Royal Mail has moved a step closer to scrapping Saturday letter deliveries after research from the postal regulator found there would be no significant impact on consumers.
Ofcom, which estimates the move could save Royal Mail £225m a year, said cutting Saturday deliveries would still allow the company to “meet the needs of nearly all people and businesses”.
A comprehensive review of the postal market conducted by Ofcom found that a six-day-a-week letter delivery meets the needs of 98% of residential users and 97% of small and and medium-sized businesses (SMEs) in the UK. Cutting back to five days a week would still meet 97% of the needs of residential and SMEs.
Ofcom has estimated this could help Royal Mail cut costs by £125m-£225m a year.
“Our research suggests that people’s needs would still be met if letter deliveries were reduced from six days a week to five,” said Lindsey Fussell, Ofcom’s networks and communications group director.
“It would ultimately be for parliament to decide whether the change is needed. However, Royal Mail must still modernise and become more efficient, to keep pace with customers’ changing needs.”
In September, Royal Mail, which delivered 1.1bn fewer letters in the five months to the end of August compared with the same period last year, hinted that Saturday letter deliveries were no longer essential.
Royal Mail is keen to focus on parcel delivery, which is booming thanks to the online shopping revolution. The company reported a 31% increase in UK parcel volumes between April and September, as home deliveries boom during the pandemic.
However, in the last six months letter volumes have fallen by around a third. “To stay relevant and sustainable, the universal service must adapt to life in the 21st century,” said Keith Williams, the interim executive chairman at Royal Mail.
“The reduction in letter volumes has had a significant impact on the finances of the universal service which lost £180m in the first half of the year. This, along with our own comprehensive customer research, demonstrates the need to rebalance the universal service in line with growing consumer demand for parcels, and lower usage of letters.”
Ofcom’s annual monitoring report published on Thursday found that 2.8bn parcels were sent and received in the UK in the year to the end of March 2020 – 1bn more than in 2013. The volume of letters has fallen by about 5% each year since 2015, as people move to digital communications, according to Ofcom.
However, Ofcom also said the cost savings made by cutting Saturday letter deliveries was not enough on its own to make Royal Mail sustainable over the long term.
Ofcom also gauged consumer reaction to other features of the universal service, including scrapping the first-class service and creating a single service offering a two-day delivery speed.
The research found this option, which would be slower than first-class mail but faster than second class currently, would not “have a large impact on users’ acceptability of the service”. However, Ofcom said the option would have limited scope for cost savings, and would risk reduced revenues.
Under its universal service obligation, Royal Mail is required to deliver letters six days a week and parcels five days a week to every address in the UK at a standard price. Royal Mail exceeds its obligation relating to parcels, with a six-day service, but Ofcom’s research found consumers would be “largely indifferent” if it was reduced to five days.
In June, Royal Mail revealed a cost-cutting plan that will lead to the loss of 2,000 management jobs by March, in areas including IT, finance, marketing and sales. The company’s 90,000 postal workers would not be affected by the cuts, Royal Mail said at the time.
Last year, its former chief executive, Rico Back, set out a five-year £1.8bn turnaround plan to revamp Royal Mail as an international parcel-led business. But changes have been held back by strikes. The company has long been at loggerheads with trade unions about changes to working practices.