Here a few other problems with the analysis:
1. Distance between deliveries is assumed at 10 miles. Give me a break. The whole point of scheduling in advance is to one, fill the order, and two, to coordinate an efficient delivery schedule. 10 miles is an absurd assumption. A circle with a ten mile radius in any major metro area covers a massive number of people.
2. The above likewise changes the "generous" assumptions of the # of deliveries per hour. This of course ripples into everything else. The DC in Bay area is currently filling ~3000 orders per DAY.
3. Margins, per Goldman, should be around 12%. (Lower than was suggested, but probably more accurate.)
4. Gas figure gets messed up b/c of assumed distance between orders and gal/day figure. (Would get at least 10 miles, probably closer to 12 depending on newness of engines.)
5. The most glaring incorrect assumption was the $150 to pick and pack each van. This is the advantage WBVN has which no one else seems to. The gathering process is automated, and the time to load the truck would be much less than the 5-7.5 hours the $150.00 figure assumes. Shoot, if I could back up our SUV straight onto a loading dock into the kitchen I'd unload the groceries in about 30 seconds. :-)
In short, the numbers seem to be pulled out of a hat and are ignorant of some of the basic facts of the business model. WBVN, like all web stocks, may be overvalued. But with an estimated $700 billion market, they don't need a very big slice of the pie to be a huge hit.
Here are a few otehr tidbits:
Each DC will generate $300 million in revenue annually -- about the same as 18 B&M grocery stores. About 900 employees per DC, as compared to 2700. Real Estate costs less than 1% of revenue, 6% for B&M.
Means margins should be about 12% v. 4%.
DC's cash flow break even after 4 quarters of launch.
(Above info from the Webvan IPO roadshow.)
I would likewise take issue with the "no one will use the service" comment. My wife, who doesn't work, would jump all over a service allowing her to do groceries on line. Do you have a clue what it is like to drag a 2 1/2 year old and a six-month old through a grocery store for an hour to an hour-and-a-half???
THis is just one more activity yet to be revolutionized by cheap computers and soon-to-be ubiquitous high-speed internet connections. As speed picks up, it takes less and less time. The more times you use the service, the more intelligent the software becoomes in pre-filling your order.
I agree $8 billion is pretty steep, but 26 DC's times $300 million is a lot of dough.
mmeggs |
