Canada Post changes might hurt businesses but also create opportunities

Opinion is divided on whether Canada Post's plan to increase postage and abandon urban home mail delivery is the right move for the company and for Canadians. We take a look at who could be hurt by the planned changes and who might benefit.

While it might surprise the many Canadians who use the internet to pay bills, do their banking and make other types of payments, many companies still rely heavily on mailing paper invoices and cheques when doing business with suppliers.

Most companies have their own internal systems for keeping track of accounts and can't easily go outside these secure systems and transfer money electronically between bank accounts like two individuals can, said Joanne McNeish, assistant professor of marketing at Ryerson University's Ted Rogers School of Management in Toronto.

"It's very hard for them to integrate their systems so they can do electronic payment and manage their accounting systems," she said. "Some of these processes will come along, but they're just not well developed enough, not accepted enough by the CRA [Canada Revenue Agency]. The CRA will still give seminars and say, 'We really prefer the original paper receipts.'"

These businesses, which also use mail to communicate with customers and were already unhappy with previous rate increases, will be hurt most by the hike in postage at the end of March from 63 cents to 85 cents (75 cents for those that use postage meters to bulk stamp correspondence).

"Businesses are going to take it on the chin on this one yet again," the president of the Canadian Federation of IndependentBusiness, Dan Kelly, told CBC's Lang & O'Leary Exchange earlier this week.

Many businesses will end up simply reducing the amount of mail they send, McNeish said. The measures might include:

No longer including business reply envelopes.

Reducing the number or weight of pages in their catalogues.

Scaling back the frequency of certain regular mailouts.

Reducing their use of the other Canada Post products such as Xpresspost or courier services.

In the case of charities and non-profit organizations, using volunteers to hand-deliver some mail.

"The revenue picture [for Canada Post] in the short term might be positive, but people will adjust dramatically downward, especially with the amount of the increase in such a short time," McNeish. "It's very difficult to adjust small business plans or big business plans with such a short window. It's not even six months away. One thing you can do is just mail less."

Not everybody agrees, however.

"It is an added cost, but it's not going to be such an added cost that it's going to in any way materially affect most businesses," said Walid Hejazi, associate professor at the University of Toronto​'s Rotman School of Management. "It sounds massive, but going from 63 cents to 85 cents, when you think about it, 85 cents to send a letter across the country, that's pretty good.… No one can compete with that.…​ Who has the infrastructure?

But, he says, the rate hike might be just the push businesses need to move toward electronic payments and billing, which are more environmentally friendly and, in the long term, reduce a company's costs, Hejazi said.

"The future is not in paper-based billing; the future is with electronic billing," he said. "This could be one factor that could encourage them to move in that direction."

Organizations and businesses that use Canada Post to deliver their advertisements and promotional materials won't be affected by the rate hikes, but could have some more options for distributing their material if new competitors enter the market.

Along with parcel service, direct marketing, which includes addressed and unaddressed ad mail and publications, has been a strong part of Canada Post's business in recent years. Although, direct mail, too, is on the decline, it's not falling as fast as letter mail — especially given the stiff competition it's facing in the digital realm and the weak economy.

The sector accounted for 22 per cent of Canada Post's non-consolidated operating revenue in 2012, the same proportion as parcels, and declined by only 2.5 per cent from 2011, compared to 5.9 per cent for letter mail.

"For marketing purposes and fundraising purposes and staying engaged as a supporter of a political party or a union, mail actually works really well, and it's measurable," said Steve Falk, who runs the Aurora, Ont., company Prime Data, which helps businesses and organizations execute direct mail campaigns.

"So, Canada Post recognized that and kept those rates low, because it's such an important and successful part of their business."

Falk said that while people often complain about the many flyers and leaflets that arrive at their door unsolicited, research has shown that this way of reaching the public remains extremely effective, despite the rise in digital advertising and communications.

"They call it junk mail, and they say, 'I don't want it,' but I will tell you that if you sit in on a fundraising board meeting with any fundraising organization in Canada that has 10,000 regular donors or more, you will find that they cannot live without direct mail," he said.

"They've tested emails, electronic banner ads, they've tested billboards, they've tested unaddressed flyers, they've tested full-page ads in the newspaper, nothing changes a person's mind about giving to an organization like a great story and a piece of mail sitting by the computer staring at them for a week."

McNeish agrees that companies that have tried to take away the mail portion of their marketing have seen a measurable drop-off in sales, and mail order businesses such as Lee Valley have found that the paper catalogues they mail out several times a year boost their online sales.

"In some ways, it feels a bit irrational, but it's because it's a complementary experience," McNeish said. "Online is transactional, it's functional. I go online, I do the job, I get off. The catalogue is that experience. It's sensory. I have some time to think about it. I can show it to someone else in a way people don't yet do online."

For these companies, Canada Post will likely remain the best option for reaching the greatest number of people, said Falk, whose company works closely with Canada Post and who clearly has a significant stake in its success. Falk doesn't think Canada Post's decision not to deliver ad mail directly to a residence will prompt many companies to turn to other ways of getting their material to consumers..

"About two-thirds of Canadians get mail in these community boxes now, so if there was an actual trend that [showed it's] better to send to a home than to a community box, I think we probably would have identified it," he said.

Canada Post's recent changes won't affect its parcel delivery services or its courier company, Purolator, but its exit from door-to-door letter mail delivery does open up some opportunities for competing companies to move in on some of the Crown corporation's business.

"Consumers might pay for the convenience to have people bring their mail to the door and, for a business person, for the security of knowing your advertisement material … is getting to the door, not just to a community mailbox," McNeish said.

Potential competitors that could benefit include not just courier companies such as UPS and FedEx. but distributors (or the distributing arms of media companies such as Transcontinental) that already deliver flyers and other unaddressed mail door to door and could poach some of Canada Post's customers or even potentially add addressed direct mail to their services, McNeish said.

"If Canada Post isn't going to deliver it to the door, why wouldn't they? They're part of huge networks that could fill in quite nicely in the urban core," McNeish said.

"These are dense urban neighbourhoods, which are very economical to deliver to. It's not the suburban areas, so that's a very different proposition. It will, certainly, over time, increase the number of competitors, which then, over time, should drop prices."

Canada Post itself could come out a winner if it actually achieves the nearly $1 billion in cost savings it has said its restructuring could generate without losing a significant portion of its customers and if it taps into the exploding e-commerce sector.

"Canada Post is well positioned to capture its fair share of that market, but Canada Post needs to be a lean organization," Hejazi said. "It's the only institution that reaches every address every day, but it's expensive."

The parcel business is the one arm of Canada Post that is growing. Between 2011 and 2012, parcel volumes went up by 6.7 per cent, and revenues from this part of the business increased by 6.1 per cent.

But to remain a competitor in the parcel business, Canada Post has to up its game, which is why it has begun introducing initiatives such as weekend delivery during the holiday season same-day delivery partnerships with retailers such as Best Buy and Wal-Mart.

These are two segments of the population who depend on traditional mail delivery more than most. Starting the second half of next year, those who live in urban areas will have to make their way to a community mailbox.

"The struggle for independence is a constant for persons with disabilities, and you're now [going] to depend on other people — whether it's family or friends — to pick up your mail," Tony Dolan, chairman of the Council of Canadians with Disabilities, told the CBC's The Current.

Older people and people with disabilities may not have as much access to computers so their options for switching to electronic billing, for example, might be limited, Dolan told the CBC's The Current.

The changes will also undercut the traditional watchdog role that postal workers have played, he said.

"The mail person is sometimes the person who alerts someone in the community that the mail hasn't been picked up in three days," Dolan said.

Under a community mailbox system, a postal worker might assume a resident has simply not had a chance to clear their mailbox, and it might take longer to raise the alarm. Dolan and others have also raised fears about seniors possibly being targeted while picking up pension and old age cheques at security mailboxes.

McNeish warned that in dense urban areas, the walk to the new community mailboxes will likely not be as short as some have suggested.

"It won't be a block away," she said. "I can see people having to walk a fair distance.… Where are you going to put the mailbox in a city like Toronto? It doesn't feel very well thought out."