No Support: WEBVAN did not have any brick & mortar business to support, instead it developed its distribution centre from where it supplied to the customers.

Ambitious Plans Without Any Ground Work: WEBVAN went on an expansion ride without even looking at the feasibility of the business model. The plans were really ambitious involving expense of multi-billion dollars in setting-up infrastructure.

Ignorance to Availability of Internet: Even though WEBVAN made a point to set-up its business in town with higher broad-band penetration, but still it over-estimated the potential of online shopping in those days.

Huge Investment in Automation: WEBVAN spent a fortune in automating its distribution centers. They were equipped with conveyor belts on which merchandising used to travel to reach to the picker trucks. It used refrigerator trucks to keep vegetables fresh. WEBVAN missed on the fact that for sustaining such kind of investment, it would need huge customer base from the very beginning.

Misfit Collaboration: In less then one year, WEBVAN decided to take-over one of its arch rivals, HomeGrocer. HomeGrocer's and WEBVAN's businesses were running on entirely different business strategies. WEBVAN's distribution centres were very high-tech and automated whereas in HomeGrocer distribution centre operations were manual.

Everything Can Not Be Automated: Automation in WEBVAN's distribution centres was common for all the items, and their was no way it could be customized for separate merchandising, specially for food items which were soft and came in delicate packaging.

WEBVAN went bankrupt by July 2001; over-ambition and high reliability on a niche segment caused closing down of WEBVAN.

Learnings

Looking over TESCO and WEBVAN (and some other entailing ventures), we can have some key points about this business: -

Brick & Mortar Support: It is very difficult for an online grocer to continue without support of a brick & mortar business. TESCO, Wal Mart, Fabmart used online as a strategy for market development, and became successful. Like WEBVAN, Peapod also tried to be an onlibe grocer by simply collaborating with various super-stores but after running into losses for long time, it decided to build its own warehouses.

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* Contributed by: -
Saurabh Shukla is II Year Student of PGDSM-MIT (Batch 2007-09) at S. P. Jain Institute of Management & Research, Mumbai. Had previously worked at Infosys Technologies Ltd. for 3.5 Years.
Article posted on January 25, 2009.