Webvan was an online grocery delivery startup that raised $800 million but failed spectacularly. It expanded too quickly across 26 cities without ensuring efficient operations. High infrastructure costs and low demand led to losses exceeding projections. Webvan's goals of nationwide expansion and 30-minute delivery windows within 5 quarters proved too ambitious given the capital-intensive nature of the grocery business and customer shopping behaviors not being ready to fully transition online.

1. Webvan Case Study
Submitted By:
Ashwin Ramesh
Hardik Doshi
Himani Garg
Punit Biyani

3. What happened here? Why did the
business fail so spectacularly?
 Louis Borders in 1997 wanted to take advantage of
people making purchases online
 Raised approximately $800 million from private
investors and the public via an IPO
 Expected to breakeven in five quarters
 Challenges compared to regular grocery stores :
 Razor thin margins
 Wide product range
 Temperature requirements

4. What happened?
 Invested heavily in inventory forecasting
 Wanted to avoid costs involved in stocking
 Aggressive expansion
 Extra costs incurred by Webvan DCs
 Packing carts with customer orders
 Delivering the ordered items
 Projected annual revenue of $300 million per DC but
all DCs operated at around 25 – 35% capacity
 Bottlenecks include:
 Misaligned totes
 Misread displays
 Incomplete orders

5. Why Business failed?
 Webvan tried to expand too quickly without
maximizing operating efficiency
 Too much money plugged into technology
without working on increasing demand
 Company should have worked on making
existing operations more efficient

6. What was supposed to happen?
 A faster, cheaper & more efficient model of delivering items to
customers.
 Deliver goods within a specified 30 min window.
 DCs will operate at breakeven capacity within five quarters of
being launched.
 Attract audience first and then monetize eyeballs to bring in
additional revenues & do it on a global scale.
 Economies of scale.
 Inventory turnover 24 times annually as compared to 9 to 11
times in traditional supermarkets.

7. On what basis Webvan’s founders and initial investors
hoped for success of their venture??
 No other online grocery store successful at that time and the inability of existing
grocers to offer same day delivery.
 Webvan founders planned to deliver the same day within 30-min delivery
window. This was their Unique Selling Proposition.
 Predicting Growth
 International Data corporation estimated 177 mn web users by end of 2003.
 Consumer purchases of online grocery to increase from 12.4 bn in 1998 to 75 bn
in 2003.
 Most people view grocery shopping as an inconvenient & nearly 55% of
Americans considered time to be their most precious commodity.
 35% of the market would buy groceries on the internet by 2003-04

8. Were Webvan goals too ambitious?
 Webvan entered into agreement with Bechtel to construct 26 expensive
Distribution Centers across the country at a cost of $1B. The money spent on
infrastructure far exceeded sales growth.
 Acquired HomeGrocer.com, though for some analysts it was hard to believe
the success of two weak companies merging up.
 Despite realized losses, Webvan expanded in Atlanta, Sacramento, Chicago,
New Jersey. No focus on minimizing losses and curb spending
 Recruited a Dream team consisted of senior executives from Andersen
Consulting, Yahoo!, Benchmark Capital, Sequioa Capital, etc. of which none
had management experience in e-commerce.
 Emphasized on 30-minute window delivery model; did not consider that
many working customers would prefer their groceries delivered at home at
night.

9. “You don’t build a rocket to go halfway to
Mars”
 Webvan had invested over $1B in expensive DC’s
 Bought software from Optum Inc. and Descartes System.
Also hired 80 software programmers
 Planned to spend up to 200MUSD on advertising
 Over-confident about their plans
 Webvan wished to increase their market share and hence
invested heavily to attain their mission.

10. What could the company have done differently to
increase their chances of success?
 Target fewer related products in a segment at a time instead of all
products in the first go.
 A Step by step approach to grow both organically and
inorganically after evaluating the revenue structure.
 Webvan spent 3 yrs and hired 80 software programmers. It was
not a tried and tested model. Ideally a smaller pilot project should
be developed and taken further if successful.
 Webvan planned to invest $200m which was way higher than
required. Changing advertising structure and channel might help.
 Hire senior executives who have experience in similar domain
 Probably think of relocating the store in a higher population area
 Organize online food festival which will attract customers to their
website

11. Do you think large number of people
will ever buy on internet?
 Yes
 Total US market--$650 billion.
 63 million web users in united states at the end of 1998
were projected to grow to 177 million users by end of 2003.
 Forrester Research projected that 5% of US household
would be buying groceries online in a few years and Jupiter
communications forecast says $3.5 billion.
 55% of Americans considered grocery shopping as an
inconvenience and time as their most precious commodity.
 faster cheaper and more efficient way of delivering items to
consumers.

12. Do you think large number of people
will ever buy on internet?
 Lower price of purchasing—as no building cost and less operating
stores which can be passed on to customers.
 Order frequency.
 30-minute delivery window.
 Convenience of ordering anytime, pay by credit card and schedule
deliveries.
 Busy and high salaried employees would find it extremely useful.
 Door to door delivery.

13. What lessons do you take away from
the Webvan story about the “dot-com
era”?
 Over ambitious goals
 Simultaneous over expansion.
 Due to dot-com era and online groceries has to do with last mile
ecommerce they were able to raise lot of money initially from the
market but failed badly when bubble blast.
 Customers have weekly shopping ingrained in their behavior.
 Mismatch between demand forecast and actual demand.
 Losses kept on increasing due to capital-intensive business plan.
 Failed to meet operating targets at many places quarter on quarter
and it kept on accumulating.
 Decreasing repurchase frequency