WEBVAN CASE STUDY

By Group 1:
Abhishek Shah
Akansha Sanghi
Chetna Singh
Raveesh Malhotra
Ruchita Agarwal
Uphar Gandhi
Vijay Hegde
 COMPANY HISTORY

 Online Retail Company to replace hypermarkets

 Mission” To deliver last mile of e-commerce”
 Capital and technology intensive approach
 One of the best IT infrastructure
 Raised $400mn from IPO, $100mn above the expected
 Large Scale expansion plans
 Initial target of 1999 of spending $6-$9 million annually in
advertising in each city
Q1) Reasons for demise of Web van
 Rapidly disappearing cash reserves
 Aggressive expansion into multiple cities
 Overly complex website
 Too optimistic about people's willingness to ditch traditional grocery
stores in favor of something new and different.
 Lower customer retention and loyalty
 Volume of orders from customers dropped considerably
 Over optimistic demand forecasts
 The automations saved the company only 1% of the total cost of the
goods sold.
 Inability to incorporate changes after learning from competitors
mistakes
Q1) Contd..

 Slowing economy and a business plan that required massive

infrastructure investment and emphasized expansion over
profitability.
 Inability to raise additional funds.
 Unsuccessful in overcoming customer mental blocks towards paying
delivery charges
 Reduced efficiency due to under-utilized capacity
Q2) Basis on which Webvan’s founders and
initial investors hoped for success of their
venture
 The market for retail was expected to grow rapidly and Webvan had
an aim to capture a substantial chunk of this growing market.
 Start with groceries, and then start to retailing all commodities
 No store cost.
 Deliver everything in a cheap and efficient manner.
 Then take it to a global level.
 Expectations of huge customer base
 First of kind and innovative idea, and wanted to start with a bang
Q3) Ambitions of Webvan

 Ambitious Mission: Crack the “last mile” problem of ecommerce

 Over confident CEO who paid less attention to analysts’ opinion on
feasibility of Webvan’s over stretched targets
 Major reliance on customer affinity to online shopping and future
growth in online grocery market despite discouraging market survey
results
 Uncontrolled spending on sophisticated technology based on the
belief that software is the complete solution to handle logistic issue
Q 3) Contd..

 Aggressive expansion of Distribution Centers (DC) across the nation

ignoring the risk of faster expansion compared to consumer demand
 Belief that a new business model would break even within five
quarters of its launch in the market
Q4) What could the company have done
differently to increase their chances of
success?
Webvan was over ambitious. It could have started with a more
realistic and workable business model.

 Offered 15000 items to start requiring a range of temperature

specifications. Could have started with small range.
 Capital & techbologically intensive – very expensive.
 Delivery time – 30 minute window is too small. Could have had
larger window time.
 Free delivery – proved to be costly. Could have charged a lesser
amount.
Q4) Contd..

 Transportation – could have been outsourced to experts.

 DC worked below 40% capacity – better research on demand could
have ensured better utilization.
 Rapid expansion – could have focused more on profit than
expansion.
 Offering other goods like Old Navy – needed to focus on core
business first.
 Acquisition of Home-grocer – extremely different company.
 Two major costs of packaging and delivering should have been
managed efficiently.
Q5) Increase in the number of people
buying grocery online
 Yes the number of people going in for e-grocery is to likely to
increase in times to come

 Technology: Increased technological awareness and internet

access in suburban areas

 Time Starved customers: Increase in working hours, more mobile

customers, change in family structure (single parent household/
Double income household) is a reason for increased number of
online customers

 Convenience: Grocery shopping is stressful for people. They do not

prefer crowding and queuing associated with traditional grocery
shopping
Q5) Contd…

However there are a few challenges

 Price: Certain sector of customers do not prefer to pay the service

charges associated with online shopping.

 Scepticism about online security and privacy

 Quality and variety of Products

Q 6 – Lessons about the dot com era

 Revisit the business plans. Don’t be over ambitious

 Prior work experience in the industry is a necessity to strengthen the
business model
 It is not easy to change people habits. Hence there is a need to
revisit the model
 Ineffective use of capital can make the business to come to a
standstill
THANK YOU