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Taking on the energy industry’s big six incumbents

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We all have our grumbles when it comes to paying utility bills. They’re a necessary evil to keep us warm, clean and fed – but often breed confusion, frustration and ultimately laziness when we still don’t change our situation.

First Utility, which first came onto the scene in 2006, is theoretically offering an alternative. The business, a recent winner at the Growing Business Awards in the Large Company of the Year category, has experienced rapid uptake of its switching service.

As an independent supplier of energy in the UK, First Utility blends account switching, lower bills and smart technology. In 2011 the business had about 58,000 households and 5,000 SMEs signed up, generating about £70m of revenues. Fast-forward to present day and, having left behind the SME market to solely target domestic consumers, 700,000 households are signed up to First Utility and revenue has inched beyond £600m. It’s therefore no surprise that the company beat off competition from the likes of snack delivery service Graze and software reselling business Softcat to win at the Growing Business Awards, which are supported by the CBI and in association with Lloyds Bank.

The CEO of the business, Ian McCaig, has overseen this rapid growth and was the man to realise that a mass-market consumer play was best. He initiated a restructuring of the company, involving technology, platforms and scalability functions so that it would be able to cope with high volumes of domestic energy customers.

“The growth has been pretty phenomenal,” he told Real Business. “I came from the travel industry, and the way I saw it was that there were a lot of similarities to when the low cost carriers came in and forced the flag carriers to change.”

Leaving the SME market ironically meant abandoning the very market First Utility had started in back in 2006. A group of telecom entrepreneurs who built and sold out before the dot.com bust founded the business after deciding that deregulation presented an opportunity. Smart metering and analytics formed the early core offering, providing a way for consumers to gain better insight, and be in more control of, their energy consumption.

Gaining exposure in the highly-competitive energy market has been a combination of things, McCaig added. First though comparison sites, and now via multiple channels, the consistent message has been the “sheer amount of money you can save” by switching.

Read more on the Growing Business Awards:

Giving us some context on the situation, McCaig revealed that 40 per cent of households have never switched their energy supplier, a move that could save them £300-400 a year. For those that have switched, McCaig claims a further £200 in savings can still be found.

“What has happened is that as we have been around for as long as we have, the brands are starting to be recognised by people – that trust is slowly but surely being established.

“The barrier was a tendency to stay with what you know, but with prices all going up at the end of 2012 it served as a catalyst for those that hadn’t looked at an alternative before.”

Going up against the big six, who all have in excess of five million customers each, has become easier as the language associate has changed, McCaig said. Whereas previously E.ON, Scottish Power and EDF Energy all maintained market position by being passive and cementing the view that energy is difficult and safer to stay where you are as a consumer, there is now competition on pricing.

“They are realising that unless they do something and are more forward leading they will loose more customers.”

The problem, McCaig added, is that the big six have customers sitting on high legacy tariffs and can only be so assertive in case users wake up and realise how much they are paying. Different channels are required to target the 40 per cent who have never switched from these tariffs, due to the fact that switching sites tend to be used by those who are engaged and “understand” the value of changing.

Scaling up at the speed that First Utility has has lead to some unexpected and rather unusual issues. The last quarter of 2013 saw 130,000 switch to First Utility, more than even any of the big six have handled. Investing in systems ahead of the curve, McCaig said, meant that the company was able to cope. What has not predicted, however, was completely tapping dry the local area when it came to recruitment. Growing at a more stable rate now means this is not a problem, but it caused a few alarm bells for a business that needs people to be able to handle capacity.

An interesting recent development has been the launching of the First Utility Foundation, an independent charitable organisation that is pledging 1 per cent of profits to projects and innovation supporting vulnerable families and people in the UK.

For a part of our lives that is arguably could be added to the well-known death and taxes phrase, First Utility has grown by providing a bit of alternative to the norm. As consumers become ever savvier and switching is made easier, the business is sure to have greater access to potential customers.

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