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Webvan 3.0?

On Google+, Chris Pirillo asked the question:

What are your tech predictions for the year 2021? Yes – over the next ten years.

Tad Donaghe took a crack at answering the question, and offered a number of future predictions, including predictions about the acceptance of driverless cars. (Did I mention that these conversations were taking place on Google+?)

But one of Tad’s other predictions intrigued me.

Most physical grocery stores will begin to go away as most consumers will prefer to receive deliveries by robotic delivery services – think UPS vans that pull up to your house full of the groceries you didn’t have to shop for. You’ll bring them in the house.

At first glance, it seems like a fairly strong prediction. After all, several years ago we thought that Amazon would never take off, and that people would insist on going to a real bookstore like Borders and looking at and buying real books. Now Borders is history and Amazon sells Kindles. So if such a sea change occurred in the book world, why can’t I buy Hamburger Helper and cereal online?

However, whenever one talks about online grocery stores, we have to remember that we went down this path before, in the initial dot.com boom.

By 2001, the biggest player in the online grocery market space, Webvan, was bankrupt:

On Monday, the Foster City, California, company said that it closed all operations and filed for Chapter 11 bankruptcy protection. In the announcement, which came just a year and a half after Webvan’s remarkably successful IPO, the company said it has no plans to re-open.

The cause? Rapidly disappearing cash reserves.

But why did Webvan have rapidly disappearing cash reserves? Unlike some other companies from that era that I won’t name right now, fraud wasn’t the issue.

Webvan’s problems never really had much to do with its customers. It was the lack of customers that was the trouble.

Back in those days of 2001, the Wired article quoted analyst Ken Cassar’s statement that Webvan “may well have been 10 or 20 years ahead of its time.”

Is now the time? Personally, I’m skeptical, as I noted in Tad’s Google+ thread.

I’ll grant that packaged foods easily lend themselves to online purchasing, but I think the jury’s still out on things like fresh food and vegetables. And I’d personally even be leery of buying frozen or refrigerated foods from an online service – how long has the delivery van been driving around before it gets to your door?

But, as I acknowledged in the thread, I could be wrong.

Would you buy from an online grocery store? Do you buy from an online grocery store today, such as safeway.com or its southern California equivalent, vons.com?

Or perhaps you’d want to get your groceries from the Nigerian equivalent, BuyCommonThings.com.

Hmm, Tad may be right on this one.

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5 thoughts on “Webvan 3.0?

  1. So, I forgot to follow up with your original comment, but I just read your post and thought I’d comment now.

    I think one of the leading causes of failures of previous grocery delivery systems has been the high cost and pain of delivery using human drivers.

    The next time it’s attempted it will be based on robotic, self-driven cars. This will completely eliminate the human labor costs involved as well as human error (there weren’t many car-based GPS systems back the last time grocery delivery was tried).

    With a robotic delivery fleet:

    No human labor costs
    No tired drivers – robotic cars can deliver however many times are needed all day long without complaint
    No lost drivers – robotic cars will know exactly where to go and the most energy efficient way to get there
    Delivery companies will probably need fewer vehicles since there won’t be as much downtime per vehicle.

    Basically the cost should be significantly lower, making the cost to consumers lower as well.

    I agree with you about produce, but I don’t think that will be a major hurdle to jump.

  2. Tad has subsequently provided additional thoughts on my Google+ thread. Here are some of them:

    “I think one of the leading causes of failures of previous grocery delivery systems has been the high cost and pain of delivery using human drivers.

    The next time it’s attempted it will be based on robotic, self-driven cars. This will completely eliminate the human labor costs involved as well as human error (there weren’t many car-based GPS systems back the last time grocery delivery was tried).”

    Tad’s full comment can be found in the thread at the https://plus.google.com/u/0/108631503120169701251/posts/Mn17ujw8Eup#108631503120169701251/posts/Mn17ujw8Eup URL.

  3. Hello Tad,

    In taking the plunge to start BuyCommonThings.com, I and my co-founder took a long time to study a lot of cases of online grocery delivery businesses in the US and Europe, and Webvan is of course the poster boy of failed online grocery delivery business. We studied about 4 different business case studies on Webvan alone. There is ample research work also available from the Scandinavian countries.

    Several things emerged from our study that ran through consistently on why some failed and several worked. We consequently evolved a business model that leverages all these issues in a profitable way that delivers value to all stakeholders. To test these, we first did an extensive market survey that allowed us to gain insight into how our potential customers think about online grocery buying and the key factors that would influence their buying decision. These largely confirmed what we had previously deduced from our research of the online grocery business in general. Consequently, we started a pilot program to validate these insights. We ran the pilot for 3 months after which we decided to take the full plunge by launching a full commercial service on 6th of October 2012.

    What are the factors we have observed will cause one to succeed at this or not, especially when you use Webvan as the back-drop for this:
    1.) Customers: you want customers that will spend significantly every month but only require you to do very few deliveries for that monthly spend. We took this into consideration in the areas we have chosen to serve by choosing areas where these types of customers are densely populated. From our financial projections, we only need to take 4% of the market we are targeting to be profitable: we plan on securing 20% share in 3 years.
    2.) Growth: growth can be a bad thing as well as a good thing. It is good when the growth is on account of sales from the type of customers I have described in 1 above. It is bad when it is from those that buy small values but buy multiple times in a month requiring many deliveries to make the same sales figure as you have for the ideal customer. (Several people have written to beg us to deliver outside of our earmarked areas: we have been very polite and disciplined in refusing to do so—for now.) The address verification system [AVS] we have has greatly assisted in not allowing these type of potential customers to be able to register for our service.
    3.) Costs: the three killer costs for the online grocery business are the picking-and-packing cost, delivery operations cost and fixed overhead costs. We actually did about 50% of the operations cost we projected for the first month. (Overhead costs are very low: we sit on prefabricated plastic chairs; we use ceiling fans instead of Air Conditioners; we have an associate system not a specialist system for staffing, etc, etc. These don’t make a difference to our customers as they are blind to them but it makes a whole lot of difference to our business.)

    The results we have had in the one month or so of commercial operations convince us that we may have indeed figured this out. For example, we exceeded our revenue projections for this first month by about 24%; the rate at which new customers are signing on is also encouraging and we are already set to exceed revenue projections for the second month as well. Plus we exceeded our margin projections by over 80%. In as much as we agree that one/two months data may be too early to get excited about, one key element of the buying pattern we have observed from our early customers is what excites us—the level of repeat business. Over 90% of the customers that have signed up with us re-ordered with us on average about 2 times in the month of October; average order amount per customer for the month was about 220% of the minimum order amount we set; about 40% of them spent over 300% of what we had projected would be the monthly spend of the customers we acquire but the sweetest thing about this is that these orders were made just about twice in the month. Two customers actually each spent about N80,000 (US$565) in this first month!

    Now can online grocery business be a $billion business? Emphatically, yes. But it won’t be over the space of time the Webvan guys projected it would be, and certainly not with the high level of upfront investment in elaborate picking-and-packing and delivery systems as they did, the same issues we think Ocado in the UK is facing. We believe, in this online grocery business, the only way to succeed is for cost to be chasing revenue and not the other way round. We have evolved a business model that allows us to do that. Time will tell if we indeed have figured this out.

    Now on the issue of robots doing grocery delivery, please exclude Nigeria out of that: we are still a long, long way away from it! Finally, we don’t see physical grocery store going out of fashion in the future: our market survey showed some people will ALWAYS visit a physical store. You can’t win them all.

  4. Pingback: How Google’s cars promote music…and future competitors… « tymshft

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