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Fair Play?

Postal franchises fume over the Postal Service's new Pack and Send service.

Mail Boxes Etc. franchisees Dan and Vicki Van Grol seemed cut out for franchise success, rising to the No. 10 location in the San Diego area three years after they opened. Yet, in a matter of six months, they've dropped down the list to the low 20s. What's the problem? Since the U.S. Postal Service (USPS) opened a Pack and Send service across the street from the Van Grols' store, "our shipping has dropped off, our stamp sales have dropped off, our packing service and supplies have dropped off," says Dan Van Grol, who feels the USPS is to blame. "It was kind of a shock."

Meanwhile, the Van Grols must deal with the personal indignation of helping the competition reach their customers. "I receive fliers advertising their service," Dan says. "It breaks my heart to put those fliers in the boxes of my 180 box holders, but I have to. That's the law."

Many mail and parcel franchisors as well as franchisees see a clear irony in the situation. "We're a customer of the Postal Service, not a competitor," says Evan Lasky, executive vice president of Aurora, Colorado-based Pak Mail Centers of America Inc.

The 214 Pack and Send services that the USPS is testing in post offices nationwide--mostly in San Diego; Orlando, Florida; Las Vegas; and Atlanta--have industry insiders like Lasky up in arms. "On a level playing field, we have no problem whatsoever," says Lasky. "But we're really concerned when the government comes in as an afterthought and attempts to service a market that's already being serviced by the private sector."

In fact, the perceived threat motivated the usually fiercely competitive mail and parcel franchises to band together and form the Coalition Against Unfair USPS Competition. The coalition, created in January, represents the interests of about 10,000 mail and parcel centers, many of which are franchises. "When the free market is providing a product efficiently at a fair price, the government has no business offering the same service," says Rachel Southworth, the coalition's executive director.

Southworth points out that the USPS enjoys certain unfair advantages over private mail and parcel centers. It doesn't, for example, pay any federal, state or local income taxes or sales taxes. By law, it operates to break even rather than make a profit. And it commands a monopoly on first-class mail, which provided almost $32 billion of its $54.3 billion in revenues last year, as well as a virtual monopoly on third-class mail, which brought in $11.8 billion.

But the USPS doesn't feel the playing field is quite as unbalanced as the coalition might portray. "The Postal Service has been in the retail business for a number of years, certainly long before the private sector got involved," says Jim Mruk of the USPS, who adds the decision to offer the service "was based on what was best for our customers and what made sense for us as a business."

While Mruk admits that the Postal Service doesn't pay certain taxes, he points out it is also subject to costs that private companies are spared. "We pay more than $50 million in real estate taxes for approximately 13,000 of our facilities, and cover the costs of theft and mail fraud services and of forwarding mail," says Mruk. "And I don't think any of [the private companies] have had to make payments to the federal treasury to try to reduce the budget deficit."

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This article was originally published in the October 1996 print edition of Entrepreneur with the headline: Fair Play?.

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