Roundtable: Competitor challenges in the water market, London, 19 April 2016

Players have begun to position themselves for the opening of the non-household water retail market in April 2017, but the market is likely to be completely different as early as 2018. Lois Vallely reports from a roundtable debate on the challenges to competitors.

The non-household water retail market is due to open next year. With just under a year to go, current and potential players in the market have begun to position themselves, but the challenge reaches beyond the go-live date in April 2017, with the market likely to be completely different as early as 2018.

This was the conclusion of a Utility Week roundtable, sponsored by Fujitsu, as delegates met to discuss the challenges to ­competitors in the new market.

A question was posed about what might happen after market opening, when the market has shaken out, to which the response came that the focus seems to be on the here and now, which is important but is actually just a moment in time, and companies must really be making sure their strategy operates ­effectively in the future.

In some ways retailing for the water sector will be less complicated than retailing for the energy sector, which is preparing for the rollout of smart meters, due to begin in earn­est this summer. However, delegates agreed that elements such as billing will be more difficult, as the many different components to a water bill will make errors more likely.

Representatives for incumbent water companies claimed that larger firms are better placed to compete than new entrants because “water is in their DNA”. They understand the bills and the environment and they are passionate about water.

So how much of a risk are new entrants to incumbent companies? And who are they? Small players from the Scottish market? Supermarkets that want to self-supply? Energy or other utility companies? Or perhaps all of the above?

Not everyone can win in the market, and not everyone will be able to stay and play after market opening. There are many channels to market and, as more and more companies join it, others will begin to exit. Delegates referenced the energy market, which is ­constantly evolving and never standing still.

What defines success in the market? And how does a company come through this with a large customer base? The discussion turned to what market participants can do to be successful and encourage customers to switch to them, starting with branding. Regional names probably won’t play out effectively in other areas of the country, delegates decided. However, one incumbent said that a brand linked to heritage is important to some customers.

Delegates said a lot of customers will only switch once, while others will go to tender every year. Larger customers are very aware of market opening, but SMEs are less so, as water companies generally have a much less dynamic relationship with them.

A big question, delegates decided, was whether or not the market will open on time. Representatives from companies said there is “no doubt” that they will be ready on 1 April 2017, but there is still a lot to prepare between now and then.

Speakers agreed that, although the timescale is tight, and Market Operator Services Limited (MOSL) is currently ‘on red’ – meaning it is experiencing a delay to its operations – the market will open on time because there will be so much pressure to be ready, and the ‘embarrassment factor’ if a company is not will be significant.

Delegates questioned how dynamic the new market will actually be, and how turned on customers are really going to be to save £5 in a year. Is it going to take off in the way that people want it to? Delegates concluded that it is the first step on the road of the gradual evolution of the water industry.

Robert Marrill, managing director, Kelda Retail

“There’s a lot of focus on the here and now – the processes, the systems, MOSL, regulation – which is important, but actually that’s, in my mind, just a moment in time. I’m more interested in where we’ll be in 2018, because I think there’s going to be a lot of change between now and then, and we need to be planning for that.”

Lissa Balmer, project manager – business retail, Northumbrian Water

“I think initially there was speculation that all the supermarkets would apply for
self-supply licences and then that went very quiet, once they realised that the margin will be low – so I think this may be a barrier for new entrants.”

Graham Southall, managing director, Thames Water Commercial Services

“It is a bit of a dichotomy. We definitely need the cultural split and the ability to operate as a low-cost business, but we
want to make sure we’ve still got links into the rest of the business, so we can draw on the expertise. We want to make sure we still confidently understand as much as you can know about trade effluent or whatever it
might be.”

Graeme Wright, associate director of utilities, Fujitsu UK & Ireland

“There’s a tension between wholesale and retail that seems to be already there, and I think even if customers do stay where they are, they’ll get benefit because of that tension.”

Tim Sargent, business development director, Morrison Utility Services

“Potentially in this market, we’re going to have brokers, retailers, wholesalers, service providers and customers, and I just wonder whether we’re going to be able to keep that promise of good customer service all the way through that chain.”