Insights

The non-household retail water market

You got to the starting line, what’s next?

The retail water market opening followed years of extensive preparation and structural change in response to the Water Act 2014. All water companies managed to complete the complex and costly exercise by 1st April 2017 and entered the market as planned, but what comes next?

Our report looks at the dynamic market developments over the past two years, with particular focus on:

  • the shape of the current market and the strategic choices companies had to make to get there
  • company experiences within the first few weeks of the market opening
  • recipes for future success and our outlook for the market.

Getting to the starting line

The market opening followed years of extensive preparation and structural change in response to the Water Act 2014, which included measures to enable all non-household customers in England to switch their water and sewage supplier. All water companies completed the complex – and costly – exercise by 1 April 2017 and entered the market as planned.

We look at the dynamic market developments over the past two years: the emergence of a set of leading retailers and the longer list of retail businesses of smaller incumbents, self-suppliers and niche operators. We also consider the strategic choices and decisions water companies had to make to get to the starting line.

 

First impressions of the market

We have also interviewed a number of retailers and wholesalers on their experiences in the first few weeks of the new market. While these discussions confirmed a successful but relatively subdued start, there are numerous system, data and consistency issues still to resolve. Companies also highlighted a number of challenges from the collective readiness approaches adopted, notably a primary focus on compliance, rather than on the customer. In addition, there was limited overall customer awareness combined with perceived low margins available for retailers.

 

The recipe for future success

The current low retail margin environment does not leave much room for substantial price reductions or offer attractive gains for new entrants. Therefore, companies that balance economies of scale and cost efficiencies with a focus on value-added services are more likely to succeed in the long term. Our view is that there will be further consolidation in the retail market in 12-to-18 months’ time. A number of retailers are currently considering divestment and will exit when they find the right buyer. Companies that are not able to build a sufficient customer base face greater challenges and may consider their long-term options for participating in the market.

 

Further reading

The Connected Series is a collection of reports focusing on the drivers of digital transformation and explores the different ways companies can respond today and in future.

  • Connected Customer
  • Connected Assets
  • Global Technology Trends

For more information, download the reports.
 

About the report

This report has been based on analysis of publicly available information and confidential interview with market participants, both retailers and wholesalers.

The report is based on a handful of initial interviews conducted within a short timeframe, but with a view to publishing a further assessment after the market has been operating for over a year.

“What made the preparation for the retail market a great challenge was that it happened in parallel with a number of important industry events.”
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