WEBVAN

Webvan was considered as top 2nd financed online retailer failed to meet a bid price $1 for 30
sequential days resulted in filing for chapter 11 bankruptcy protection and termination of
2000 employees.

Webvans delivery service loved by its customers.

In the last quarter of year 2000 the company gained a gross margin of 27%.

Earlier in 2001, the Webvan Group had a cash of $212 million and comparatively high cash
burn rate.

Webvan then planned to make a strategy to fulfill the need of existing customers by cutting
marketing costs.

BUSINESS FORMATION
Idea Origination

Border (Founder of Bookseller, The Border Group Inc.,) desired to gain benefit of online
retailing which offer diversified products than physical stores that provide customers with
fast and efficient delivery of goods.

He firstly formed Intelligent Systems for Retail in December 1996 and in April 1999 the name
changed to Webvan Group.

The mission of Webvan was to deliver goods from distributors directly to customers home.

Initially they were offering groceries and later on they add consumer electronics and books to
increase their revenue afterwards, they develop web store.

Organizing Group

Borders-1st chairman and CEO

George Shaheen-CEO of Andersen Consulting
Senior Executives from companies-Goldman Saches & Co., Oracle Corporation, Federal
Express, American Stores Co., Marriott International and General Electic.
Board Members-David Beirne (Benchmark Capital), Christos Cotsakos (E-Trade), Tim Koogle
(Yahoo Inc.) and Michael Mortiz (Sequio Capital).

Financing

Webvan Group raised funds of $400 million from CBS Inc., Knight-Ridder Co., Softbank Co. of
Japan, Benchmark Capital (First to finance Webvan) and Sequoia Capital and $300 from IPO
(Initial Public Offering).
Initially, the share price of Webvan was $15 and then increased to $34 after that decreased
to $25.

MARKET GROWTH
The online purchases of was anticipated to increase over the years, with
emphasis on grocery shopping.
Webvan wanted to avail this chance of getting the market share.
They noted the fixed cost and limit of goods holdings were weaknesses in
traditional store.

INNOVATIVE BUSINESS MODEL

Webvan Group delivered dry and perishable items to customers at low
prices and in 30 minutes.
There was no membership need, orders can be placed any time and
payment by credit card.
Due to thin profit margins grocery category was proving to be difficult.
Target customers were females of two income families.
It was noted that time management was central to customers and grocery
shopping was tedious task.

 There approach was capital and technological intensive.

At distribution centers every distinct unit a bar code was allotted so that
It could be tracked easily.
Yellow totes for dry items, green for chilled and blue for frozen.
Pickers assembled the orders from rotating carousels when an order was
completed next item appeared.
Some people claimed that automation has not really benefited the
company.
After packing orders were divided for delivery route and loaded on
trucks. The individual orders were put on delivery vans and each driver
did not travel more than 10 miles.
At customers home the totes were unpacked and with a hand held
device receipt is printed.

DELIVERY
The Webvan Group made lot of efforts on software development and spend $15
million in 1999.
The system is alert with the location and SKU at any distribution center (DC).
The company also invested in inventory forecasting contains expiration dates and
change in demand on daily basis.
Webvan purchased goods from 10 distributors and directly from 160 vendors. It
linked suppliers with their system to ensure delivery without delay.
Webvan used cross docking facilities to send products directly to customers.

GROWTH AND EFFICIENCY

The Webvan planned to build 26 DCS across the country and its cost is $1 billion.
Each DC has stock of 50,000 items. They require 900 employees and have highly
automated warehouses which increase their efficiency than other conventional
supermarket.
Webvan advertised that their prices are 5% less than conventional grocery store.

Changes and performances over times

Initially webvan present in the San Francisco Bay Area in June 1999
Sales of the company improved gradually.
By the third section of 1999 the company had expanded to serve the Washington
D.C, Dallas, Chicago and Seattle markets.
By the end of 1999 it had contracted to serve Denver, northern New Jersey,
Philadelphia, New York City, Boston, Orange Country and Baltimore.
Comparison between HomeGrocer and Webvan
Homegrocer is labour intensive company while webvan is capital intensive company
Homegrocer is less automated then the webvan
Homegrocer had small warehouse then the webvan
Homegrocers customer fulfillment center cost was about $8milion while webvan
had $35million
HomoGrocer and Webvan merger advantages
It would increase webvans customer then they initially planned
Lower inventory investment
Offering greater variety of product
Better negotiating control with manufacures on the cost of the good.
After merger the webvans share price stood at$3.75

Changes to business model

Company launched a new service called Webvan@Work in 2000.

Company understood the delivery options were going smoothly throughout the
time except in the middle of the day.
The company thought to offer small to mid sized businesses delivery of basic office
supplies, cleaning materials, snakes and beverages, stamps, fresh flowers and firstaid goods.
They also planned to offer supplying food for employees meal and business
meetings.
Marketing: company initiated the first television ad in 2000
The ads aim was to make a different image of the company and focus on the
advantages provided by the delivery service.
They initiated School Pop which was an internet fundraiser for schools in first
quarter of 2000.
In second quarter of 2000 they initiated a program called Tell a friend referral
program in which they gives rewards to the customers who introduced the
company to their friends
Company started many marketing partnerships.
They topped in online grocers in customer statisfaction

Delivery Charges and delivery window: they announced to deliver in 60 minutes

for the 10 markets they serve in.
Company raised the minimum order size from $50 to $75 to increase the order
size.
Strategic alliances: for the status of beauty products the company started the
partnership with eve.com
The company started bogus strategic alliance with 11 consumer good companies.
In 2001 they announced the strategic alliance with PetsMART.com

CONCLUSION

In early 2001 the investors became rare any companys stock traded in less than a
dollar.
The company became unsuccessful to be at break-even at Oakland DC.
When there was no optimism to return in the capital market, company announced
plans to severely restrain spending on new initiatives and tried to reserve its
diminishing cash reserves.
Some people thought that rather than save all its cash the company should start
advertising campaign to attract new and existing customers while other thought
that company should shut down all its processes in market with inadequate
demand.
The companys fortune was predicted by Louis Borders that either it will be a $10
billion company or zero.