Pay peanuts, get horsemeat
The country’s blame culture went into overdrive when the recent horsemeat scandal blew up. The Government moved rapidly to shift consumer fury onto the supermarkets for supplying contaminated meat; the retailers blamed their suppliers; and they claimed to have been duped by ‘foreign’ abattoirs.
However, the truth is that consumers were as much to blame as anyone. People have come to demand low prices, but inflation is putting staples like food (and energy) under intense price pressure. In a highly competitive marketplace, it is risky for retailers to pass on the full cost to their customers – so they look for other ways of keeping their prices down.
Something had to give – and it did. There is a vital lesson in this for the heating and hot water industry too.
Colin M Robinson (Family Butchers) felt driven to write an articulate and impassioned blog ‘The Truth about Cheap Meat’. His patience had finally snapped with consumers:
“Cheap rearing abroad. You didn’t care. Cheap slaughtering by machine. You didn’t care. Cheap meat full of crap and off-cuts. You didn’t care. Frozen blocks of meat off-cuts from the abattoir floor being trucked in from Poland to ensure your pack of mince was cheap enough. You didn’t care. In fact you didn’t know, but that’s because you didn’t care.
‘But we [local butchers] cared. We kept trying to tell you. We launched campaigns, we wrote letters, we raised funds for adverts. Nobody knows what they’re eating anymore, we said. Nobody recognises how hard it is for farmers here to produce quality meat at a price they can sell because of the supermarkets. And still you didn’t care.”
Our own industry supply chain is equally vulnerable to this ‘cheapest is best’ behaviour. The widely used term ‘value engineering’ actually has very little to do with value and is all about cutting cost. With prices constantly under pressure quality suffers.
Clients want to spend less; consulting engineers want the work so will take a cut in fees; contractors try to change specifications wherever possible to boost their meagre profit margins; and manufacturers play along with this by supplying the cheapest option to avoid losing the order.
Since the financial crisis hit, contractors’ prices and consultants’ fees have fallen through the floor. Does anyone think they will be able to put their prices back up again? Unlikely. We are now caught in a vicious cycle of downwardly spiralling prices that hammer quality. Survival is the driving force, but many firms are not surviving. We have lost some major industry players in recent months and more will go before this madness stops.
Yet, at a time when energy prices are going up our industry should be more valued than ever. Energy prices are now a significant business overhead for all commercial building occupants and are still heading up. British Gas raised its gas and electricity prices by 6 per cent for its 9m UK customers this winter and more increases are inevitable.
EDF is currently locked in negotiations with the Government about how much it will be able to charge for electricity produced by the new nuclear power stations it is planning to build. The tariff is likely to be close to double what we pay today.
As we lose our North Sea reserves we will become increasingly dependent on expensive overseas gas supplies and prices will continue heading up. Our product is energy efficiency – we can help commercial and residential customers keep their energy costs under control. Yet, just when our services should be at an all time high in terms of value the opposite is true.
The legitimate industry focuses heavily on quality and energy efficiency. Yet contractors are rarely challenged to provide proof that a system complies with Part L, for example. Local authority officials are primarily concerned with ensuring buildings do not collapse or catch fire – energy saving falls into a ‘nice to have’ category. And if there is little (or no) enforcement clients will see an opportunity to avoid cost – it is human nature.
If clients insist on paying peanuts – then someone will supply them, but what can they expect in return? The equivalent of heating horsemeat, which has a very expensive legacy of soaring bills; breakdowns and business crippling downtime.
Now is the time to draw a line in the sand and for consultants, contractors and manufacturers to stand firm; refuse to drop prices any further and point out the benefits of investing in an energy efficient future – and the cost of not. If the legitimate industry stands together we can do this and change client behaviour – and, more importantly, we will create more realistic expectations about what can be achieved for what price.
The alternative is heating horsemeat with its very nasty aftertaste for clients and supply chain.
David Pepper is managing director of Lochinvar
