Southern Water has announced the sale of its non household retail operation to Business Stream. The deal gives the Scottish supplier its much desired firm foothold in England and signals further consolidation in the market as retailers look for a way through low margins. It also makes Southern the first water and sewerage company to decline involvement in the forthcoming competitive market.
Southern Water will transfer its 105,000 non household customers to Business Stream (unless they actively switch to a third party supplier) when the market opens in April 2017. This will double Business Stream’s customer base, making it the third largest business retailer in the country, with 10% of the eligible market. Though in market share terms this is smaller than the United Utilities/Severn Trent Water Plus tie-up (400,000 customers, 26% of the market by site number), the deal is the largest whole customer base retail acquisition so far; it involves substantially more customers than Portsmouth’s exit to Castle Water announced at the start of the year (c16,500 customers) and also includes sewerage services.
Business Stream chief executive Jo Dow (pictured) said: “The addition of the Southern Water’s customer base provides Business Stream with increased scale which will enable us to continue delivering a first class service, to invest in initiatives which will enhance that experience, and to deliver savings for all our customers.”
Southern confirmed there would be no compulsory redundancies as a result of its decision. A small number of employees will transfer to Business Stream to provide continuity of service and maintain existing relationships with customers from a local base. In addition, there will be up to 40 new jobs in Edinburgh.
Southern Water chief executive Matthew Wright cited Business Stream’s position as a “specialist retailer who has been at the forefront of the competitive market in Scotland for eight years” as a reason for selecting it. “Business Stream’s track record of delivering savings and value-added services to customers gave us confidence that transferring our non-household customers to their care would be the best solution,” he said. The Scottish company said it has saved customers more than £133 million and helped them conserve over 24bn litres of water since its home market opened in 2008.
Customers in the Portsmouth area will from April 2017 find themselves in the interesting position of having two new suppliers: Castle Water (for water) and Business Stream (for wastewater). Though they will be used to two separate retailers (Portsmouth and Southern), given the choice many may opt to go for a single supplier, which would leave the two Scottish companies in direct competition for that business.
The Southern sale teamed with the complex water geography of the South East raises other interesting questions. Over time at least, Business Stream will almost inevitably want to sell water as well as sewerage services to all of Southern’s business customers, which would pose a particular challenge to in-area water only companies Affinity and South East.