Webvan Case Study 1

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Webvan: Groceries on the Internet

E-commerce MGNT 671

February 22, 2000

Ben Neely

Brad Smith

Sharon Winemiller

Background and Problem Statement –

Webvan was started in 1996 by Louis Borders and was established to sell groceries over the World Wide Web. George Shaheen resigned as CEO of Anderson Consulting to take advantage of the opportunity to become CEO of Webvan. Webvan, which originated as an online grocery service, delivers food (including its BestYet label, a co-brand with food distributor Fleming Companies) and non-prescription drugs to their customers' doors. Webvan’s vision was to provide grocery-shopping solutions that would save consumers both time and effort, without sacrificing the quality, selection, and low prices of traditional brick-and-mortar stores.

Operations from December 1996 through June 1999 were focused on the activities of raising capital, recruiting and training employees, developing their business strategy, designing a business system to implement their strategy, constructing and equipping their first distribution center and developing relationships with vendors. Although these activities have continued and still remain important, Webvan has changed its focus to building sales momentum, establishing additional vendor relationships, promoting their brand name, enhancing their distribution, delivery and customer service operations, and construction of additional distribution centers.

The company’s main operational problem is being able to maintain their goals of competitive pricing, time and effort saving, and providing good quality, while becoming operationally profitable.

Description of Industry including its growth, number of firms, and major players

Webvan’s business strategy positions the company within the home-shopping/retailing industry. The home-shopping industry for groceries has been around since 1990 with the industry originating with phone and catalog ordering. At the conception of the company, the organization focused on selling groceries by using the Internet medium and the World Wide Web (WWW). The online grocery business is in the beginning phases of its growth stage. The number of individuals that are acquiring access to the Internet is increasing wildly and the consumers that are already familiar with the Internet are becoming increasingly more comfortable with transacting orders via their computer terminal. This can also be seen in the fact that the number of related and competing organizations is growing. This shows that there is still profit potential, which is drawing new organizations into the industry. The growth of the industry can also be seen by the plans of the existing companies to implement expansion projects. In May 2000, at the time of the Harvard Business School case presentation, the company’s direct perceived competitors were Peapod, Streamline, NetGrocer, HomeRuns, HomeGrocer, and Albertson’s. Indirectly, Webvan’s competitors include all traditional food stores, warehouse clubs, and mega-food stores, such as Kroger, Sams Club, and Walmart Supercenters.

Analysis of Porter’s Five Competitive Forces

For an organization to be able to determine how competitive their company will be and how strong their competitive advantage is, they must first perform a simple comparison using Michael Porters five competitive forces. The five forces that pertain to Webvan are identified below.

• Threat of substitutions – Consumers have a lot of alternate choices to complete their grocery and non-prescription drug shopping needs. This indicates that Webvan does not have free reign over the prices and delivery options that they provide. If the company does not maintain its competitive edge, the consumers have other options for shopping. • Threat of rivalry – Since the online grocers segment is small there is not a great deal of rivalry. None of the competition is strongly positioned to be a great threat to Webvan’s...
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