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Webvan Out Of Gas
Alowishus writes: "Looks like it's the end of the road for Webvan. Their website appears to be down, and Oakland local news reported employees clearing out their possessions from the company's warehouse. A press conference is scheduled for Monday." First kozmo.com, now this -- I'm giving up hope on ultra-cheap delivery by web as a business model to support my retirement fund. Perhaps Peapod can buck the trend, though.
There are plenty of surviving home-delivery services out there that either accept a shopping list via the phone, or come to your house and pick it up. Then, they shop for you and deliver your groceries, charging you a premium for the service. I would think that webvan could have struck a deal with the local grocery stores that allowed them to charge a lower premium than the non-web-based services. Most people would still pay the premium to have their shopping done for them. In fact, I know of plenty of satisfied customers from the Atlanta area, before it shut down.
So what's the scoop here? Why are businesses like this having so much trouble? No ENOUGH business? Or just stupid management?
GreyPoopon
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GreyPoopon
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Why is it I can write insightful comments but can't come up with a clever signature?
The key to Tesco's success is twofold. First, it's already a well-known brand -- it's our largest supermarket chain. And secondly, it distributes the goods from existing stores, so no extra warehouses etc. to build. (Our second largest supermarket chain, Sainsbury's, tried and failed to make the warehouse model work.)
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A service that a few of the grocers are now offering is an ExpressLane. You give them a list, and 4 hours notice, and they'll get all the stuff, bag it, and have it waiting for you. They even have a special checkout line. There is generally a $5 service fee, but you can do 30 minutes worth of shopping in 5 minutes. And you just stop by on your way back home from work. Minimal alteration of your daily activities.
As an added bonus, at least where I live, I get to say I went to Harris Teeter. And I really like saying "Teeter"
- Dan I.
They quickly figured out that service costs money, and did a SprintPCS-style turnaround. (If you've been a customer for more than a year and have tried dealing with customer support, you know exactly what I mean.) They figured out that they could serve more people more quickly if they dropped all but the base required service. Now, drivers are instructed to deposit items just inside the door and scram, excepting special circumstance. In their larger markets, they no longer shop a large grocery store, but a little warehouse which usually only contains a small subset of the items which are listed on their web site, which means that you typically won't get a substantial number of things you ordered, requiring you to head on down to the grocery yourself. The "shoppers" (I'm unsure of the new title) are not only no longer instructed to contact customers, but no longer allowed. They're timed on how long they have to complete each order, which is a fraction of the time previously alotted.
I was still a Peapod user throughout the changeover, and orders went from being typically 95%+ fulfilled to around 50-60%, with absolutely nothing included that you wouldn't see in the main 3 aisles of your typical grocer. Peapod's response to comments on the site and service and notes about errors on the web site went from personal responses to "Thank you for your idea, little man. Please be placated by the following runaround," and defensive form letters stating that they were in no way legally responsible for any errors on the site, and "please contact this number to be run around in circles by someone with vapid marketroid scripts until you give up if you've got something that you foolishly think needs fixing."
It's unfortunate. Peapod used to be a pretty nice service, but I can't see using it anymore unless you've got really generic tastes, are disabled, or are somehow incapable of shopping for yourself.
Now - I tried WebVan a few times. They continued to take their time, knocking themselves out to make everyone happy. They really never got to the point of optimizing customer service out of their operation.
We have a service called HomeRuns that seems pretty successful here in Boston. I can't attest to their business model and how it differs from WebVan, but every day it seems that I have to dodge their army of delivery trucks on my bike.
"My mother never saw the irony in calling me a son-of-a-bitch." - Jack Nicholson
For those unfamiliar with Webvan, is/was an on-line grocery store. You went to their site, ordered your groceries, picked a delivery date/time and your groceries were delivered. They tried to get economies of scale by using a large warehouse to store, pick and ship the orders.
People tried them once, because they were novel, new, and their neighbors mentioned them at parties. That didn't translate into regular, large orders that Webvan needed to be a viable business.
There were a number of things that contributed to their demise:
1. Price - Food is a large part of most budgets, even for the folks Webvan targeted. Discounting is very much part of the grocery business, and Webvan didn't play that game. High margin items, such as soda, were cheaper at stores than on Webvan. The major chains have made shoppers very price sensitive, and Webvan was viewed at the upper end of the price range (whether they were or not is irrelevant), which meant people would use them in a pinch, but still went to the store for their major purchases.
2. Order Size - Grocery shopping is really impulse buying - stores want to get you in with a few specials, to get you to walk through their store. They know you'll see other items you need, adding to the total sale per customer. Even if you go in with a list, you probably would find a few things you needed that you forgot. Webvan, because of its web-based model, wasn't really good at capturing the impulse buy that drives the total sale. Much of the buying is touch and feel - people like to see the meat, fruit, and vegetables and pick what they like. Yes, Webvan would refund the money, but that doesn't do you much good when your trying to make a salad and the vegetables aren't up to your standards (although I must say everything I got from Webvan was fine - but they still need to overcome the feeling that I must see it before I buy it).
3. Advantage over stores - While it was great that Webvan delivered, they completely missed the "I need it now" market. That may have been smart, because cost of delivering a carton of eggs and some milk would be kill any profit on the order. (Webvan did add a delivery charge for small orders near the end) However, since I still had to run to the store to get one or two items, it was just as easy to make a list of other things I needed as well. This meant there was no compelling reason to use Webvan, since it really didn't cut down significantly on trips to the store.
4. Convenience - Scheduling delivery was hard - next day service was rarely available, forcing people to plan 3-4 days in advance. It's just as easy to sneak in a trip to the store.
In short, Webvan offered no clear advantages to going to the store that made buyers switch to them. Retail stores could even adopt parts of Webvan's model, making their position even weaker. In Atlanta, several stores even offered fax/online/phone ordering - they would take and pack the order for your pickup - one even offered drive through pickup.
Finally, Webvan failed to learn from history. Home delivery of groceries is nothing new - there are services that will stock your pantry on a regular schedule. Sometimes there is a reason why a business model hasn't been a roaring success - their aren't enough customers. Scaling up a business model that hasn't been successful in the past and wrapping the web around it doesn't change the fundamentals.
I'm a consultant - I convert gibberish into cash-flow.
Are these people still locked up in the house? Maybe they better get rescued cause it looks like they are all going to starve to death now!
Did we not all see this one coming? Come on, anyone who's ever taken accounting knows that the margins on groceries are tiny (4%-5% vs the ideal 9%-12% for public corporations). Through in the number of times Webvan almost fell, and it is no surprise that they are closing up shop. What is surprising is that they made it this long.
Here in Toronto, we never had Webvan, but we've got a great copycat called Grocery Gateway. These guys are unreal - and let me tell you, it has *nothing* to do with delivering groceries.
For example, their delivery windows are only 1 hour wide - so no mint chocolate chip ice cream sitting on your porch. The drivers (what are they paying these guys!?) are customer service freaks - if they think they're going to be even 1 minute late, they call you and let you know. If you go nuts and tell them they suck (not that I ever did), they calmly ask you to please call the customer service number.
Then the real service shines. The customer service reps are the exact opposite of everything you've every experienced. They are nice, polite and best of all, they give you free groceries. In the case above, my whole order was free, because it arrived 2 minutes after the delivery window I selected.
It makes me wonder what the Webvan experience was like. Not enough repeat customers? What did they charge anyway?
Feed the beast.
But it takes time for people to change their habits. If you are a .com that bets on make-it-or-break-it in three years, that's not going to work.
Web ordering of groceries and home delivery should have started locally and in specialty populations: homebound individuals, company groceries, busy upscale single professionals (BUSPs?), people living in Manhattan, etc. Companies can and should make sure every step along the way that they break even. Then, their user populations will naturally tend to expand as more and more people discover the convenience and habits adjust. A tie-in with cheap handhelds for making grocery lists in the kitchen (where the computer normally isn't) would also have helped.
I hope Peapod will be able to stick with it and that others will not be scared away by this. Webvan failed because they wanted to grow too fast; the idea was and is fundamentally sound.
That's just it - so many dot-com businesses confused the ordering mechanism ("Yay! I can use the Internet to order products!") with a business model.
But a real business model is focused on how you can extract profit from what ever endeavor your business is engaged in. Profitability is the bottom line in any business, whether it's a 7-Eleven, a fertilizer plant, or a game company.
So many dot-com outfits bit the dust because they missed this Business 101 fact. Sure, some of them had bad management, but who had any management experience in the world of online commerce before there was any online commerce?
My guess is that now that the first wave of front-runners has died off, the hardier surviors are going to continue to grow and thrive, but at a sustainable, more realistic pace. All those "stupid" managers will be a lot more experienced, and like any industry, the world of online commerce will mature as effective practices become more well-known.
Read the EFF's Fair Use FAQ
Oh... The Days.
Pimply faced freshman dropping out for 50k entry level jobs. "B2C petstore play"s. The first day pop. Office casual. The company game room. NASDAQ 5000. Exasperated recruiters. Hailing the new economy. Planes trailing banners with ads for jobs. BMW or Mercedes offered as choice at hire-time. Renaming stadiums. Venture capitalists. Pre-IPO stock options. Pundits predicting Dow 30000. Bashing the old economy. Lavish parties. Companies like Webvan.
Did I leave anything out?
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
For some sorts of operations, that makes sense. If my product is an electronic download, anyone in the world who has an internet connection can receive my product. For lightweight, non-perishable products, the postal service or its competitors can provide delivery cheaply enough that people won't squawk over the price of delivery. For groceries, delivery is expensive, and the more areas you cover, the more it costs.
So Webvan tried to become a national player, when no grocery chain had succeeded yet, instead of concentrating on capturing enough of the Bay Area market to make a profit. So it's gone tits-up.com. Oh well.
Instead, what they did was they spent half their money going into EVERY market, and then the rest ran out before they had a chance to iron out the kinks in their business plan. Web based ordering CAN work, the question is how. Maybe it's just a niche market, requiring that people come to a physical location to pick up their orders or a gross markup for delivery. I'm sure there are those out there (the disabled, for example) who would be willing to pay for that kind of service. Alternatively, maybe Webvan really WAS on the right track, and would have gathered a large enough customer base by next year to be profitable, as they claimed right up to the end.
However, Webvan will never know because they moronically spent all their money in the first (and, as it turns out, only) two years of their existence. It's not like web-based ordering is a natural monopoly, where only the first person to establish themselves will make money. In the long run, whoever can compete best on price and service is who will rule the market. So, there was no reason for Webvan's frenzied growth, because the markets would never be locked off to them.
Now, there's a few supermarkets going about this the right way. They're taking tentative steps toward web based ordering, feeling out the market. Eventually, one of them will hit on the winning combination, and the rest will shortly follow. I, for one, am not sad to see Webvan go.
The only "intuitive" interface is the nipple. After that, it's all learned.
"The question of whether a computer can think is no more interesting than that of whether a submarine can swim" -EWD
George Shaheen, the CEO who bailed after 18 months, had a golden parachute in his contract with Webvan to be compensated $375,000/a year for the rest of his life. Now, I don't fault the guy for negotiating a killer deal when he signed on; and I understand that Webvan had to be very generous when shopping around for a CEO who could save their bacon (so to speak). However, this severance package was clearly over-the-top, and far more than the struggling company could afford to pay. They gambled, they lost. And I guess George will have to go find a job now.