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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.
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.
In our area, both of the online grocers pulled out last fall. The problem? Too wide of a delivery area.
They had to build a big warehouse to store products and then needed a fleet of vehicles to deliver goods. Gas prices went up and added to costs, changing economy (remember, most of the early adapters and users of online services were those most affected by the downturn in the tech market) and dried up VC money to fuel operations. Finally, because there were three or more of these services out there nationally, I believe they overextended themselves to gain marketshare - therefore dooming themselves in the process. There was not a steady group of customers to support the industry.
It is really too bad. It seems like such a simple and successful idea. I have a feeling it is going to be back in the near future.
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!
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.
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