WebVan: A Disaster on the Web
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Case Code : BSTR090
Case Length : 13 Pages
Period : 1999 - 2001
Organization : Grocery Express, Webvan.
Pub Date : 2004
Teaching Note : Available
Countries : USA
Industry : Online Retailing
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Webvan's E-Tailing Model
Webvan used the large funds it obtained from its venture capitalists to build state-of-the-art infrastructure. Though most of the other online grocers were struggling, Borders was sure that Webvan would be successful as it used hi-tech infrastructure.(Refer Exhibit-I for a note on online grocers).
He firmly believed that technology used cleverly would make him successful. The executives at Webvan
believed that huge investments in technology would result in high productivity
and help them beat all other online supermarkets and brick-and mortar stores.
They predicted that their workers would be 10 times more productive than a
traditional shopper and hence they would gain profits faster...
Fall of Webvan
Despite its hi-tech machinery, by 2001, Webvan began to face logistical problems. The cold temperature maintained in the warehouses, to preserve fresh food products, caused malfunction of the conveyor belts.
There was an overflow of cartons as many items were placed in the carts.
Soft cheese got crushed and hence they had to get more durable containers.
Small totes (holding orders) tipped over and had to be fixed by putting
weights in the tote, while they went around the distribution center...
What Went Wrong?
Analysts felt that Webvan gave online selling a good try, but selling groceries on the web turned out to be an unworkable business idea. Jasjit Mangal of Swander Pace & Co., a retail industry consultancy said, "Webvan has proved that right now, the online grocery market is niche at best, and this won't change until there is far greater Internet adoption."
Analysts felt that Webvan had been over-ambitious in many ways and had invested
a lot on its ventures. It started off in an uncharted territory and committed
almost $1 billion to build expensive warehouses.
Exhibit I: A Note on Online Grocery Stores
Exhibit II: Fedex's Hub-and-Spoke Model