| A similar picture is emerging in the market structure | | | | one might argue that power which has been gained in |
| of UK business electricity retailers as witnessed within | | | | such a way reduces the drive or even the necessity |
| the supermarket sector especially between the | | | | to compete to win. |
| competitive practices being undertaken. | | | | Evidence suggests that in the 90% or so of the |
| Just like supermarket chains, business electricity retail | | | | business that don't switch year on year price |
| is dominated by a few major players who share | | | | patterns for each supplier are extremely similar. One |
| some 96% of the total market. However, rather | | | | major player makes a marginal price move and the |
| than compete head-on for market share, they | | | | others simply follow over time. |
| appear only compete for a small percentage of | | | | The argument which supports the view that |
| customers at the peripherals. | | | | supermarkets actually create competition and push |
| They attract these new customers from each other | | | | prices down by their huge economies of scale and |
| by offering competitive 'new customer only' | | | | purchasing power is also one which is somewhat lost |
| introductory rates, quickly reverting to standard rates | | | | in the electricity arena. Many would view the big six |
| (and sometimes more), when contracts roll-over | | | | as inefficient legacies of the old system who are |
| after the first year or so. These practices are not | | | | protected from real competition by the extremely |
| dissimilar to the loss-leaders used by supermarkets to | | | | tough barriers of entry. |
| attract customers into the store where they are | | | | Indeed, some of those smaller suppliers who have |
| likely to spend much more on non-discounted goods. | | | | managed to scale these barriers have been able to |
| Although showing very similar market structures now, | | | | demonstrate far more efficiencies aided by intelligent |
| these sectors got to this position in very different | | | | investment in technology. Unlike the supermarkets, |
| ways. The grocery sector was originally fragmented | | | | there are no real efficiencies related to scale as most |
| with no major players really dominating until the | | | | electricity retailers must turn to the same wholesale |
| emergence of supermarket chains. Whereas, | | | | market for their supply. Some can cushion any |
| electricity was monopolised by regional suppliers and | | | | market turmoil by relying on their up-stream activities |
| de-regulation simply served to reduce the number of | | | | when the retail market gets tough - a luxury which is |
| suppliers still further, encouraging competition only | | | | simply not an option for the smaller supplier. |
| amongst each other nationwide. | | | | But businesses needn't switch to the smaller supplier |
| On one hand we have a market which was | | | | out of sympathy nor from fear of what might lie |
| previously competitive with many suppliers that have | | | | around the corner should the major players succeed |
| been squeezed by ever-increasing concentration. So | | | | in driving them out completely. They should switch |
| much so that the top three supermarket chains now | | | | simply because they are now able to get a much |
| have over 50% of the total market, with the market | | | | better deal and a deal with longevity. The smaller |
| leader alone claiming 30%. On the other hand you | | | | supplier with a plan to mimic the big six in order to |
| have a market where efforts to expand the number | | | | attract new customers would be committing |
| of suppliers have been stifled by the barriers to entry | | | | commercial suicide. What would be the point of |
| and the sheer power of the incumbent suppliers. | | | | fighting so hard to win new business and then letting |
| The jury is out on the positive or negative effects | | | | it slip away at renewal? |
| of supermarket dominance, however, whatever the | | | | Businesses can save significant amounts of money by |
| rights or wrongs of where we are now, no one can | | | | switching to the smaller independent supplier now and |
| deny that those who now dominate have arrived at | | | | can relax in the knowledge that they will continue to |
| their position through their own efforts and ingenuity. | | | | save money and receive an exemplary service into |
| But electricity is a different matter. Power has been | | | | the bargain. Only then will the big players be forced |
| bestowed upon the 'big six' major suppliers such as | | | | to sit up and take note and who knows, we might |
| British Gas, Powergen and Npower to name a few, | | | | just see the emergence of a truly competitive |
| irrespective of who actually owns them today. And | | | | electricity sector in the future. |