Why scale is the key to weathering a stormy market

“When you look at the suppliers that have fallen out of the market in the last two years, they’ve either been pricing at too low a gross margin or they have been unable to get the scale.”

For Paul Richards, chief executive of Clydebank-based Together Energy, the sales process at council-backed Bristol Energy was an opportunity for his business to get the scale needed to weather a volatile marketplace and unpredictable winters. Earlier this week the challenger brand announced it would be acquiring the publicly-owned retailer’s 155,000 residential customers for £14 million.

“When an opportunity like this comes along, particularly when the values of the companies are so aligned, you have to take it because it allows us to get to the level of scale that’s really necessary”, he tells Utility Week.

Bristol City Council founded the supplier in 2015 and announced earlier this year it would be selling the company after investing £36 million. Last month Yu Group acquired the council-backed retailer’s business portfolio.

In 2019 Bristol posted a gross margin of £5.6 million but made a £12 million loss. It did not expect to be in the black until 2021. Richards, who formerly worked for Centrica and Capgemini, recognises the tough marketplace in which Bristol was operating and believes had it had more time, it could have been a success.

He continues: “The gross margins were good, the opex was slightly too high but it was and is recoverable, it would just take a little bit more time. When you don’t have the time because you’re dealing with the challenges of Covid and austerity and all of the real issues that local councils have, such as big funding gaps, it must be heartbreaking to walk away. They were literally on the cusp of profitability.

“You need the scale, and you need really tight opex. They had got the pricing right, they could have turned around the opex, but the time it takes to get the scale while they’re turning that around means they need yet more money. It must have been a really difficult decision for them.”

Richards founded Together in 2016 along with Geoff Guenther. A year later the supplier issued a statement of intent, saying it aimed to attain 100,000 customers by 2020. Fast forward three years and the retailer has more than accomplished this. Its deal with Bristol City Council will see it almost double its customer base to 340,000.

Both Together and Bristol have had heavy local authority backing, with the former receiving an £18 million seed investment from Warrington Borough Council last year for a 50 per cent stake in the company. Yet Richards sees the fact that both are heavily involved with local authorities as more of a coincidence and says there were other synergies.

He continues: “Where they are a bit more advanced than we are is they have some cool tariffs that support the people of Bristol. We have been working with Warrington to build similar types of propositions, so there is something we can learn. But it’s really more about the 150 or so staff there that want to do the right thing for the most vulnerable in society.”

There are clear parallels between Bristol Energy and the Nottingham City Council-owned Robin Hood Energy,which last week sold its customer base to Centrica, prompting observers to note the irony of a supplier launched to take on the big six being absorbed by the biggest of them all. Is Richards concerned then with the heavy involvement another local authority has in his business? No, is the short answer.

“The difference really is that Warrington is an investor in Together Energy looking for a return. And when we pitched to them for the investment, they’d been around the houses, they’d looked at the locally owned energy companies, they looked at other local councils looking to come into the market. We were at great pains to show them that we had all the right stress testing and all the right tools in place from the risk management perspective. Ultimately that comes from the fact that our leadership team has between 15-17 years’ experience in the industry.”

“A seamless transition”

As part of the deal Together acquired the billing systems from Bristol Energy. Both have bespoke systems shored up by software company Utiligroup, which Richards says ensured a seamless transition for Bristol’s customers. He adds that he wanted to avoid a ‘lift and shift’ approach seen elsewhere in the market and to give a higher degree of confidence that there will be no customer detriment.

“In taking on the billing system and customer portal and everything that goes on alongside that, there is absolutely no detriment at all to the customer. When these customers migrate to us at the end of the month they will still phone the same number, they will still use the same portal, all of their historical meter reads will be sitting there and we are still accessing the same billing system”, he explains.

Furthermore, keeping the same systems makes it much easier to take on Bristol’s frontline staff at a time when employees across the sector are mainly home-based.

“In a Covid environment the thought of transferring at least 120 staff and having to train them in new systems while everyone is working from home felt like a stretch too far. We looked at the contracts that Bristol are in from an IT and tech stack capacity, there’s quite a lot of overlap. We are both with Utiligroup, the fundamental flow management would remain the same. There’s a decent amount of their ecosystem that we share.”

Together has promised job security to more than 100 former Bristol Energy employees who are in customer facing roles or earns less than £25,000 a year. Another 50 do not meet this threshold however and consultations on their roles will follow in due course. Upon completion, Together will have around 250 employees on its payroll, up from 135. The company prides itself on employing 90 per cent of its workforce from the poorest 10 per cent of postcodes in Scotland and aims to give people from disadvantaged backgrounds the chance of a career.

As an example, it recently hired 100 part-time employees, students from Strathclyde University who face difficult circumstances, as part of an internship programme. They are given 15 hours a week between 6pm and 11pm in order to help the company manage strains on its VPN caused by homeworking. While this helps the company, students who have been heavily impacted financially due to no longer being able to work in bars and restaurants are given the chance to earn money.

Yet recruiting from the top 10 per cent of poorest postcodes comes with challenges for the provider, one being how its employees resolve complaints.

As part of its ambitions to scale up, Together took on 33,000 customers from failed retailer One Select through the supplier of last resort (SoLR) process in 2018. Following this, the company received complaints in the way employees have dealt with customers when dealing with issues, often due to lower literacy levels. As a result, Together was ranked bottom of Which?’s review of energy companies and 35^th out of 41 in the latest Citizens Advice star ratings table for customer service.

Richards is clearly frustrated with this label and insists the company is swiftly trying to resolve the issues and improve its rating.

“There are two types of complaints. There are complaints where your processes and systems are not fit for purpose and in my view, you deserve those complaints. There are also complaints where your agent has done everything they should do but maybe hasn’t put it back to the customer in a way that is satisfactory to them. Given that we recruit 90 per cent of our staff from the poorest 10 per cent of postcodes, we get a disproportionate amount of those complaints.

“My real challenge is finding people who want to be with a company that gives people who struggle with literacy, that struggle to write their emails, a chance. As a general rule I think Together customers do buy into that, but when you pick up the One Select books and they haven’t bought into that, it really hurts. I’m not saying our systems and processes are perfect, but if you were to ringfence those complaints and then ringfence the complaints that come with the recruitment strategy, we are not an anomalous energy company.”