A shakeout looms for retailers, and familiarity may be an edge.
Industry consolidation may whittle the number of electric and gas suppliers in the United Kingdom to just a handful by 2005, if the expectations of U.K. utilities are correct. Further, many predict that these mega-suppliers will include non-traditional competitors with trusted names - maybe even supermarkets or banks.
Nearly three-quarters of the respondents in a survey of 95 U.K. utilities say they expect just five or seven major power suppliers to emerge during the next five years. The survey was conducted in May by information technology services company ICL.
"The real issue is that size matters," says David Loughran, ICL's vice president of utilities in North America. While size isn't as crucial on the distribution side, Loughran says, thin margins on the deregulated residential supply side make reducing production costs through consolidation essential for survival.
"In the U.S. we expect to see a similar picture," he adds, noting that the United Kingdom is a few years ahead of the United States in energy deregulation. Other analysts predict that about 20 U.S. mega-suppliers will emerge, Loughran adds.
Corporate image and brand recognition will be increasingly important as price competitiveness narrows. "The problem for utilities is that for years, utilities viewed customers as consumers, and in turn, customers didn't really take any cognizance of the brand," says Loughran. "But if a company with a trusted household name in, say, retailing, enters, they'll have an advantage."