Who better than the people with expertise in the water sector to establish the largest competitive water retail market in the world? They seemed the obvious choice in the run-up to the 1 April 2017 deadline for the opening of the English market. And with the benefit of hindsight? Well, perhaps people with more commercial experience would have made more sense.
“The market is now learning the commercial element,” says Richard Stanbrook, director of water retailer Pennon Water Services (PWS), when Utility Week meets him on a gloriously sunny day at the company’s headquarters in Bournemouth.
As a water industry man of more than 20 years, Stanbrook has gone through a steep learning curve in the art of competing for customers in a sector that until a year ago had an entirely captive audience.
But having “learnt from the bottom up”, the “thrill of the contract acquisition” is something he hadn’t experienced for a long time.
“Going after new business is the really enjoyable bit,” he says. “With the thrill also comes the disappointment of the loss, when you see someone else get it and you question, ‘what have we done wrong?’.
“You can’t win them all and that’s great. It’s a different dynamic.” But more of that later.
Our conversation naturally turns to the weather. We had scheduled a meeting a couple of months prior, but the Beast from the East put paid to that. Just as the snow began to melt in the capital, the seaside town was covered in a thick blanket of it and we were forced to make another date in the diary.
Water companies are all too aware of the havoc the freeze followed by the rapid thaw caused across the country. Ofwat’s Out in the Cold report points out the abysmal management of the situation by some companies as customers were left without a water supply for hours or even days.
The document also highlights that poor communication between wholesalers and retailers in the business market meant some customers were confused about whom they should talk to. “Wholesalers often failed to give retailers up-to-date information – or did not contact retailers at all,” Ofwat’s investigation reveals.
Although Stanbrook was speaking ahead of the publication, he believes communication has markedly improved since the market opened to competition, describing the extreme weather as a prime example of PWS having to “deal with every single wholesaler”.
“Working with wholesalers is going pretty well. It’s certainly improving from day one, when wholesalers and retailers didn’t really know how to interact – we hadn’t practised.
“Water companies have spent a long time understanding service and ingrained in there is the attitude that they want to supply a great service to customers. Both parties are learning how to do that with the retailer/wholesaler divide. But I’m certainly seeing a willingness from both to improve everything they do, and I’ve seen that improvement over the past 12 months.”
So, what’s to come? “I think you’re going to see consolidation of the market. Castle Water is already extremely active [the company recently acquired Invicta Water, which trades as Water Choice in the non-domestic market]. You’re going to see more new entrants, which is really exciting. I think you’re going to see retailers release some of their innovation; we’ve spent a year just getting the market working.
Retailers will reach out to customers through different channels, which we are going to be at the forefront of. I think you’re going to see more products and offerings in that sense.”
Returning to the move into the competitive market, Stanbrook is clearly proud of PWS’ achievements in the first year of its operation: the company won several high‑profile contracts with the likes of Rolls-Royce, Unite Students, Shearings, Kerry Foods and BMI Healthcare.
He attributes the company’s success partly to having a good mix of people. “We have people who have water experience who can disperse that knowledge, and then you’ve got a good commercial section who can educate us old water boys and girls on the real world.”
But Stanbrook isn’t afraid to admit that PWS has lost customers. “Sixty-five per cent of our losses are national chains. There will also be customers who have not necessarily been enticed away, but have chosen to leave because of something we haven’t done quite right.
“We have to put our hands up to that and that’s when it comes down to the feedback we have to learn from. While you may lose that customer, the key is switching them well because you don’t want to leave a bitter taste. Let them move quickly and smoothly because they may come back. Learn what might have gone wrong and what other services weren’t quite right, and improve them so it doesn’t happen for other customers.
“But I am pleased we are in a net positive position and we’re projecting to be in an even more net positive position in the next few weeks.”
Might PWS look to follow in Castle Water’s footsteps and buy other retailers? “We’re part of an ambitious group,” he says, “so yes.”
But he won’t be drawn further: “There’s nothing else on that really at the moment. What I really want to say is, we’re not relying on that.
“We have an offering of SME tariffs that are simple to understand. We’ve got great personalised tariffs for large users. We’ve got great value-added services. We’re in it for the long haul and we’re focused on service. I think that’s a pretty good combination to acquire our own base and we are seeing that success.”
For Stanbrook, consolidation of the market will not only come from mergers and acquisitions, but also from multi-utility offerings.
He also reckons “there’s loads of opportunity for learning from the energy sector” – both good and not-so-good practice. “When you look at the reports in the national media, I think sometimes Ofgem gets a bit caught out. Ofwat is trying very hard not to, and to be more proactive, which I admire.”
PWS plans to improve on its success to “grow even more” through tenders and dual service. “We need to maintain our high levels of service, learn from when we don’t get it right and react to anything the regulator is looking to implement – but get very much embedded in that process, because there’s a process of maturing of the market that needs to be done.”
Stanbrook explains that some of the instances where the company “hasn’t got it right” revolve around the “data in the market”, although he is quick to point out “it’s the same for everybody”. “The data is not the cleanest, it’s a well-known fact, isn’t it?
“But it’s how you react to that and that’s the key for us. So, if something happens, it’s a case of ‘where it has gone wrong.’ Look at the root cause and fix it.
“That way you take a complaint and see it as an opportunity to straighten what isn’t necessarily right in what we do. Then next time around it isn’t a complaint, it’s something that’s gone particularly well.”
Stanbrook suggests a “bulk project is probably needed” to resolve the market’s data problem.
“It’s something that will need to be addressed. Wholesalers, retailers and the regulators are coming to a position where we are tidying it up as customers switch. Switching is happening, and it will grow and increase in speed.”
There may be some simplifying of Pennon Water Services’ brands in the future too. Formed as a joint venture between Pennon and South Staffordshire, PWS consists of four in-area retailers: Bournemouth Water Business, South West Water Business, Cambridge Water Business and South Staffs Water Business. It also owns Source for Business, which operates as its national retailer and Aquacare, its value-added services arm.
The aim is for Source for Business to act as the main national retailer, with the other in-area brands incorporated into it.
“In time they will be the national retailer and we’re communicating that with our customers at the moment. We reach out to our SMEs regularly through marketing and communication and when we’re going to different customers, it’s Source for Business we use.
“In our literature we are indicating we are moving – there’s still an element of confusion with the different brands – but we are moving towards that place.
“Customers are certainly recognising the Source for Business brand and I’m pleased to think our competitors are recognising it as well. We’re growing that brand and our brand strength.”
Unable to provide a timeframe for when the transformation will be complete, he says the process is “under constant review”.
“When we feel comfortable the Source for Business brand is strong enough, we can move into it.”
What are some of the main challenges facing the business?
“I’ve got to say margin, haven’t I?” he jokes. “But that then provides the opportunity of innovation. If you didn’t have such lean margins, you wouldn’t really think hard about improving what you do. Although that’s a double-edged sword. The regulator needs to design something that’s light but firm and not go down the old route. It needs to use the data that’s already there in the market, as it promised to do.”
He stresses he’s not “seeing a problem with the regulation” and suggests it needs to be “encouraged”. However, he warns that regulation should ensure new entrants “are acting in the best interest of customers and their plans are long term”.
Stanbrook believes the non-domestic water retail market could help to serve as an argument against calls for the renationalisation of the water sector.
“Competition came in because people wanted to change something and improve the service to the customer. We’re in that place and in terms of renationalisation, if we make this work as a whole sector, that’s a good argument to say competition does what it needs to do. We are looking to make this work for everybody.”
Stanbrook would like to see the household market open to competition, but says the industry needs to get through the nationalisation debate first.
“Our place is to help the industry win that debate by creating a really good, effective market. I would love households to be in competition. I’d love it. We just need to help the market work well.”
He adds: “I’ve been in the industry a long time and I am very proud of the industry and the high-quality product that comes out at the end of the pipes. Sometimes I think that is taken for granted. All I can control and contribute to is PWS doing things very well and ethically and influencing a market that can also influence the debate.”
Stanbrook certainly knows a thing or two about water. “Having done a masters in water, I joined the sector as a leakage control technician. I did that because I quickly learnt on a placement at Bournemouth Water that you are either an engineer or an accountant – or you come through grass roots to get through a business.”
He oversaw the implementation of the joint venture and the establishment of PWS and now has overall responsibility for the non-household business.
Although he is top of the tree, he’s never “really worried too much” about the job title, as he clarifies when asked why he is a director rather than a managing director or some other high-standing job title.
“Director is what I am. I’m leader of the business. I could have been managing director, but there’s a clear statement about who leads the business for PWS. I’m leading it and I’m happy with that,” he says.
With a team of 140, Stanbrook is a firm believer in the importance of the alignment of his people. “We’re in this to win and grow.”
He says the plan to move the business under a single national brand will not result in downsizing. “We’re pretty lean on resourcing, but if you get your team aligned and they are focused on your values, they know how they contribute to the success of the business. They are more effective and actually smile and enjoy themselves.”