The owner of British Gas is preparing to launch a new cut-price brand as it battles to revive its fortunes.
Centrica has struck a deal to use a low-cost IT platform to run a digital-only “challenger” brand to try to win back customers who have deserted Britain’s biggest energy supplier and moved to cheap start-ups.
The energy group, which has just been demoted from the FTSE 100 index of Britain’s biggest publicly quoted companies, is expected to give more details alongside its half-year results in July. This month it announced plans to cut 5,000 jobs, about a fifth of its workforce, as part of a restructuring ordered by Chris O’Shea, 46, its new chief executive.
The new brand’s name is yet to be decided, although Centrica has been running a trial of the concept via a little-publicised new company called “British Gas X”, which gained its own supply licence earlier in the year. This is operating using software from Ensek, a Nottingham-based group, which will be used for the new brand.
British Gas supplies about seven million households, down from a peak of about ten million a decade ago, when Centrica — which also has interests in power generation and oil and gas — still ranked as a FTSE 30 company.
Centrica, which reported adjusting operating profits of £900 million last year, has been battling problems including two oil price crashes, but it has been hit hardest in its core British Gas business. This has faced competition from cheap, efficient new entrants, while a government price cap has limited the tariffs that it can charge customers who do not switch.
Under Mr O’Shea’s plan, this “premium” British Gas energy and services offering will be run as one business unit by Matthew Bateman, who previously has run its services business. A separate business unit operating the new no-frills digital-only energy supply offering will be run by Peter Simon, a former Barclays executive who has run Centrica’s smart home business since last year. Both men are due to report directly to Mr O’Shea.
Martin Young, an analyst at Investec, said: “Establishing a digital-only challenger brand takes the fight to the smaller suppliers, some of whom might not have sustainable business models.” However, he warned there was “a risk that it could cannibalise the existing customer base to a degree”.
A British Gas source insisted that the two units would “not be competing for the same customers”.