Energy-intensive firms still struggling due to fuel prices, says Energy Advice Line
Energy-intensive retailers were struggling despite signs of economic recovery, as high energy costs continued to erode profits, according to the Energy Advice Line.
Julian Morgan, managing director of the price comparison, switching and advice service for business energy customers, said the cost of running equipment such as chillers and freezer cabinets was eating away at the bottom line of many firms.
The Grocer magazine this week reported that frozen food supermarket Farmfoods had experienced a 42% fall in pre-tax profits in the year to the end of December 2013. This was despite a 21% increase in sales during the same period.
The firm’s director David Roberts partly blamed the profit dip on “significant energy costs” and said he was working to improve freezer efficiency.
“The results reported by Farmfoods highlights the problems faced by many retailers, especially those in the grocery sector, that rely heavily on energy-intensive equipment like freezers and chillers,” Mr Morgan said.
“The benefit of increased sales, and welcome signs of economic recovery, can so easily be negated when overheads such as gas and electricity costs rise as fast as they have.
“It is heartbreaking for many businesses, especially smaller firms, that have managed to tough out the recession yet struggle to keep their heads above water due to excessive energy costs.
“These figure again train the spotlight on energy firms, which have enjoyed healthy profits, and the need for the government and the energy regulator OFGEM to improve competition in the energy market.”
Farmfoods’ results coincide with a report by OFGEM that shows the profit margin energy companies make by selling gas to households has risen to 10% in the past year. The figure compares to a 5% profit margin enjoyed at the same time last year.
The regulator said the doubling of the profit margin was primarily due to a drop in the wholesale energy cost of gas, as this was the largest component of the average dual fuel bill.
“With wholesale energy costs now at their lowest since 2010, the pressure is now on energy suppliers to drop their prices for both domestic and business energy users,” Mr Morgan said.
“We have heard positive news from some suppliers that they intend to freeze prices but this isn’t good enough: a fall in wholesale energy prices mist be passed on to consumers.
“In the meantime all businesses need to do everything they can to limit their energy consumption as well as the price they pay for their energy and gas.
“Carrying out a full energy audit to identify how to conserve energy is key, especially in businesses that rely heavily on electrical equipment.
“On the other side of the equation, business leaders and decision makers must ensure they regularly appraise themselves of prices in the energy market.
“Even if their fixed-term energy contract has some time yet to run, regularly monitoring the market for the best deals will enable them to make sound, informed choices when the time comes.”
The Energy Advice Line actively campaigns for reform of the UK’s energy market so that businesses and domestic energy consumers get a fairer deal and cheaper prices from the major suppliers.
It also offers a free and independent price comparison and switching service that enables consumers to shop the market for the cheapest energy deals with the click of a mouse. For further information visit www.energyadviceline.org.uk