Bahria University

BBA
Genesis of Idea
Founder Louis Border, founder of bookseller The
Borders Group Inc.
Incorporated Intelligent Systems for Retail in Dec 1996,
named it Webvan Group in April 1999.
Mission
To deliver the last mile of e-commerce.
Last mile referred to make gilded pathway into the
American consumers hearts and homes that everyone
including Amazon.com to Wal-Mart to FedEx lusts after.
Webvan planned to begin with groceries and has
expanded its business to other items including
electronics and books etc.
From 1997 to May 1999, focused developing web
stores and constructed its first distribution and
fulfillment centre in San Francisco.
In May 1999 started grocery delivery service to 1,100
people.
As a venture web store launched in June 1999 to
deliver everything from groceries to palm pilots.
A cornucopia of opportunity, migration of consumer
purchases to internet and cracking the last mile
problem.

Management Team
Louis Border, first Chairman and CEO. September
1999, George Shaheen former CEO of Andersen was
recruited.

Senior executives from Goldman Sachs & Co.,
Oracle Corporation, Federal Express, American
Stores Company, Marriott International, and
General Electric.

Webvans Board includes David Beirne managing
member Bench Mark, Christos Cotsakos CEO and
Chairman of the Board for E*Trade. Tim Koogle CEO
Yahoo! Inc., Michael Mortiz general partner at
Sequioa Capital.



Deliver dry & perishable goods to consumers at
competitive prices
Offerings included: fresh produce, premium meats, fresh
seafood, prepared meals, bakery items, non-perishable
items, wines, cigars, non-prescription drugs
Deliver goods within a specified 30-minute window- USP
Orders can be placed anytime; payment by credit card
ORIGINAL BUSINESS MODEL
No membership fees
Free delivery for orders over $50; small orders
with $4.95 surcharge
Planned for aggressive expansion
Expected to attract customers with convenience
& service than discounts
Challenges compared to regular grocery stores:
Razor thin margins of 1% to 1.5%
Wide product range
Temperature requirement
Motivating customers to shop online was very
difficult due to following reasons:
Unwillingness to pay delivery charges
Demanded high service standards
Firm behavior of going to grocery stores on weekly
basis
Target customers: mothers in urban; two-income
families; little spare time





Warehousing:
Capital & technology intensive approach
Automated central DC (carry 50,000 items & process
8000 orders a day) & computerized scheduling software
First DC in Oakland: 330,000 sqft warehouse
Could serve as many people as 18 regular supermarkets
Contained cooking facilities
Multiple temperature zones to store items (such as
wines, cigars & icecreams)
41 carousels



Storage capacity: 107,000 locations
Contained 5 miles of conveyor belts
Goods received at the DC were broken down from cases to
single items transferred to trays
Each tray carried a unique bar code license plate (used to
track all movements)
Product barcodes were scanned by workers
Order Management:
Customers place order online specified a delivery time
information conveyed to DC appropriate quantities of
colored totes assign to orders




Yellow totes- dry groceries
Green totes- chilled products
Blue totes- frozen goods
Each tote could be
tracked as it was given a
barcode license plate
Software would then
design the optimal
picking plan
Picking Plan based on the
biggest items came first
so that delicate items
would not be crushed
Pickers stand at the pods
responsible for
assembling orders tote
came to a pod
carousels move into
position within the reach
of the picker
Light tree display next to carousels bins indicates the
picker which ordered items to pick
Sort bar indicates which item to put into which tote
Items placed picker hit a button to confirm
Webvan was very much protective about carousels
technology
Everyone was not impressed with the technology
Extra costs incurred by Webvan DCs
Invested heavily in automation- carousels & conveyors
Orders were loaded into dollies that could be wheeled onto
trucks (ambient, chilled & frozen compartments)
Totes transported to manned depots (10-12) individual
orders were put on delivery vans (total 60 vans) couriers
(van drivers) take goods to the customers home & unpacked
the totes
Wireless handheld device was used for printing receipt & an
itemized list of order
The mobile device also gave access to customers back orders
On a delay, customers would be refunded $3, and given the
option to reschedule delivery


To create proprietary system the Webvan group spend three
years and hired 80 software programmers.

The system would be aware of the location of every stock
keeping unit or SKU

Company invested heavily on inventory forecasting.

Optum Inc. warehouse management system supported the
entire operation.

The design and complexity of Webvans system was
however, something Optum had dealt with before and the
project pushed the company to expand.

Webvan used Descartes Systems software to optimize
delivery routes.

The company established relationship with
wholesalers and suppliers for stocking its
warehouse.

Webvan noted the lower costs to suppliers who
no longer had to come as often to replenish
products.
Anticipation and actual demand were the
combination for Purchases.

The information of consumer choice was provided
to suppliers by the company.



Webvan marketed in a way that its prices 5% lower than
conventional grocery.

Webvan planned to increase spending substantially on its
radio and newspaper.

The company announced that it planned to spend $6 to $9
million annually in advertising in each city.

Economic of scale was able to achieve by
national layout by the Webvan group.

To construct DCs across the country, the
company entered into an agreement with
Bechtel group.

A conventional supermarkets were
constrained by the number of item it could
offer customers.

Sales improved steadily but losses remained at a high rate given
the companys capital intensive business plan and for the
expansion plan it had signed an additional set of leases.
EARLY PERFORMANCE IN THE SAN FRANCISCO AREA- The
Webvan chose San Francisco for its debut, citing residents food
and Web savvy.
To address the problem of delivery time, at early stage, Webvan
intended to guarantee repeat customers the same delivery slot
week after week.
As the company has extended its distribution operations at its
Oakland DC from 5 days to 7 days a week but still it was
operating at a less than 35% capacity and had posted a loss of
$38.7 million for the quarter.
EXPANSION- The company had opened its second DC in
Suwannee, Atlanta, since it is second to San Francisco on
internet shopping, household income and population
which climbs to 2000 orders a day, extended delivery
hours and continues advertising.
Hurdles faced by company in Atlanta were its vans had to
be outfitted with GPS, it product mix was tailored to the
region and had to develop relationship with local
suppliers.
The company then using Oakland DC to service the
Sacramento market, saving costs of building an
additional DC.


Goods were transported through large vans and hence
increases the customer base as well as the companys
revenue and gross margin.
Then Webvan entered the Chicago market from its third
DC in Carol Stream, which increases the sales as well as
the marketing expenses as it expanded in to other
markets.
According to its rollout plans, Webvan intended to enter in
The Northeast; Baltimore and New jersey but since the
changes in capital markets had eliminated the possibility
of procuring additional financing, it would indefinitely
postpone the launch of its new DCs.

HOMEGROSER ACQUISITION- In June 2000, Webvan entered a deal to acquire
HomeGrocer.com, a competitor online grocer after which the company had been
able to enter many markets quickly at lower costs.
This merger has given greater negotiating power with manufacturers on the cost of
goods and also resulted in lower inventory investment with greater variety of
products.
In the latter half of 2000 Webvan focused on creating a single brand identity ,
unveiled a new logo and worked on the transition to a single common technology
platform.
It also worked on converting the companys customer fulfillment centre in Irvine to
a cross-docking operation in the hope of increasing profitability in Los Angeles
markets, where Webvan was converting 4 HomeGrocer distribution centers to 2
Webvan DCs.
The company hoped to double the number of orders (approx 2000 for single shift)
and shorten delivery window.

LATER PERFORMANCE IN THE SAN FRANCISCO AREA- At the
end of the third quarter of 2000 company is unable to meet
breakeven (3300 to 3500 orders per day), due to low demand
and operations results in $23 million in revenue at $ 105 per
order company is operating at less than 30% capacity.
Company should increase the capacity up to 42.5% to attain
target of $30 million for breakeven.
Company faced insufficient delivery personnel and
fluctuating demand.
Till the end of six quarter company is operating at less than
30% capacity but customer order size increases and company
revised its estimates for breakeven (2900 to 3000 a day).


Growth projection and revisited
Heavy equipment slated warehouses because soil
couldnt support weight. non-acceptance of
coupons resulting in 20%shoppers cut back
It was evident that high population density and
penetration is key for viable operation, thus
leaving many regions as unviable.
Sales density might not be provided by home
delivery volume.
With 120,000 household in 60 miles of DCs and
estimation of 20% of those connected to internet
gave Webvan only 25 markets for expansion
Economies of delivery could be resulted by large
number of deliveries
Increase in order size ($91-$112) is observed and
focus on non grocery items is more
Webvan@work served businesses, business
supplies were delivered and catering for business
meetings and workers.
Marketing was to support brand name and its
services. In 2000 a TV ad was made to highlight
benefits by delivery out of dot-com.
Their major target market was families with
school going children and later businesses
became a prominent sector as well.
Target audience were attracted by an internet
fundraiser for schools, loyalty programs, online
and on the street coupons, tell-a-friend schemes


Marketing partnership with:
Old navy, In five week promotion 4
th
of July 2000 T-shits, tote bags
and hats were delivered to customers doorsteps
Pillsbury and Kellogg, this allowed webvan to cut cost in supply
chain and merchandisers to connect with customers
A 28% cutback in marketing resulted in 8% fall in total orders,
increased cost of acquiring customers to$166 and loss of
customer satisfaction.
60-minute delivery window (more deliveries in one 60-minute
rather two 30-minute windows) and free delivery bar raised to
$75 from $50.
Pet store was launched, eve.com products were delivered and
some manufacturers were category captain, to optimize supply
chain and marketing.


Webvan needed to increase repeat purchase
and maintain order size to survive with very
few of its DCs were near break-even wile
other far away.
They were presented with options to
shutdown DC with insufficient demands,
marketing initiative and serious cost cutting.
They chose latter.
Webvan closed on 9
th
July, reasons being
unwilling investors, falling shares and
inability to raise $25 million that it sought