ANALYSIS | Energy crisis


‘The energy crisis could be than the pandemic for Britis


We all know energy costs have skyrocketed but what does this really mean for your suppliers and will retailers and consumers ultimately pay the price? Vicki Evans reports…


W


e’re all struggling with the shocking rises in energy costs – whether


that’s at home or in the showroom. Many are easily seeing bills double or worse, but imagine taking the amount of energy you consume and comparing it with a warehouse or factory. Imagine how much gas it takes to run a sanitaryware kiln? Or electricity to run a furniture production line? Doubling that bill could make or break a company.


The energy crisis is in danger of rapidly turning into a business crisis. Managing a huge and unexpected increase in cost is a massive under- taking and it affects the whole supply chain, as that cost gets passed down the line, and it is this ripple effect that will cause the most issues for KBB retailers, over above the rises they’re seeing in their own bills. “We have never seen a cost change like this before,” says Simon Bods- worth, managing director at Daval Furniture. “We are bracing ourselves for a tripling in our energy bills from September. Like many other manu- facturers, I believe the energy crisis could be even more destructive than the pandemic for British businesses and create a domino effect from source to consumer. “Typically, we would look at energy, labour and material costs as the three core areas to control, and energy is now completely out of kilter with the others, so we’re having to rethink the strategy and the business model. We


are very energy-intensive. You cannot make a product unless you turn the machine on.”


These are serious words from Bodsworth and they show the gravity of the situation for many. As much as it is a bleak overview, the only mitigating response can be to try to reduce the amount of energy consumed or to generate your own. Daval, for example, has had a biomass burner for some time and is considering installing solar panels too.


HPP is another manufacturer looking at ways of offsetting these potentially crippling rises in cost. Like many companies, It actually has a fixed price for its energy until 2024, but sensibly it is still looking for ways to manage this domino effect.


“While we’re not being directly affected by the increase in prices, there have been indirect impacts. For example, our sup - pliers are having to put up prices and


in prices on consumers and what they spend their money on. High energy bills could slow spending on big-ticket items such as kitchens, bedrooms and bathrooms.”


Being aware of how much energy it uses is the first step for HPP. It measures usage of energy every half- hour to make sure that it is on track and has invested more than £1 million in new boilers and extractors to reduce costs in the long-term, while monitoring the short-term effects.


We’re having to rethink the strategy and the business model. We are very energy-intensive. You cannot make a product unless you


turn the machine on Simon Bodsworth, managing director, Daval Furniture


supply chains are being affected from end to end,” explains Dan Mounsey, HPP’s marketing and business development director. “So all of that affects the prices we pay for products and services.


“And then there are the wider economic implications of the increase


Mounsey explains: “Our electricity readings are taken every 30 minutes to see the usage patterns and spikes or, in particular, spikes when there shouldn’t be one because a machine or a compressor has been left on by mistake. “We then consider what we can do to stop that, or whether we can fit a timer, so it doesn’t happen again. These are things we’ve always done and will continue to do with a razor-sharp focus. But if it gets to 2024, and energy costs are


still enormous, then we may also have to look at modifying how we operate.” The response from many manu- facturers has been to accelerate existing programmes designed to reduce their environmental impact. One excellent example is Just Trays; it is reducing costs and changing


How will this directly affect your showroom?


As much as manufacturers are feeling the pinch of the energy crisis, retailers face a similar issue with their showrooms, with 54% saying that their energy bill will increase between 100% and 300% in the next few months, according to a kbbreview social media poll.


Only 35% say that their energy bill will go up between 1% and 100%, while 12% of retailers say that they are facing an astonishing 400% increase in their bill.


Dave Jarvis of Albion Bathrooms, Kitchens and Electricals in Burton is one such retailer: “We fixed our energy costs until August 2023, however, the worry is the steep increase we


34


will get when our deals run out. I’m estimating we will see a quadrupling of the bills.” Other retailers have taken matters into their own hands and are striving to make their showrooms more energy-efficient. Kristjan Lilley from H Lilley and Company in south-east London, explains how much a basic swap is helping him cut costs: “We already had a plan in place to reduce these costs by installing LED panel lighting and sensors on rooms to keep the lighting off while they are not being used. It’s the standing charge that has the greater impact as running LED lighting


processes and product innovation to save energy and minimise increasing costs. Paul Haigh, managing director of Just Trays, describes the process: “We are always looking to improve our impact on the environment, be it through a reduction in energy usage, improvement in the efficiency in the manufacturing process or innovation. “For example, this year at JT we have managed to reduce the weight of our shower trays by up to 25% and maintained our high standards of quality through manufacturing inno- vation. This innovation, while it does not offset the increased energy in the manufacturing cost base, it will help the environment in part to reduce energy costs, particularly around transportation.”


In addition, many other suppliers have already taken their energy into their own hands by, like Daval, putting solar panels on the roof or including a biomass burner. However, there is only so much a manufacturer can do, as the pro - cesses to create kitchen or bathroom products are energy-intensive. Paul Dwyer, managing director of Thomas Crapper, explains how much it takes to produce one product. He says: “We’re talking to our manu- facturers, whose energy costs have gone up 160 to 170%. Sanitaryware production uses a lot of gas – to produce a WC or a basin through a kiln, in most cases it works on a 24-hour cycle. It has to go through a gas-powered kiln that goes up to heats of 280 degrees for 24 hours, so the potential price increases on each product are just phenomenal.” The nature of the domino effect means it is inevitable that manufacturers will have little choice but to pass these cost increases on to retailers with


etc doesn’t cost a lot.” “It means tighter margins, lower profits at an


of retailers face a 100% to 300% increase in their energy bill


54%


already increasingly difficult time to make up that difference as it is.” Retailers were asked if they are currently feeling the effects of the energy crisis so far. Just under half (45%) of business owners said that they are feeling the strain, but just over half (55%) said they are not feeling any effects now. Anecdotally, some retailers say they


are considering severe measures to


ensure that their costs stay steady, from shutting the shop for the majority of the week to contemplating laying people off if business dips and costs keep rising.


· October 2022


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