Amazon beating Royal Mail at its own game as profits tumble

The newly privatised postal giant has been badly hit by Amazon’s own delivery service

Royal Mail confirmed Sarfo briefly worked for them as a postman in 2010

Royal Mail has struck its starkest warning yet on the colossal power of Amazon as falling growth in parcels clobbered the newly privatised postal giant’s profits and sent shares plunging.

Ahead of the crucial Christmas period, the 500-year-old postal operator said the impact of Amazon’s decision to set up its own, next-day delivery network, was the sole reason it was more than halving its expected growth rate in the UK parcels market.

The 6 per cent Royal Mail predicted at its flotation a year ago was today chopped to 1 per cent-2 per cent for the next two years.

Shares in Royal Mail — which has spiked after floating in October last year at 330p, trading above 600p in January — today dropped more than 8 per cent to 430.27p.

The rise of “click and collect”, where customers pick up parcels direct from shops, is also eating into its business. Royal Mail’s UK parcel revenues fell 1 per cent to £1.5 billion in the last six months, while operating profit slumped 21 per cent to £279 million.

Chief executive Moya Greene tried to play down the impact of one of Britain’s biggest retailers.

“We were never dependent on Amazon,” she said. “We have a very diversified group of customers, and have retained our pre-eminent position.”

The City, however, thought otherwise, with IG Index’s market analyst Chris Beauchamp saying: “The spectre of Amazon looms large, casting a shadow on Royal Mail’s numbers. Amazon is likely to become a permanent fixture in Royal Mail’s reporting.”

Its letters business, which makes up 49 per cent of Royal Mail’s revenues, fell less than expected, with addressed mail down 3 per cent, but that was mainly due to election pamphleteering for the Scottish Referendum.

The postal giant is also still struggling in the face of competition from the likes of delivery service Whistl.

Royal Mail reckons Whistl alone could wipe £200 million off annual revenues by 2018, and claimed that regulator Ofcom’s move to force it to give competitors access to its network for final-mile deliveries meant the universal service, which guarantees delivery of letters to every household and business in the UK, is at risk.

“If you allow someone to cherry-pick the high revenue, urban routes and dump letters into our network for the expensive-to-serve rural routes, you undermine the economics of universal service pretty fast,” said Greene.

The regulator must begin a review by December 2015. But Greene warned: “There is absolutely no benefit in waiting. This is the kind of problem that only gets worse with inertia.”