Mail Model For Rural America

In previous posts, this blog has described the retail strategies in Germany, Sweden and Denmark. While northern Sweden has some rural areas which are as rural as any in the Continental United States, these countries have a urban-rural mix equivalent to a state east of the Mississippi with the most rural areas similar to rural areas in these states as well. (See: Should the Postal Service Close All Post Offices?, Marketing the Packstation, Packstation Vender, Creating a Self Service Footprint and Section 3.5 (page 26) of Examination of Potential Postal Business Models)

Australia is much more characteristic to the population density of mountain West and Great Plains. Australia has a number of large cities with population well over a million but most of the country is sparsely populated. Vast stretches of Western Australia is desert and much of the country not near the coast are home to ranches, farms, and mining villages.

Australia Post has a tighter universal service requirement for providing retail access than the United States Postal Service. Australia Post is required to have 4,000 retail outlets with 2,500 located in remote and rural areas. Given that the United States has nearly 14.47 times the population, the Postal Service would have to have nearly 58,000 outlets with 36,000 in remote and rural areas. The focus on remote and rural areas reflects the fact that Australia has a population density of 7.5 people per square mile compared to 82.9 in the United States. (For reference: Sweden is 53.7; Germany is 594.0; and Denmark is 331.7)

So how does Australia Post handle this burden and not go broke and in fact exceeds its mandate and operates 4,433 outlets? (Information from this post drawn and quoted from Post and Parcel. (quotes are in italics))

Corporate Owned Stores (827 locations, 19% of all outlets) are standard post offices offering the full range of Australia Post services in facilities owned or leased by Australia Post. Employees working in corporate owned stores are Australia Post Employees

Franchise Outlets (28 locations, 1% of all outlets) serve small communities that have between 800 and 1,000 customers. These locations sell Australia Post products and services exclusively. Australia Post has the lease for all franchise outlets, pays for their fit out and owns the inventory. Franchises are set for a fixed ten year period. Operators pay a fee for the licence and receive an exit fee when they end the lease.

Licensed Post Offices (2,941 locations, 66% of all outlets) act as agents for Australia Post products and operate in large and small markets. Approximately half operate in association with another business. There is no fixed period for a licence and outlets are bought and sold on the open market. Licensees are responsible for the premises and own the inventory in the post office. They are independently owned businesses and their retail merchandise range is traded on a wholesale basis. Licensees are only obligated to stock a core product range which is primarily mail service related.

Community Postal Agents (637 locations, 14% of all outlets) are small operations usually located in rural and remote areas. They provide mail delivery services and are also required by Australia Post’s community service obligations to sell stamps and accept mail from people living in rural and remote areas. These facilities are outsourced and operators receive payment based on their volume of activity.

Australia Post’s retail outlets offer a range of services that make them like a combination of a Post Office, an office supply store, and a card and gift shop. Some are co-located with coffee shops, making them more like community centers where people come to do business but may stay and chat over a cup of coffee or tea. In addition to postal products and mailing and shipping supplies, these outlets sell general merchandise such as CD’s and DVD’s books, souvenirs, gift cards, technology products, pre-paid cell phone time cards, and in some locations provide banking teller services under contract with one or more Australian banks.

A better picture of Australia Post’s dominant retail model, Licensed Post Offices, comes from advertisements for the sale of these businesses. A web search identifies a couple of outlets that are available for sale in small markets and illustrates that retail services can be provided profitably in even very small towns.

Currently on the market is a licensed postal outlet in Cloncurry, Queensland, Australia. The business is selling for 370,000 Australian dollars plus the value of inventory.

The advertising indicates that the business makes sense for a married couple working with one part-tine clerk.

The outlet is in a town of less than 2,500 people (less than 4,000 in the county (shire) and 75 miles from the nearest postal outlet. The town and the surrounding area are populated by people working the mining and ranching.

The business that is being sold includes not just the retail outlet but the right to operate the 5 delivery routes that serve the surrounding territory. The pictures clearly shows the type of stock that the outlet carriers that in addition to the stock that postal outlets generally carriers also sells soft drinks and Darrell Lea Chocolates.

The sale price also includes the building that includes two offices that are currently rented.
What Australian Post has done is show that even areas that are the most rural in the United States can be served profitably by contract operations. However, Australia Post’s approach is very different in setting up these contract outlets. Australia Post give its outlets sufficient management support to make the contract operation a turn-key business solution including all non-postal and shipping supply inventory but also offers a full range of non-postal services at wholesale prices that its contractors can buy as well. Australia Post most likely advises its outlets how to expand their business by expanding the breadth of products that they offer with the hope that Australia Post becomes the supplier of those products. Finally, it appears that Australia Post offers rural outlets to expand its revenue and profits by offering both retail and delivery services in a territory. In that way a local business person becomes a partner because growing his business also grows Australia Post’s business.
Australia Post’s effort to transform its contract outlet business toward a franchise model further shows the difference between the approaches that the Postal Service and Australia Post have taken to expand retail access. The brochure on franchising is designed to allow Australia Post to compete with all other firms offering franchise opportunities and shows that creating a successful contract approach requires more than just allowing someone to sell postal products.
Transitioning to a contract model for rural service would be traumatic for employees now working in those offices. The Postal Service could ease the transition in one or two ways.
First, it could offer significant early retirement and/or severance packages to those employees that could be affected. As a rule of thumb, the cost of these packages, including transfers and training would be about equal to half a year’s salary.
Second, it could offer local postmasters the right of first refusal to buy the postal outlet moving from a corporate to a contract model. This is similar to what happens during a condominium conversion. The latter model would be less expensive for the Postal Service, even if the selling price was modest. This opption would also give existing postmasters real opportunities to advance and remain in their community. As illustrated by what rural post offices do in Australia, postmasters that chose to buy the local postal outlet would have substantial opportunities to use their knowledge of their community to expand their product offerings to add revenue and profits to the outlet. It is foreseeable that these new contract postal outlets would be responsible for delivery routes originating from the outlet as well.
Changing to a contract outlet model would also require revamping the whole concept of managing retail. Instead of managing employees, the Postal Service would be managing a large number of independent businesses. Managers would then focus on and be rewarded for making the contract outlets and the local “postmasters” within their responsibility as successful as possible. Headquarters would have to create a Post Office University just like McDonald’s Hamburger University.
Fleshing out this model would be a substantial effort. Those looking at potential business models need a more detailed examination of this approach including the financial and organizational impacts on the Postal Service and the possibility of profits for those chosing to buy a local post office outlet. Postmaster Associations, whose members know their communities and their community needs better than anyone in Washington, could provide valuable input into what would be required to allow a postmaster to take over the local operation and turn it into a profitable business. Now is the time to begin this effort.

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