Top Internet grocer to seek Chapter 11
USA TODAY
SAN FRANCISCO — Online grocer Webvan, one of the Internet's most popular companies and an e-commerce icon, said yesterday that it will shut down and seek Chapter 11 bankruptcy protection.
But the No. 1 online grocer is exiting the market just as major grocers jump into it because they see the Internet as an essential distribution channel.
"It's a long-term investment that will pay off," says Whit Andrews, research director at Gartner.
Even though most online grocery services have yet to be profitable, supermarket chains are rapidly partnering with online grocers or they are building their own online services. The reason: They say customers want the service and the $800 million market is expected to hit $1.3 billion next year.
• Dutch giant Royal Ahold last year bought 58 percent of Peapod, one of the first online home-delivery services, with operations on the East Coast and in Chicago. Royal says operations are profitable in Chicago and Massachusetts.
• Stater Bros., a Southern California chain of 155 stores, last year struck a deal with online delivery service WhyRunOut.com.
• Publix, a chain of 646 stores in the Southeast, and Supervalu, a supermarket retailer and distributor in the Midwest and East, plan to launch Web services this year. Kroger, the largest grocer in the United States, and Albertson's also are testing online services.
"The online grocery industry will survive the failure of Webvan, but growth will come quite a bit slower," says analyst Ken Cassar of Jupiter Media Metrix. Webvan accounted for 46 percent of online grocer revenue.
Traditional grocers aren't likely to endure the hardships of Webvan. It buckled under onerous operational costs and, some say, over-exuberant expansion. It closed facilities in Atlanta in March and Dallas in December. Webvan also leased never-used facilities in New York, Boston, Denver and Baltimore.
Worse, the company was guilty of questionable business decisions. A clause in the contract of former CEO George Shaheen requires Webvan to pay him $31,250 a month for the rest of his life. "The lessons learned by Webvan will become a cautionary tale in business strategy textbooks for years," Cassar says.
The immediate impact: 2,000 employees laid off and service discontinued to 762,000 customers in San Francisco, Los Angeles, Orange County, San Diego, Seattle, Chicago and Portland, Ore.
Webvan promised to revolutionize the supermarket industry. But only 2 percent of online shoppers bought groceries online in the past year, researchers say. Webvan lost $830 million since being founded in 1996.
The company says it was ahead of its time. "In a different climate, I believe that our business model would prove successful," CEO Robert Swan said in a statement. "The clock has run out on us."
