Ocado's move to promise loyal customers the first chance to buy shares if it floats on the stock market this summer could end up backfiring on the business, analysts have warned.
The online grocer, which despite raising more than £350m from investors since its launch has yet to turn a profit, wrote to 500,000 customers, offering them the chance to buy company shares if and when the £1bn float goes ahead.
Customers will be able to buy shares worth up to £12,000.
However, analysts monitoring Ocado in the run-up to the highly-anticipated flotation warned that Ocado's attempt to drum up trade beforehand could end up costing it dear long term.
Dr Clive Black, head of research at Shore Capital, claimed the move was potentially very good marketing, but added: "Whether it will ultimately want a lot of small shareholders remains to be seen. They can be expensive to communicate with and, as the Prudential's management have found out, very vocal at agms when they do not like what they hear."
Dave McCarthy, retail analyst at Evolution Securities, warned that this could actually end up damaging the business. "If Ocado's own customers begin losing money on the shares they buy, then it's likely they will fall out of love with the brand."
But Ocado CEO Tim Steiner defended the move. "Although we haven't made a decision on whether to proceed with the float, there has been media speculation and we have had questions from customers," he said. "It is our intention to offer customers the chance to buy shares."
The online grocer, which despite raising more than £350m from investors since its launch has yet to turn a profit, wrote to 500,000 customers, offering them the chance to buy company shares if and when the £1bn float goes ahead.
Customers will be able to buy shares worth up to £12,000.
However, analysts monitoring Ocado in the run-up to the highly-anticipated flotation warned that Ocado's attempt to drum up trade beforehand could end up costing it dear long term.
Dr Clive Black, head of research at Shore Capital, claimed the move was potentially very good marketing, but added: "Whether it will ultimately want a lot of small shareholders remains to be seen. They can be expensive to communicate with and, as the Prudential's management have found out, very vocal at agms when they do not like what they hear."
Dave McCarthy, retail analyst at Evolution Securities, warned that this could actually end up damaging the business. "If Ocado's own customers begin losing money on the shares they buy, then it's likely they will fall out of love with the brand."
But Ocado CEO Tim Steiner defended the move. "Although we haven't made a decision on whether to proceed with the float, there has been media speculation and we have had questions from customers," he said. "It is our intention to offer customers the chance to buy shares."
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