of just over 3,200 branches, one of the densest networks in Europe. The problem is that half of those branches, around 1,400 are mostly located in rural areas, and are loss making. The losses amount to up to 1.5 billion crowns a year for the whole network.

Under a new 10 year plan just over 2,500 local post offices will now be spun off to be run as so called Post Partnerships. The remaining 691 offices will remain directly run by Czech Post. Czech Post says it is belatedly following a well developed path already taken by other European post offices. Around 99 percent of post offices in Britain and Germany are already operated as franchises and the figure is just over 70 percent in Austria. Many of these franchises double up as local corner shops or offer other services. Just 1.5 percent of Czech Post’s branches currently operate as franchises.

Czech Post rolled out Petr Uher. the mayor of one small village Zvíkovec in the Plzeň region which has already made the switch to a franchise post office. The post office is sited in the council building and doubles up as a general store.

This is what the mayor had to say about the local council’s decision to operate the Czech Post franchise. “We have been a Czech Post partner for one year, we started in May 2014. The response from citizens has been very positive because we now have fixed opening hours from 1 pm to 5 pm from Monday to Friday and people can also sort out more general things at the same time.”

Photo: Tomáš Adamec

The local council decided to step in and run the post office itself after continuous threats over the last 20 years that the branch would be shut. There are just over 120 people living in Zvíkovec. The post office has been there for 100 years with the nearest alternative branch around 10 kilometres away. It has also been under the threat of closure. Mayor Uher warns though that the franchise operation has just about breaking even over the last year and he finds it difficult to imagine that there would be many takers for such franchises if they were merely motivated by profit. So far there are around 60 similar Post Partner franchises with around another 60 expected to roll out this year. Czech Post says it is putting in a new system of compensation and incentives that will make operating a branch much more attractive in the future.

Put simply, Post Partner is a means for interior minister Milan Chovanec to live up to the government’s promise that post office branches will not be closed while at the same time relieving one of the post office’s biggest cost burdens. In the Czech Republic there are on average just over three post office branches for every 10,000 people. In Spain that figure is half a branch, in Belgium one branch, In Britain just under two and in France 2.5 branches. At the same time Czechs on average send around a quarter or third of the letters sent by French, Belgians and British and have one of the lowest figures for posting packages across the continent.

The post office itself is living in what the Chinese like to describe as interesting times. The last monopoly areas where Czech Post still enjoyed a stranglehold over postal services ended at the start of 2013 and it is now open to competition across the board with private postal operators. But unlike private delivery operators which can choose the sectors they want to operate in and cut corners and costs, Czech Post still has cover the costs of a so-called universal service delivering to every doorstep in the country.

The current centre-left government immediately ruled out the option of privatizing the post office, and even dumped the transitional option of transforming it into a shareholder company, when it came to power just over a year ago.

Photo: Filip Jandourek

The national post office had a turnover of just under 20 billion crowns in 2013 and made a slender profit for that year of 300 million crowns. It is one of the biggest employers in the country with just over 32,000 employees and wages account for around two-thirds of its total costs. Letters and parcels delivery traditionally accounts for a third of Czech Post’s turnover but e-mail and other forms of delivery have been eating into that at the rate of around 10 percent a year. The losses have been made up by earnings from financial services, covering about 20 percent of turnover, and IT and other services and by an ongoing cost cutting regime. But a document presented to the government this week points out that after cost cutting to the tune of 2.6 billion in the last five years, including a cut in the workforce of around 4,000 and freeze on wage rises, there are no significant savings left.

The government is currently mired in a contentious argument about how to cover the costs of the post office’s universal service. A fund was supposed to have been created with private post operators paying in their share of the costs of the services according to their turnover.

But the so-called compensation fund was almost dead before it started with private operators, who are reckoned to have a combined turnover of around 4 billion crowns, giving a cold shoulder to a system which might result in them paying up to around 10 percent of their annual sales figure into the common coffer.

Interior minister Chovanec told Czech Television that the government is ready to step in should the worst fears about the compensation fund materialize: “I fear that there are signs that competitors who should be making financial contributions into the compensation fund are not prepared to do so. If that happens then and the compensation fails for this year then the state will help Czech Post out.”

Milan Chovanec, photo: Filip Jandourek

A new deal has been proposed under which the Czech Republic would fall into line with most other European countries and compensate the post office directly from the state budget for public services from 2016. But the mechanism for such compensation and the sums involved are not totally clear and minister Chovanec has faced opposition from Minister of Finance and ANO leader Andrej Babiš against any sort of blank cheque being made out to the post office. Moves to fix a final formula have been stalled twice in the Cabinet but a final decision could be coming today.