Consumer and Small Business (C2C) Parcels in the UK

New research on parcels services for consumers and small businesses by Apex Insight sheds light on a key growth segment of the parcels market.

Parcels sent by consumers and small businesses represent an increasingly important segment, now targeted by fast-growing specialist providers and specific services from carriers. These look to capitalise on opportunities from two big trends: market growth driven by home shopping and changes in the Royal Mail’s strategy ahead of its privatisation. Apex Insight’s research finds that, of the two, it is the Royal Mail’s change of strategy which is the most important. This has implications both for potential investors in the forthcoming privatisation and also for the others serving the segment.

Consumers and small businesses wishing to send occasional parcels have traditionally been served by the Royal Mail with customers taking their parcel to their local Post Office and queuing up to send it. Historically, parcels carriers did not target smaller customers as this type of C2C parcels volume did not fit their business models, which rely on consolidation of pick-ups and/or deliveries to obtain superior economics.

The advance of home shopping has led to growth with more items now being returned by consumers. Also, marketplaces such as eBay and Amazon have become increasingly important shopping destinations. They have many small sellers who need a way to dispatch items they sell but, like consumers, may not have the scale to operate accounts with established parcels carriers.

At the same time, the Royal Mail is going through a transformation, taking steps to improve its profitability as it prepares itself for privatisation. This has included increases to its prices with particular impact on certain size and weight bands. As a result, in many cases, it has become significantly more expensive than some of the newer alternatives. While it has been successful in growing volumes from business customers such as home shopping retailers, growth for other providers to this segment has, to a great extent, been driven by those consumers and small businesses who have switched away from it. Such defections have not yet reached a tipping point but are likely to continue, given its recent price increase.

Growth means the segment has become more attractive to carriers, especially relative to business-to-business parcels which, while still much larger, is far more mature. Some, such as UKMail, TNT, and Interlink have introduced specific services for consumers. At the same time, new businesses models have emerged specifically to focus on the needs of this segment. These are:
– Networks, with collection and delivery points: lockers or manned locations such as convenience stores. Examples include Collect+, MyHermes ParcelShop and UPS’s Access Point network, which leverages the technology, experience and processes of its recent European acquisition, Kiala.
– Brokers, operating consumer-facing websites which offer services from a range of carriers, typically at better rates than the consumer or eBay seller could obtain directly. Examples include Parcel2Go, Interparcel and ParcelMonkey.

Prospects for further segment growth are good – certainly there are few doubts about home shopping growth. The Royal Mail’s strategy also appears set however, were it to change perhaps following privatisation, the effect on other players could be significant. The study considers the opportunities and threats for each and the reasons for past failures in the sector.

The full market report: "Consumer & Small Business Parcels Services: market insight report", which includes insights from interviews with customers, profiles of the leading players, as well as growth forecasts for the market and its key drivers, is available from apex-insight.com/research