Setting up a new business is always a tough challenge, and starting up in a foreign country is even more complicated. So you would have thought that life was tough enough without choosing the UK energy market as your battleground. But American supplier Hudson Energy appears to have made the transatlantic journey with relative ease.
Steve Fitzsimons, sales and marketing director at Hudson Energy UK, is the man with the task of making the cross-continent challenge work. His company’s business model here is based on selling electricity to business customers via brokers. It has been up and running since July 2012.
He concedes that there have been teething problems, but says they have been trivial. “The hardest thing we faced was getting a mobile phone contract,” he says. “The contract we have is based on me being a sole trader and every month without fail they cut us off because somebody goes over to the States and uses their phone and that uses up our entire limit.”
Aside from these crossed wires, Fitzsimons credits the small “everybody knows everybody” world of the non-domestic supply market for Hudson’s initial smooth experience in the UK – “they’d been waiting for us to arrive,” he asserts.
Nevertheless, the costs of being new to the market have proved high. Fitzsimons says: “I think in terms of being a new entrant, there are some things that are very front-loaded. We’ve invested a lot of money in systems – that is where the money really goes.” He adds that “we have to deposit 200 per cent of our next bill” with the distribution networks, because “as a new company, you have got no credit history”.
He elaborates: “Because of the nature of the customers we supply, they have a big bill, so it’s a big amount of money. And when you supply 100 of them, it’s 100 times that large amount. We are sitting on a lot of cash that’s sitting in somebody else’s bank account. The company has had to put its hand in its pocket, but we knew that.”
In terms of Hudson’s customers, Fitzsimons says: “We’re currently doing most of our business in the middle market because we run out of products at the very big end. We haven’t yet got a flexible product available (such as a buy on demand contract) but we’re working on that. As we go through time, our product range will increase, our customers will increase and our penetration through brokers will increase. Getting into these flexible products is complex and means more IT. But interestingly, it’s not of value only in this market, so we’re leading on it for the rest of the group.”
Having successfully got up and running, Fitzsimons says the next major step, which Hudson is about to take, is becoming sustainable in the market. “The more customers you get, the less trading costs become and we’re kind of at that point now. Clearly, being able to send out bills to customers and collect them is a big milestone and we’ve just done that, so that’s a tick in the box.”
Does the company have plans to enter other markets? “This was the first step into a foreign market – the UK was a natural fit,” says Fitzsimons. “The plan is to ultimately to go into Europe. We’re starting to have a look at those dimensions and say ‘where do we go to next and what do we do next?'”
There are also other possibilities in the UK, he says. “Obviously there is the opportunity for a gas business because most electricity suppliers have a gas business,” he says. “There is also the potential for a residential business. We’ve established the trading function and made the investment in the UK – where do we go next and what we do next are things on the agenda. There isn’t a ‘in 2014 we will do this’; it’s kind of ‘what’s the next opportunity’.”
Hudson Energy
US operation: one of the top five independent energy suppliers; 160,000 customers; Hudson’s parent, Just Energy, made a gross profit of £73 million in the second quarter of 2012/13
UK operation: 7,000 customers (according to a Just Energy report) ranging from shops to manufacturers, served through more than 100 brokers,w including Senco Energy and Apollo Energy.
This article first appeared in Utility Week’s print edition of 7th December 2012.
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