Water Retail Shouldn’t be all About Price

The English water retail market opened on 1st April. Business customers in England are now able to choose their retailer. A similar market has operated in Scotland since 2008, the Welsh market is limited to larger businesses and there will be no market in NI. The English market is worth around £2.5b with 1.2m customers, making it the largest water market in the world.

The water sector has been split into wholesale and retail. With retailers buying off wholesalers and selling onto business customers (customers don’t have to change their pipes!). The idea is that competition will drive down retail costs, improve customer service, and promote innovation. Customers should be able to get a lower unit price for water and wastewater, they should be able to get more accurate billing, and they should be able to reduce their water consumption and their wastewater and drainage. This is an ambitious aim.

What we has seen so far is that some companies like Thames and Southern have withdrawn from retail in order to focus on their core water and wastewater business; the majority of other incumbent companies have merged their retail arms or entered into joint ventures; many Scottish retailers have come South in force, block buying books of customers and winning new deals; and then there have been a few small new entrants with a range of strategies, from mass acquisition, to the facilitation of self-serve, to the promotion of water efficiency.

So how is it likely to pan out? The retail margin in Scotland was in double figures but in England the upper end is 6% with deals for larger users averaging around 4%, and some retailers pitching as low as 2.5% (sorry quick correction – I gather that some retailers are pitching at less 1.5%). The general response to this low margin has been to go for scale, and some retailers have been aiming to acquire as many clients as possible. And the way things seem to be heading we will end up with a handful of big companies and some niche players, like we see in the energy sector. In my view this is worrying, a few large companies with massive customer numbers, combined with a race to the bottom in terms of margins will not lead to good customer service nor to innovation.

The real benefits for customers do not lie in getting the lowest retail margins. The real benefits are the bespoke services where someone is able to advise on the management of water, wastewater and surface drainage for each individual site. The real benefits lie in better customer service and the installation of new technology, both in terms of digital communications, and physical devices and systems. The real benefits relate to water efficiency, the application of the circular economy to wastewater, the reduction of surface run-off, and the automation of water management systems. This type of approach will save customers money and help the environment, but at the same time the unit price needs to be good value too. It is going to be difficult to do this for all sizes of customer, but a few water retailers are focussing on the offering real value rather than going in cheap to get as many customers as possible.