Private parcel delivery firm Nova Poshta is growing fast — it opens a branch on average every day.
Over the last 19 years, Nova Poshta has built nearly 7,000 local branches and grown from an eight-person firm to a behemoth employing 28,000 Ukrainians.
And as Nova Poshta continues to expand at breakneck speeds, its rivals fear the company may eventually monopolize the market, start dictating prices and generally make the playing field less level.
Nova Poshta, however, denies that it is a monopoly and claims it enjoys the current competition on the market, where there are 68 postal operators and where the firm provides 70% of delivery services, according to the industry players’ estimates.
“In no way can I call Nova Poshta a monopoly because the market is huge, boundaries are blurred,” head of Nova Poshta Ukraine Olexander Bulba told the Kyiv Post.
Competitors fear Nova Poshta’s exponential growth for a reason: The company is fast and tech-driven and Ukrainians like it, despite the higher prices.
Nova Poshta earns big money — it is one of the 30 largest Ukrainian taxpayers and paid Hr 4.3 billion ($150 million) in taxes in 2019. The company continues to invest to become better: In 2020, it put $100 million into its growth.
By investing, the company wants to open more local branches and equip its sorting centers with labor-saving technologies like robots. Today, the company’s sorting center in Kyiv sorts an average of 520,000 parcels a day and is the fastest in the country. This year, Nova Poshta wants to make it one of the most powerful in Europe.
Betting on e-commerce
Nova Poshta is also betting on electronic commerce, an industry that grows by 30% in Ukraine every year. To dominate this market, the company is developing its own online payments system and building fulfillment centers, warehouses that store and package products from partners — online retailers — before delivering them to customers.
As of today, Nova Poshta owns two fulfillment centers in Kyiv, which cover 30,000 square meters combined. Only 150 people work there, but the warehouses can process up to 50,000 parcels due to developed tech infrastructure.
“Without postal delivery, e-commerce has no point,” said Andriy Kryvoshapko, responsible for financial services at Nova Poshta.
In Ukraine, the e-commerce market share is still relatively small — nearly 3.5%. In the U.K., for example, it is 14.5% and, in Germany, it’s 8.4%. But this also means there’s room for growth and there will be competition for this room.
For years, Ukrainians had slow mobile internet and preferred to pay with cash, so online trading stagnated, said Valentin Kalashnik, director of the Ukrainian Direct Marketing Association, which researches Ukraine’s e-commerce market.
However, with the rollout of the 3G network back in 2015 and 4G in 2018, more people started buying online using their mobile phones, and the demand for e-commerce increased.
And yet, the e-commerce market cannot develop with just one dominant player — competition is essential, experts say. When the market is divided between different players, online stores opt for affordable prices and better services, so postal operators work to attract online stores.
“When you have large and powerful rivals, you have no choice but to run twice as fast,” said Anna Krupela, executive director at young delivery company Justin, which entered the market in 2018 as part of retailer Fozzy Group, which owns supermarket chain Silpo.
Krupela said that Justin was among the first to offer free delivery from the biggest online-shops in Ukraine, so other postal operators had to respond and improve their services, too.
“The one who benefits from this fight is the customer,” Krupela told the Kyiv Post.
Two giants
Before Nova Poshta entered Ukraine’s delivery market in 2001, the market was dominated by state-owned Ukrposhta — gargantuan, bureaucratic and slow.
With just $7,000 of starting capital, privately-owned Nova Poshta thought it could do a better job.
Nineteen years later, Nova Poshta delivers eight times more parcels than Ukrposhta: The private postal operator sent 212 million parcels in 2019, while Ukrposhta delivered nearly 28 million.
Ukrposhta’s market share has dropped from 65% to 15% due to mismanagement, theft and a lack of strategy, said Igor Smelyansky, executive director of Ukrposhta. Nova Poshta, on the contrary, continues to develop fast.
Ukrposhta doesn’t have money to invest more, and hence it lags behind.
Ukrposhta now has 35 sorting centers, the last one built in 1980. Nova Poshta opened its three big sorting centers in Kyiv, Lviv and Khmelnytsky — all covering nearly 42,000 square meters — over the last two years.
In many Ukrposhta sorting centers, parcels are sorted manually. Nova Poshta uses expensive equipment from the Netherlands, making it possible to deliver 8,500 parcels per hour.
“We should be cheaper for the client, so we need fewer people and more machines,” said Andriy Nesterenko, responsible for fulfillment in Nova Poshta.
Ukrposhta employs 72,000 Ukrainians (2.5 times more than Nova Poshta), but over 10,000 of them have reached retirement age. And according to Smelyansky, they rarely want to master new technologies, even though this can help the company earn more.
Moreover, as the state postal operator, Ukrposhta must provide services in remote villages where nobody else wants to work, which comes at a cost. Private Nova Poshta, in turn, can choose where to work. That’s why it doesn’t have as many branches in rural Ukraine and can save money on that.
Turning into ‘oligopoly’
Currently, there is an “oligopoly” on the Ukrainian postal market, with Nova Poshta ruling over different types of delivery, according to Direct Marketing Association head Kalashnik.
But Nova Poshta says that this is just because it provides more services than others and does them better. The company delivers abroad, controls its whole chain of delivery and even provides financial services — all these things bring in money and secure the operator’s market share.
Nova Poshta delivers to and from 220 countries, enabling Ukrainians to buy and sell goods on popular marketplaces like U.S. sites Etsy, Amazon and e-Bay or the Chinese AliExpress. The company even handles customs clearance.
Although air traffic was limited (or even fully suspended) during the coronavirus quarantine, Nova Poshta continued to deliver and did it for the same price, $62 per kilogram to the U.K., for example, which is cheaper than recognized global express services like DHL Express ($70) but more expensive than Ukrposhta, which charges $20 per kilogram.
In fact, Nova Poshta doubled the number of orders from foreign countries during the quarantine.
“Borders were closed for people, not for cargo,” said Yuri Benevitsky, the head of Nova Poshta Global.
The company invests a lot in its domestic work too. The company stores parcels in its warehouses, packages them and sends them to customers. As a result, retailers pay Nova Poshta a 4–5% margin from the value of the goods to store them in fulfillment centers.
Local and international companies like IKEA, JYSK, Oskar Online Store and Auchan use the company’s fulfillment services.
Financial services also bring profits. In 2019, the company carried out 40% of all domestic money transfers, despite having the highest tariffs. Collect on delivery service for a one-kilogram parcel is $1.40, while Ukrposhta delivers for 90 cents.
These and other Nova Poshta financial services — including withdrawing cash from a bank card or transferring money from abroad — brought the company Hr 713.8 million ($26 million) in net income, more than other non-bank companies receive in Ukraine.
Nova Poshta rivals don’t have as many services and deliver much slower. That’s why the private operator doesn’t pay much attention to what others on the market do, according to Nova Poshta’s Bulba.
“The only rival we have is what the company Nova Poshta was yesterday,” he said.
