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Residential Utility Retail Strategies in an Economic Downturn

Datamonitor
April 3, 2009
40 Pages - SKU: DFMN2218028

Abstract Table of Contents Related Reports

Introduction

In an already tight retail margin environment, retail utilities are particularly exposed to the effects of the economic downturn. This brief explores the nature of the difficulties faced in specific EU markets and how players can seek to mitigate the effects of the downturn.

Scope

Insight into the factors affecting the B2C market since market opening in the UK and Europe, how the market landscape has changed
An analysis of the key factors affecting utilities through the downturn with the most important structural, regulatory and corporate issues considered
The impact and importance of branding in the B2C market with non-price competition playing a significant role
Key recommendations on how utilities can benefit from addressing the key issues

Highlights

The key macroeconomic indicators highlight the speed and the depth of the economic downturn with reference to demand-side impacts on consumption and the propensity for increased customer switching within the B2C market.

Branding and non-price factors will play a significant role in customer retention strategies. Utilities will also have to review internal costs and minimise the cost to serve in the most competitive markets.

Niche markets and the green agenda also have the potential to play an important role in shaping the post-downturn supply market acting as a competitive advantage.

Reasons to Purchase

Understand the key business to consumer energy market fundamentals to offset any increased exposure to market risks and to highlight the opportunities
Gain insight in to how the economic contraction will impact on UK and EU consumers given varying degrees of market liberalization
Understand Datamonitor's key recommendations to maintain competitiveness in a tight market through the recession

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DATAMONITOR VIEW: CATALYST; This brief examines the impact of the economic downturn on the business to consumer market in the EU-27.; SUMMARY; Quarterly GDP data illustrate that UK productivity has fallen significantly; GDP has fallen sharply since 2007, with the UK formally in recession; Labor market contraction is another sign of economic woe; High prices for producers have acted as a double blow to the economy; The effects of high input costs have resulted in a rise in unemployment and a contraction in demand; Equity markets around the world reflect the crisis in investor confidence; Total gas consumption has been on the up for UK residents; Power consumption is less seasonal and flatter than gas demand; Household incomes have been relatively static in comparison; The number of fuel poor has been rising in recent years; Year-on-year changes in the levels of fuel poor are escalating; Fuel poverty has been on the agenda but faces new challenges; Consumer welfare will be a high priority issue; B2C will be driven by three key factors in the downturn; Regulators and suppliers will take joint social responsibility; Residential gas and power markets can be defined by consumption and unique demand profiles; The typical load profile for residential customers is not likely to alter in the absence of smart meters; The demand for gas shows a steep upward trend in Europe; EU power demand, in aggregate, has contracted since 2006; The economic crisis takes center stage as the EU weighs up costs; Reducing power supply costs will be the cornerstone of success; Reducing gas supply costs will be the cornerstone of success; The cost-to-serve metric plays an important role in maintaining competitive advantage in the UK; EU citizens are well aware of the budgetary situation ahead; The credit crunch is expected to add to company liquidations and customer default rates, heightening credit risk for energy suppliers; However, achieving a lower cost-to-serve is not a simple task; C2S are internal costs that are tangible, controllable and can ultimately be driven down; Customer segmentation in a competitive market offers various financial incentives; Economics and environmental obligations do not mix well; Branding in B2C utilities will shape markets in the downturn; Branding also plays a large part in non-price competition; The challenge in new customer acquisition is overcoming the inert customers in both the UK and mainland EU; From Kyoto to Copenhagen-will green play a positive role in the downturn?; Non-UK European utilities have successfully engaged with 'green' tariffs by favoring the clear-cut 100% green source variety; Copenhagen will set the agenda; however, compliance is the issue; The current trade cycle is stuck in a Keynesian bust; Future forecasts predict light at the end of the tunnel; In an already tight margin market, the downturn presents particular challenges for residential retail utilities
APPENDIX: Ask the analyst; Datamonitor consulting; Disclaimer
List of Figures: Figure 1: Quarterly GDP data illustrate that UK productivity has fallen significantly; Figure 2: Labour market contraction is another sign of economic woe; Figure 3: High prices for producers have acted as a double blow to the economy; Figure 4: Equity markets around the world reflect the crisis in investor confidence; Figure 5: Total gas consumption has been on the up for UK residents; Figure 6: Power consumption is less seasonal and flatter than gas demand; Figure 7: Household incomes have been relatively static in comparison; Figure 8: The number of fuel poor has been rising in recent years; Figure 9: Year-on-year changes in the levels of fuel poor are escalating; Figure 10: The typical load profile for residential customers is not likely to alter in the absence of smart meters; Figure 11: The demand for gas shows a steep upward trend in Europe; Figure 12: EU power demand, in aggregate, has contracted since 2006; Figure 13: Reducing power supply costs will be the cornerstone of success; Figure 14: Reducing gas supply costs will be the cornerstone of success; Figure 15: QUESTION: Given the recent economic downturn, to what extent do you agree with the following statements? I haven't seen or felt any difference - my lifestyle won't change.; Figure 16: However, achieving a lower cost-to-serve is not a simple task; Figure 17: C2S are internal costs that are tangible, controllable and can ultimately be driven down; Figure 18: Customer segmentation in a competitive market offers various financial incentives; Figure 19: Economics and environmental obligations do not mix well; Figure 20: A sample of current German, French and Spanish residential 'green' offerings shows that some of the largest European suppliers have opted for the 'greenest' green tariffs.; Figure 21: The current trade cycle is stuck in a Keynesian bust; Figure 22: Future forecasts predict light at the end of the tunnel

Residential Utility Retail Strategies in an Economic Downturn

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