Time is of the essence for Californian grocery delivery company, Webvan.com. The Nasdaq Stock Market has given the group 90 days to get its share price above US$1 before it is delisted and, at its current rate of cash consumption, Webvan has six months before the money dries up. The race to find more big-budget and frequent online customers is on in earnest.
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Webvan’s investors have not entirely lost hope. In relation to its bricks and mortar sector rivals, the company’s gross margins compare well. It also sells more high-profit foods, such as organics, than others and does not suffer the same losses through food spoilage, because it has a day to prepare each order.
COO Robert Swan remains adamant: “There’s a lot of people around here who believe we can do it.”
Many others abandoned similar operations
But aside from the positives of ambition and staff faith, it is persisting in an operation that many others have abandoned for cash shortages and no profitability. Aside from Webvan’s operations, the Internet grocery delivery firms remaining in the US are largely based in highly populated areas such as Manhattan.
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By GlobalDataLosses difficult to overcome
On average the orders are costing Webvan more than they profit the company. A typical customer spends US$113 every order, but suppliers take a share of the profit here, which lies at around US$30. Furthermore, delivering goods in an expensive branded fleet of vans is a nice aid for long-term brand identity and marketing. But the overheads are mounting up and the losses Webvan is producing will be extremely difficult to overcome.
One catchment area must get in the black
The piggy bank has only US$200m remaining before the investments dry up, allowing for merely another six months if spending is not slashed. Bringing at least one of Webvan’s ten catchment districts into the black is essential if it is to guarantee further interest from investors.
The oldest area in terms of Webvan presence is supplied by Oakland distribution centre. This should have broken even last quarter but now Webvan agrees that order volume will have to increase by 40% to achieve this. As it is every customer from this area orders, on average, less than two times every four months.
“Our challenge is to get those customers to shop more frequently, to get a higher share of their wallet and to continue to reduce costs by being more efficient,” said Swan.
New marketing focus and goods range
Just how Webvan might achieve these goals is open to speculation. They have been marketing the service increasingly in the business and family area, where large orders often originate. A version of the popular marketing scheme in the supermarket sector, the customer loyalty card, is also being developed. In addition, the range of its goods is increasing to include expensive items such as electronics and apparel.
Alliance with other Internet e-tailers?
One way to boost Webvan’s revenue is to focus on becoming a last mile operation for other retailers who work on the Internet. Spare space in the company’s delivery vans can be packed out with, for example books from Amazon.com. Sharing delivery networks can drive enormous cost savings, and potentially steer Webvan back on track.
