Tony Craig, Senior Business Development Manager, Water Plus
Water Plus took to the Energy Live Consultancy Conference stage as we approached the first anniversary of the English water market opening for competition. This gave us the perfect opportunity to present an honest review of what we’ve experience in the water markets first year, and how we see the market developing in the near future.
Tony started by taking a look at what the industry had expected from the competitive water market and compared it to what we’ve actually seen. He broke expectations down into – more choice, improvement to service, downward pricing and increased innovation.
This certainly happened. There’s now 34 retailers in the market, ranging from established water companies to independent retailers. This growth in choice has meant that in many cases customers are basing their choice of retailer on more than just who can save them the most money. Customers want an understanding of how else a retailer can make their life easier.
When the market opened for competition the focus for retailers had to be different to those of the wholesaler. Before customers had no choice, they had to be supplied and serviced by the wholesaler in which their business was located. Retailers knew they could no londer 'rely' on this and as a result becoming customer centric and ensuring customer satifcation was (and still is) high on the agenda.
“We’d expected tight margins and that’s exactly what we got.” Gross margin for the English water market currently sits at 8%, that’s before retailers have taken off cost to serve for activities like bill generation and meter reading. The actual margin we’re seeing ranges from 0.5-3%, similar to the margins the industry saw when the Scottish market opened for competition in 2008. Now, 10 years on, the margin for Scotland sits at around 28%.
Tony stressed that as an industry we should recognise that we’re only 12 months down the line in a very immature market.
In a low margin market the industry has to be innovative - understanding the importance of the industry advancing itself to deliver best value for customers so that decisions are made on more than just which retailer can save a customer the most money.
To demonstrate how water retailers, brokers, consultant and TPIs can build innovative relationships to deliver value to customers, Tony invited Chris Quinn to discuss an industry first project Kinect Energy Group and Water Plus are delivering for one of UKs top 10 multisite retailer. Find out more here.
Tony explained that when the market opened 1.2 million businesses were eligible to switch their retailer - 1 year on and we’ve seen 5% of these businesses switch retailers. He assured the audience that whilst this figure may seem small, it took the Scottish market from 2008 – 2012 to reach this level of switching.
He went onto take a deeper look at the types of organisations we’ve seen engaging in the market. Multisite and major customers were always going to be an obvious first mover. Multisite customers can instantly benefit from consolidating their service to just one supplier whereas previously they’d have had to deal with every wholesaler of which they operated in. Major water users can benefit by one supplier reviewing their entire portfolio and advising on how to best to use water to ensure lowest possible consumption.
The industry had seen a slightly slower start in the Public Sector, with many indicating they’d wait a year to see how the market developed and revaluate.
SME switching is a bit of a different story. In the first year we’ve seen just 2% of the market switch but with the awareness lower in the SME market this was to be expected. However, 45% of the switches for SME’s has been done through the broker channel showing the importance of broker participation to increase awareness and drive engagement in this market.
As well as painting what can be seen as a rosy picture of the competitive market one year on, Tony acknowledge that there had been and continues to be complexities and challenges which prevents retailers from providing the service they’d like for their customers and brokers. To name just a few of the challenges:
Standardisation of charges. Calculating tariffs for a multisite customer can prove challenging as charging structures differ greatly throughout the UK. For example unlike the rest of the UK Scotland charges are based on rateable value.
Data is not always 100% accurate making the tendering and billing process tricky. Tony explained that Water Plus are in the process of conducting a large operation to clean up their data and whilst a time consuming project, its one that will be of benefit to the customer in the long run.
Bringing systems together. Using Water Plus as an example, “we’ve brought two large organisation together this includes people, procedures and systems. This can take time to make sure they are fully embedded. We like to think we’re coming to the end of this process now, many retailers still have all of these challenges to come.”
Customer complaint levels. Tony admitted that there had been customer complaints surrounding the level of service customers were receiving from retailers but put this into perfective that the complaints made were just 1% of the entire customer base – and whilst this is in no way acceptable it was explainable in a new market.
Tony concluded that during the first year we’d seen what he would call a healthy amount of engagement and switching activity, but that there’s still a long way to go when it comes to the maturity of the market. As the market matures he’d hope to see service to improve and complaint levels to fall. He admitted that innovation had been slow in the first year because of the importance of getting ‘the basics’ right first.
Tony’s final comment to the audience was that there’s a real opportunity for brokers and consultants to work closer with retailers to create innovative relationships which benefit customers. Water Plus have always embraced the broker channel as an important, influential route to market. He handed over to Chris Quinn, Water Service Director for Kinect Energy Group at this point to bring to life just one way retailers, broker, consultants and TPIs can work together to bring value in what is currently an immature market.