OK - So what went
wrong with Webvan? It's possible that Webvan's failure was probably pre-ordained
from the day it was formed. It had at least three systemic flaws:
High critical
mass threshold.
Webvan's high-tech order-picking centers were so expensive that the company
was upside-down financially from the day the first one was built. The centers
might have performed efficiently at scale, but the company did not survive
long enough to prove it.
Low "route density."
In the Bay Area, at least, Webvan had a hard time managing the number of miles
traveled per delivery. Long bridges, congested roads, and a widely spread
customer base meant delivery costs never came close to their theoretical efficiencies.
Covering the entire local media market (i.e. the "Bay Area") meant some vans
would have to travel an hour or more from the D.C. before returning empty.
Poor understanding
of consumer needs and behavior.
Penetration projections assumed that customers would be won over by their
initial Webvan experience and that they would thereafter purchase most of
their grocery needs online. In fact, consumers warmed slowly to the service,
and many used them only for occasional stock-up shopping. Users were enthusiastic,
but they didn't stop using conventional supermarkets too.
Although some
in the investment community will attempt to tar the entire sector with the Webvan
brush, its spectacular failure does not constitute proof that online grocery
shopping is impossible. It is however, evidence that stand-alone online grocery
retailers cannot succeed without brick & mortar partners. Peapod/Ahold, Groceryworks/Safeway,
Tesco (UK), and the host of independent and small chain grocers using IDS and
Peachtree services in the U.S. and Canada stand as proof that a bricks-plus-clicks
strategy can be compelling to consumers seeking a home pantry management solution.
About the
Author Author and consultant James Tenser is principal of VSN Strategies, Norwalk,
CT. He has been a close observer of retailing, brand marketing, and technology
issues for two decades. In the past five years his focus has been on multichannel
retailing and e-business strategy. He is a steady contributor to several retail
industry periodicals (including where it's @) and is frequently quoted in the
business press and mainstream media. His latest book, "Tenser's Tirades: Essays
on the Dot-com Retail Phenomenon 1996 - 2001" will be available at http://vstorenews.com
after Aug. 1. Tenser may be reached at jtenser@vstorenews.com,
or 203-847-1115.
This article
was taken from "where it's @ The NewsLetter for MultiChannel Retailers"
available at www.MultiChannelRetailing.com.
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