The disaster that was Ocado's initial public offering on the British stock exchange last week was a reminder that online doesn't always boost the bottom line. Ocado delivers Waitrose groceries but has yet to turn a profit since it was founded 10 years ago. That's as long as Superquinn and Tesco have been doing home delivery in Ireland.

Ocado was forced to cut the flotation price by nearly 25% near the launch and then official trading saw its price fall another 7% to 180p. To amplify doubts about the retailer's financial projections, Collins Stewart placed a value of just 122p a share on the company – significantly lower than the 200p-275p spread that Ocado had originally targeted. That would have valued it at between £800m and £1bn.

Ironically Ocado's main problem may be the fact that it delivers Waitrose goods – Waitrose is planning to increase the number of its food shops sixfold within five years, which could affect the online retailer's natural market.

In the decade since Tesco and Superquinn entered the Irish online market, they've largely had it to themselves. But that looks set to change as supermarkets battle for every euro a customer has to spend. Two years after the Sunday Tribune revealed that Dunnes Stores was drawing up plans to enter the market through Dunnes Direct, the indigenous supermarket group looks to be a step closer to launching the service.

Dunnes Stores steps up efforts

Last week Retail Intelligence reported that Dunnes Stores is stepping up its efforts in the area by recruiting a marketing manager for its website, with part of the job's brief involving an "effective e-commerce internet solution for Dunnes Stores customers". It's the clearest signal yet the retailer will enter what remains somewhat virgin territory in the Irish retail experience.

"Online shopping is a blessing and a curse for a retailer, because the whole art of retailing is about getting people to buy things they don't actually need or want, and that impulse element gets stripped out online," said John Ruddy of Retail Intelligence. "It works for the retailer if it helps them attract business which they wouldn't normally get, but there's no benefit in pushing a shopper out of your physical shop and into an online format, because in most cases, the amount spent will actually reduce."

Supervalu, meanwhile, has had a trial site up and running in recent weeks. "The challenge for Supervalu will be to create something that will work across all 190 shops, and it's harder to roll out these systems when you don't actually own the shops yourself," Ruddy said. "But there are a lot of towns with SuperValu shops where Tesco or Superquinn internet shopping is still not available, so if they do manage to crack it, the rewards are potentially very high."

Asda in delivery trials

Also running trials of home delivery here is Asda, the British division of Wal-Mart. The trial involves a small number of people linked to the chain and extends at least as far as Dublin. Asda.ie directs visitors to the British home shopping site ahead of a possible wider launch.

Superquinn is gearing up its online operations at present as interest picks up. From September the retailer will be increasing the number of delivery vans servicing the slots, to meet customer demand. Superquinn applies different service charges depending on the time and day of delivery, with the cheapest coming in at €4. In part, the attraction for customers is that the delivery area exceeds the catchment area of its 23 shops and on average 9% of its weekly online orders come from new customers. The entire range is available online at the same prices, and the average weekly spend per order is more than €110. That means it's a significant driver of business, as the latest figures from Kantar Worldpanel show that the average Superquinn customer spends €338 over a three-month period in take-home goods from the chain.

The growth areas of the business will also raise eyebrows – fresh food categories have seen sales growth of more than 50% year-on-year in recent months.

Over at Tesco, which can deliver to 80% of the population with its online service, the format is usually used by young families and bulky items such as nappies are particularly popular. However, as in shops where Tesco has expanded its non-food offering, there was a 27% increase in demand for goods in that sector last year. Cookware, kitchenware, paper and stationery are among the categories seeing increased demand. Tesco has more than 30 distribution centres, with one due to open in Ballinasloe in Co Galway in the coming weeks.

Buy4Now's technology

Driving the online retail experience is often Irish company Buy4Now, whose technology is used by everyone from Superquinn to Tesco, Safeway and Albertsons. Its latest client win is Roche Bros in Boston which will use its e-grocery software in a €500,000 contract that was announced last week.

Buy4Now says the advantages for retailers of an online presence are obvious. Its in-store picking model – so one of the retailers takes the goods off the supermarket shelf for the purchaser – means a retailer can increase overall sales by up to 5%, in return for an investment of about $1m, and that net margins for the virtual store are between 6% and 10% with profitability possible within 24 months. In addition, it helps retain customer loyalty and wins new customers because of the extended delivery service. Expect Dunnes and Supervalu to follow through on that within the next year.

Ocado's delivery was all wrong

What a mess. As a consumer-facing business, Ocado lives or dies by its ability to interpret the needs and desires of a diverse bunch of customers.

So how come it – and the eight investment banks it employed to get its IPO away – so badly misread the mood of the investors to whom it hoped to sell shares?

The conclusion one must draw from the events of last week, culminating in the 11th-hour cut in the flotation price, is that investors did want to buy Ocado's stock, but not at the daft price tag attached to the shares.

From the beginning of this process, Ocado's would-be shareholders told the company and its advisers exactly that, both in public and in private. Why on earth did it take so long to get the message?

Nor in the end has the gimmicky retail offering done Ocado any favours. You can see why it thought offering shares to loyal customers would be a cute trick, but as it turned out, the inclusion of the retail offer simply muddied the waters.

This is not the ideal way to start life as a public company, particularly since so many analysts regard Ocado's flotation as more of a rescue rights issue. The suggestion being touted last week by certain company advisers was that the price cut reflected a desire to get a better class of investor on board: that simply looked desperate.

Ocado's argument all along has been that it should not be valued using the same metrics one would apply to a conventional retailer. It is not wrong: this is first and foremost an online distribution business, rather than a grocer. The product it happens to sell is genuinely secondary to the process through which it interacts with its customers.

That does not mean, however, that an inflated valuation was justified, especially as this is a company that has never made a profit and stands little chance of doing so in the immediate future. For a business predicated on listening to its customers, Ocado got this badly wrong.

David Prosser