Although its trucks remained a common fixture on their evening and Sunday morning rounds and it tried valiantly to hang on, Webvan Group Inc. gave it up in July. And by the time it got around to disposing of its assets a month later, it broke the bad news to investors: Creditors will get a few pennies, investors will get nothing.
Hard on the news of Webvan, HomeRuns.com, a grocery delivery service that started in Boston and was expanding into Washington, D.C., struck out, saying it had run out of money.
What the two had in common, besides failing, was that they served customers from a centralized warehouse. And if there’s one thing that online grocers are learning from this debacle, it’s that the store pick model-the original model that Peapod built on-may be the one that succeeds.
Webvan filed for Chapter 11 bankruptcy on July 9 and was selling its assets, including delivery trucks and technology platforms, in August. The company said it did not expect to have any funds available to distribute to stockholders.
Webvan halted operations in Chicago, Los Angeles, Orange County, CA, Portland, OR, San Francisco, San Diego and Seattle, and fired 2,000 employees. Weeks earlier, it had tried pitching customers in an e-mail campaign to increase their order size, then hovering at an average $114, in an effort to gain profitability. The company also made changes in its delivery fees to encourage larger orders.
But declines in order volume during the second quarter ended June 30, says CEO Robert Swan, further accelerated Webvan’s need for capital. “We’ve made the difficult decision to end all operations effective immediately and to wind down the company’s operations and sell our assets in an orderly manner, rather than continuing to operate with high losses and decreasing cash,” Swan said in a statement.
HomeRuns.com, which had been on the web since 1996, ceased operations in mid-July, a week after Webvan went down. The company said it was unable to raise needed capital to underwrite expansion plans. It started operations as a part of Hannaford Bros. Co. supermarkets then spun off into a separate operation. Late last year it began expanding into Washington, D.C.
Analysts say the online model needs to be set up to make money on each delivery. “The big question is: Will the big grocery stores be able to get enough people to sign up for regular deliveries to make them economic to do?” says Duif Calvin, vice president in the global retail practice at iXL Enterprises. Many market participants and observers say the decentralized model for delivering groceries is likely to be the winner for the category because it streamlines operations.
Meanwhile, other online grocers, such as Peapod by Giant and Albertsons.com, have seen a surge in demand following Webvan’s demise. Albertsons.com had a 300% increase in web orders the week Webvan shut down, the company says. As a result, Albertsons.com plans to expand its Seattle area presence by adding two fulfillment stores to its “store-pick” offering. It says it stands ready to expand to other stores if growth in demand continues. Peapod by Giant announced plans to expand in the Washington D.C. area as a result of increased customer demand due to the closure of HomeRuns.
Lisa Kent, president of NetGrocer.com, a North Brunswick, N.J.-based online grocer that delivers only non-perishable grocery items via FedEx to customers all over the country, says the company is working out a deal with Webvan in which NetGrocer can market its services to former Webvan customers. Kent says the two companies have not finalized details.