David Prosser: Ocado still has a mountain to climb

Outlook Speaking as a customer, I'm a great fan of the grocery delivery service Ocado. Its vans turn up within minutes of when they're supposed to and during the winter snow, I was hugely impressed with the efforts of its drivers to deliver my shopping. For these reasons and others, I intend to be a customer for some time to come.

What won't be on this week's shopping list, however, is a slug of Ocado shares, though it's a typically neat touch of the grocer to offer them to its customers first. Though it pains me to say it, there's a whiff of the dot.com phenomenon about the £1bn-plus valuation the online grocer has put on its flotation. This is a business, after all, that has yet to make a single profit in 10 years of trading.

It is true that Ocado's sales have been growing steadily, with strong improvements over the last couple of years in particular. Its brand value is improving, it has excellent technology and many other customers seem to share my view about its top-notch customer service, which bodes well for word-of-mouth fuelled growth.

Still, to break that decade-long losing streak, Ocado needs to build scale. And there are two reasons to think it may struggle to do so in the short to medium term.

The first is the size of the capital investment required to give the business a genuinely nationwide presence. The spending required isn't going to leave much room for a healthier looking bottom line. Second, even if Ocado manages to build the platforms necessary to compete, it has too much catching up to do; fourth, it is in the market behind Asda, Sainsbury's and, above all, Tesco.

After working so hard to get Ocado to the position where it is possible to bring it to market, even in a nervous climate for new issues, one can see why the grocer's founders want to convert their stakes into a more realisable asset. Still, the valuation placed on the business looks generous in the extreme. This time, Ocado will really struggle to deliver.