It is difficult to deny that the Big Six have faced significant competitive pressure in the domestic market over the course of the year. Despite the 11 domestic market exits recorded since January 2019, new entry, new propositions and revitalised sales channels have resulted in some of the highest switching rates recorded in years.
This month, four large suppliers published financial results, three of which recorded customer losses in the domestic market:
- British Gas lost 107,000 accounts in the four months to 31 October 2019.
- Scottish Power lost 200,000 accounts in the nine months to 30 September 2019. Iberdrola also reported that increased expenditure on customer acquisition resulted in an operating loss of €135.2mn for Scottish Power, compared with €16.4mn in the previous period.
- SSE lost 400,000 accounts in the six months to 30 September 2019, which was reported to be the slowest rate of net losses in recent years.
- Bucking the trend, EDF Energy reported a “stable” customer base (nine months to 30 September 2019).
The impact of competitive pressure has been felt across the board, with some medium and small suppliers looking at adjusting their strategies to shift focus away from the domestic supply market. Good Energy reported that the increase in “aggressive pricing” has led it to shift its focus towards Feed-in-Tariff services and the business supply market. The supplier commented that the core business could move out of supply and into energy services as it evolves.
Several suppliers have reported negative impacts of the price cap. Iberdrola said that 30% of Scottish Power customers are on its standard variable tariff, and the default tariff cap has impacted the supplier by £57mn over the nine months to September 2019. Centrica noted a £70mn impact in the first quarter of 2019 and SSE stated that its operating profit margin will likely be below 2% due to the cap restrictions.
There is a similar message from some of the more established competitors. Utility Warehouse commented that its churn rate had increased to 12.5% due to its price increases in line with the April 2019 cap level, although its customer base rose by 2% during the reporting period to 645,000.
The financial results published in November tell a story of a competitive market, amid regulations which squeeze profits. Suppliers are under pressure to launch cheaper tariffs to win over the increasing proportion of engaged customers. However, many of the recent market exits were suppliers with cheap tariff offerings. The large suppliers recently won a judicial review against Ofgem’s default tariff cap based on the way it was calculated when it was first introduced in January 2019, which could suggest the methodology will change for the future.
For more information on supplier performance, see our new Commercial Metrics service that provides a monthly update on supplier financial reporting, industry obligations, compliance cases and market share.