1. Marzieh Chapardar Nahid Karimaghalou
Webvan Webvan will go down in history either as the next Federal Express or as one of the biggest failed infrastructure bets in history
Marzieh Chapardar
Nahid Karimaghalou

2. Introduction
Founded By Louis Borders
A full service online grocery retailer
Activity
Internet Grocery + home delivery
Launched operations in the San Francisco Bay Area in June 1999
Vast infrastructure

3. Introduction cont. Expanding aggressively
Network growth 10,000 consumer in 5months (Compared to 100,000 of Peapod in 10 years)
330,000 square foot warehouses to effectively store and deliver merchandise to customers
Half capitalization of grocery industry leaders
Safeway Inc.
Kroger Co.

4. Borders Background Revolutionizing book industry
Inventory management system
Customer service
More efficient and cheaper ways of delivery in online grocery

5. Webvan’s Business Model
Differentiation strategy
Consisted of creating a sophisticated and highly automated information systems centered around warehouses
Target Market:
The new technologist
The time starved shopper
The price insensitive shopper

6. Webvan’s Challenges GBF strategy High start-up costs
Targeted technologies consumers
Marketing budget
Market share

7. Webvan's Strategy GBF (Grow Big Fast) Aggressive expansion
“In the internet economy first-to-scale counted more than first-to-market “
Aggressive expansion
Based the strategy used by Jeff Bezos of Amazon
Face their rivals head on
Incur costs now for future profit

8. High Startup Costs Building brand recognition
Large infrastructure consisting of large warehouses
Government regulations
Costly technology equipment

9. Initial Costs Hired 80 programmers
At its peak performance Webvan could handle orders a day
Attended or Unattended Delivery service
Provided the customers with 50,000 products to choose from
Much more than the traditional grocery store with 30,000 items

10. Initial Costs cont.
High operational costs and low initial grocery sales
amounted to a loss of $35 million
Average grocery order in September was $71
Much less than the expected value of $101 needed to produce annual targeted revenues per distribution center of $300 million
Predicted sales for 2001 were $518 million, but an overall loss of $302 million

11. How Webvan Burnt 1.2 B$
Borders raised $125 million in initial funding and convinced investors to invest $275 million more. (Total of $400 Million Dollars)
They built approximately 26 distribution centers that costs $35 million dollars each (A total of $910 Million Dollars)

12. Targeted Consumer Traditional consumer New Technologist:
Technological nature of customer
Customer must be technology-oriented and very knowledgeable with the internet
Very limited
Traditional consumer

13. Name Recognition No one really know who you are
Marketing takes a big chunk of biz budget
Webvan marketing costs were estimated to be 30% of sales

14. Market Share Market at best was a niche market Margins were razor thin
Online grocery sales less than 1% of the entire grocery market
Online grocery customers were less than 1% of the entire online customers

15. Distribution Centers
Distribution centers contained 4.5 miles of conveyor belts
Temperature sensitive rooms
Each center had the ability to serve as 20 normal supermarkets

16. Order Fulfillment Process
Orders were placed on the web
They were automatically routed to the warehouse
Pickers were stationed throughout the distribution center to assemble the orders in plastic boxes or totes
They were color-coded depending if the items were refrigerated, frozen, or dry
Pickers traveled no more than 19.5 feet in any direction to reach 8000 bins of goods in rotating carousels

17. Order Fulfillment Process Cont.
Totes were transported throughout the facility by a conveyor belt until loading onto refrigerated trucks
Trucks took the orders to one of 12 docking stations
Orders were loaded to one of more than 60 vans
Drivers took the orders directly to people’s homes
None of the vans traveled more than 10 miles in any direction
The route was mapped out by a system optimizing travel time

18. Webvan’s Fall
July 9, 2001 Webvan ceased operations and filed for chapter 11 protection
Burned though $1.2 billion of investor capital, making it one of the most spectacular dotcom failures on record
Since then the company has liquidated its assets
Chapter11: The Chapter in the Bankruptcy Code generally permitting a business entity to file for reorganization proceedings and enter into a court ordered repayment plan while still maintaining the ability to continue running the business

19. Reasons of failure
“Webvan was so behemoth that could deliver anything to anyone anywhere that it lost sight of a more mundane task: pleasing grocery customers day after day”.
“The world’s market at your doorstep.”
Short to midterm cash mismanagement. Venture capital of $1.2 B run out.
Webvan started a merger with HomeGrocer in Sept 2000
Merger costs: duplicated work force, integration of technology, realignment of facilities.
Company was too aggressive about expansion into multiple cities, combined with an overly complex website.

20. Webvan vs. Amazon Amazon tried something similar and succeeded
Webvan was trying to emulate Amazon
Amazon only built infrastructure when forced to
Amazon used existing sales to help pay for infrastructure
Delivery of books is much easier than groceries
Customers are much less upset about delays

21. Webvan vs. Tesco
Tesco focused on low costs contrary to Webvan’s differentiation strategy
Tesco used existing stores and distribution chain
Tesco already had a strong brand
Tesco already had low costs
Tesco’s customer base growth was slow
Tesco was profitable!

22. Thanks for your attention