The completion of a deal to supply three House of Fraser stores in England, including its flagship Oxford Street store, is a reflection of the company that, two years ahead of market opening, is already competing for – and winning – contracts in England.
Business Stream’s assault south of the border comes ahead of the April 2017 opening of the opening of the water market to non-domestic competition, and represents the company attempting to set up a spring board to bring its Scottish success into England. This move includes challenging in the 5 mega litre plus market – which is already open to competition – but also with the potential to take over an English based commercial retailer that would otherwise exit the market.
The 2014 Water Act enshrined in legislation that competition for non-domestic water customers would come into play, nine years after it did in Scotland, Business Stream’s home market – where it was the incumbent – Scottish Water.
Business Stream was created in 2006 to tackle the water market, with an emphasis on helping customers to save water and save money through “tailor made solutions”. Its high profile customers in Scotland include supermarket giant Morrisons and manufacturer Devro, while in England it also serves poultry farmer Bernard Matthews.
Securing the House of Fraser deal is another example of Business Stream increasing its presence in England and, in the words of chief executive Johanna Dow “establishing a bigger footprint”.
The first move by Dow and Business Stream is to use the current legislation which allows large consumers of water in the non-domestic sector – volumes of 5 mega litres or above per year – to gain some market share in England before the market fully opens.
The contracts for Bernard Matthews and House of Fraser are the type of deals that Business Stream is actively looking to obtain. “We have a few others in the pipeline,” Dow said. “We’ve definitely got a number of other discussion that are fairly advanced.”
The next phase of Business Stream’s march south could come in the form of a takeover bid for a water retailer that is set to exit from the non-domestic supply arena.
The Water Act included the provision to allow incumbent water companies to exit the non-domestic retail market if they do not want to compete in that sector.
With a number of the incumbents expected to use this option and exit the market to focus on their wholesale and household businesses, there is an opportunity for Business Stream to strike, and gain a chunk of the market in one swoop.
Dow, initially cagey about her company’s plans, said “we’re not ruling anything out”, before stating that this option “is definitely something that’s on the radar at the moment”.
This talk stems from the fact that the designs for the English retail market are not finalised, and the companies are not sure exactly how it will look or operate.
Dow states this lack of clarity is behind her drive to explore all the potential opportunities open to Business Stream. “The answers aren’t there for everything yet,” she said. “We don’t know how the market will look in 2017 and that means you can’t rule anything out.”
Ofwat is due to publish a consultation on market exit later this year, but if Business Stream follows up on its evident interest, it would potentially gain a foothold in the sector that other new entrants could not match.
The company has a couple of advantages over other potential new entrants to the English market, in that it is part of Scottish Water, and that it has significant experience of operating in a competitive market, maintaining the “lion’s share” of its domestic market – around 80 per cent. This means billing systems and other back office functions are well rehearsed and teething problems that may blight other companies should not afflict it.
Dow brings it back to the company’s plans over the next two years, reiterating her point that Business Stream is “very ambitious” to grow and expand in England, but only with the “right customers” – those willing to work to reduce their water consumption and environmental impact.
It is all part of “building the brand” that is Business Stream, and the House of Fraser deal is an example of using another brand’s environmental credentials to boost its own positioning.
“It’s a good marriage” Dow said.
While mass market opening in England is just under two years away, Business Stream is keen not only to continue its fight for custom in its home market – which is a proving ground and an opportunity to learn what will work in the English market – but also eager to take on the English incumbents and win the high volume contracts, and position itself as the money saving, and environmentally caring water supplier.
This aggressive strategy is already paying dividends and Dow hopes Business Stream will continue to grow in England, setting it up for a head start in April 2017.