WebVan: A Disaster on the Web

 
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Case Details:

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 was all about leveraging technology and reinventing the grocery business, just as Andersen had reinvented consulting...[and will] set the rules for the largest consumer sector in the economy."

- George. T. Shaheen, CEO, Webvan.com1

"Online grocers 'must create storefronts as easy to use as Amazon's, build delivery infrastructure as sound as UPS' and pick and pack pickles and pineapples better than anyone ever has."

- Evie Black Dykema, senior analyst, Forrester Research.2

"The problem with the online supermarkets is that their business model is so cost intensive that profits are very hard to come by."

- Ken Cassar, analyst, Internet research firm Jupiter Communications.3

One More Dotcom Bust

Grocery Express, the first online grocery store was launched in San Francisco (USA) in 1981. However, within a few years, it faced several logistical problems and had to be closed down.

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Peapod was a major online grocer, launched in 1989 in Illinois. After it suffered huge losses for several years, it was taken over by a Dutch based brick-and-mortar supermarket chain Royal Ahold4 in March 2000. A much acclaimed store, Streamline, also suffered huge losses and had to be closed down in November 2000. Webvan was another online store that was launched with great expectations and ended in a disaster. It was set up in 1999 in the San Francisco Bay area to create an online grocery store, which would be highly automated, serve the entire country and offer a large variety of products. It decided to expand within the country by using expensive high-technology warehouses.

It also used refrigerated trucks and vans to ensure that the food items, which reached the customers, were fresh. However, despite its efficient services, Webvan soon found itself on the verge of bankruptcy.

The drawback of Webvan's e-tailing model was that its investments were much more than its profits, which made it difficult to break-even.

In the year 2000, the company's average daily expense was $1.8 million, nearly four times its average daily sales of $ 489,000. Webvan's decision to close down in July 2001, two years after it was launched, surprised no one.

It announced that it had run out of cash and had hence decided to fire its employees and file for bankruptcy. With this dismal performance, Webvan achieved the distinction of being the biggest flop in the history of online grocery.

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1] Scott Ard, Webvan IPO pushed back once again, news.com, November 3, 1999.

2] David Henry, Online grocers face several tasks, www.usatoday.com, March 30, 2000.

3] Rachel Beck, Home Grocer sold to rival Webvan, seattlepi. newsource.com, June 26, 2000.

4] A close network of food retail and food service companies, which meets the needs of 40 million customers every week, in 27 countries, in four continents. Under their own local brand names the Ahold companies operate approximately 9000 supermarkets, hypermarkets and convenience stores in the U.S., Europe, Latin America and Asia.

 

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