A new challenge for the challengers

After years of mergers, acquisitions and the strong growth of new entrants, Ofgem finally decided to ditch the term ‘big six’ in November, with suppliers now being ordered by size as small, medium and large.

The retirement of the big six term – with all its accompanying baggage – has been long debated. But, with Bulb and Octopus now classed in the same category as British Gas, should the question be whether the moniker ‘challenger’ has also had its day?

Octopus and Bulb are two of the energy market’s success stories. Both have long since surpassed 1 million UK customers and have made moves into several foreign energy markets. Furthermore, the pair are each targeting 100 million accounts globally by 2030.

While opening the market up to competition was always intended to end the dominancy of the legacy suppliers, some would argue the reclassification means the pressure is now on these newer ‘large’ players.

Andrew Perry, a principal at Oliver Wyman, says having the label of being a challenger takes a lot of the pressure off as newer suppliers can ‘attack’ the incumbents for their approach and for being the root cause of the problems in the industry. Put simply, a lot of the challengers’ success is based on ‘not being them’, he says.

Perry tells Utility Week: “As the ‘challengers’ themselves become the large incumbents, they now face the pressure and responsibility of being the leaders of the industry and the potential target of regulator and customer scrutiny, rightly or wrongly.

“This presents a different type of challenge for them to deal with, especially as they each now look to drive value from the customer bases they’ve built.”

So, what does it actually mean to be a challenger in the current energy retail market?

British Gas recently created British Gas Evolve, a low-cost digital only offering established in response to increased competition from challengers. Meanwhile Eon announced plans to “reinvent itself” by creating Eonnext and using Octopus Group’s Kraken platform – the first time a big six supplier adopted technology created by a challenger brand.

Both cases show how the lines between big six and challenger had been beginning to blur in recent months.

Ovo Energy, another successful challenger, is now classed as a large supplier, having taken on SSE’s customer base. At such a massive scale, and with the customers of a former big six retailer, it would be disingenuous to continue to label the company as a ‘challenger’.

Meanwhile, newer market entrants are setting increasingly ambitious growth targets.

So Energy currently serves 230,000 customers and recently announced a rebrand as part of its intentions to hit 1 million customers by 2023. The company consistently performs well in Citizens Advice’s energy star ratings table for customer service, having been placed first in the most recent rankings.

Simon Oscroft, company co-founder and former Macquarie trader, believes there is still room for newer entrants to differentiate themselves from their older counterparts in terms of customer service.

He tells Utility Week: “If you look at the 20 million customers or so that have not moved away from what used to be the big six, I think the pressure is still on the former big six to be able to provide customers better value energy and better service. It’s something they have struggled to do, especially in comparison to some of the newer challenger brands.”

Some challengers have tried to differentiate themselves from the old guard by taking a more personable approach.

It is well-known that Greg Jackson, Octopus Energy’s chief executive, answers a large number of customer queries personally via Twitter. He is often lauded for it. Yet for a company which is targeting 100 million accounts on its platform worldwide by the end of the decade, it is difficult to see how sustainable this level of customer engagement from the very top will be going forward.

Elsewhere in the sector even smaller brands are aiming for global expansion. Last month it was announced that West Yorkshire-based Social Energy, which has just 6,000 customers, would be expanding into Australia. The company says it is offering consumers in the Southern Hemisphere a green energy package and a Duracell home solar battery system.

Social Energy’s efforts show how the success of suppliers such as Bulb and Octopus have shown new entrants that almost anything is possible in today’s market, that even very small companies can aim much higher than previously believed.

Ofgem’s reclassification of the big six not only brings an end to a term that has become synonymous with the energy market, it also brings into doubt whether the term ‘challenger’ is still relevant. If suppliers are to be classified by the size of their market share, it will eventually become more difficult to differentiate the old from the new.