Ocado - a rich source of business studies material

The recent flotation on online grocery business Ocado provides a wealth of teaching and learning resources for business studies.

The flotation process itself has proved interesting. Initially the existing shareholders of Ocado were aiming to value the business at £1bn when its shares floated for the first time. However, the offer price of Ocado shares at flotation was reduced sharply as investor sentiment turned against the business, and the share price has continued to drift downwards in the early period of post-flotation trading. It will be interesting to see if the share price can recover in the short term.

The flotation prospectus is well worth downloading - it is particularly useful for Year 13 students. Lots of good material in there on the Ocado business model, strengths of the business (as perceived by management) and the competitive structure of the UK online grocery market. The financial summaries are useful too.

I particularly like the section on the risk factors facing Ocado. In the prospectus, Ocado management are required to explain (in some detail) to prospective investors what risks investors should consider before investing in the business. This list is pretty exhaustive - which makes you think whether an inexperienced potential shareholder might be put off! Here it is in summary. A question for students might be - which of these are the most significant - and why?

• The online grocery industry in the UK may not sustain or improve upon current levels of demand
• Ocado has a relatively short operating history and operates in a new and evolving market
• Ocado has incurred substantial net losses to date and anticipates possible future losses
• The Group relies on the Waitrose brand and Waitrose own-label products
• The Group is dependent on the existing single CFC (warehouse) in Hatfield
• The Group may fail to compete effectively with traditional online retailers of groceries
• The Group is dependent on its Executive Directors
• The Group will be reliant on the New (banking) Facility
• The Group may need to raise substantial additional funding from 2012 and a failure to do so may restrict its development
• The Group may not have adequate protection for its intellectual property rights
• Growth may place significant demands on the Group’s infrastructure and management
• The Group may be affected by new entrants to the online market
• The Group may face unexpected increases in operating and other expenses
• The Group is dependent on UK and global economic conditions
• The Group may face online security breaches including hacking and vandalism
• The Company does not expect that dividends will be declared or paid in the foreseeable future