Consultant says lift off near for multi utility retail and warns slow responders face risk
After years of false starts, the stage is now set for multi-utility retail to take off, according to a paper published by Gemserv on Monday. It suggested a number of routes to bundling services could develop, including “established energy companies partnering with water specialists, water companies partnering with energy companies, the entry of specialist niche players and the entry of large customer-centric brands such as Virgin, BT, Tesco, and Sky into the market”.
While this trend would clearly provide growth opportunities for water retailers, the paper pointed out it also brings considerable risk. Firstly, those who fail to act at all or who are “slow to defend against such moves” could find themselves left out in the cold by customers who want the convenience and possible price benefits of buying more than a single service.
Secondly, Gemserv noted there could be stiff competition for those who do wish to get into bundled service provision. For instance, it observed: “The operational requirements for moves from the energy market into water are less demanding than those for water players moving into energy; the opening of the water market presents a clear opportunity for energy players.” Furthermore that: “Opportunities also exist for new disruptor brands to position themselves in the multi-utility space, especially if larger players are slow to move.”
The paper’s author, Derek Meacham, indicated water companies are alive to the issues and that there are a number of “partnership and alliance discussions going on”. He said at first, the opening of the business water market would likely feature straightforward “water on water competition” but that could fairly rapidly “move to a situation of brand on brand competition”.
In reaching its positive outlook for multi-utility retail, the paper considered:
lessons from the energy and telecoms sectors;
customer research conducted by CC Water, Ofwat and Utilitywise;
how bundling would help water retailers compensate for the low margins available in water early moves – for example, Business Stream’s tie-up with Utilitywise;
entry by other utility providers to the water market – for instance, Regent Water and Peel;
brokers and TPIs active in multiple markets; and
that some water companies are owned by those with interests in other utility markets – for example, YTL for Wessex and Cheung Kong Infrastructure Holdings for Northumbrian.
Meacham added that the opening of the domestic water market would hasten the trend, while entry by the big six energy players into water would be “transformational”.