These firme really know how to turn a profit. Please see the bold<G>
"July 31, 2000
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With Profit Delivery Stalled,
Webvan Hits New Roads
By JIM CARLTON
Staff Reporter of THE WALL STREET JOURNAL
ATLANTA -- Is the larder half full or half empty?
In the case of Webvan Group Inc., it depends on how you look at it. On the plus side, since May 1, when the online-grocery delivery service opened for business here, it has seen orders climb to 2,000 a day, nearly double what the company had expected this soon. But that's still about half the number needed for the company's Atlanta operation to break even.
Back to the plus side, Webvan still has about $400 million in cash left from $805 million in start-up funding and a soaring initial public offering. But the cost-intensive business is burning through a heart-stopping $30 million per month as an increasingly impatient Wall Street demands that even blue-chip e-tailers like Amazon.com Inc. turn a profit.
The earnings report earlier this month shows Webvan has a way to go to make investors happy. Revenue for the second quarter beat analysts' expectations, jumping to $28.3 million from $380,000 a year earlier, but the company reported a widened loss of $74.4 million from a loss of $23.4 million. In 4 p.m. Nasdaq Stock Market trading Friday, Webvan's stock was $5.25 a share, down 25 cents; its 52-week high was $34 a share.
Even so, the company, based in Foster City, Calif., proceeds with expansion plans. It recently purchased HomeGrocer.com Inc., a Seattle rival, for $1 billion in stock. Tuesday, Webvan opens for business in Chicago, and it is moving quickly to set up shop in 13 markets by the end of this year. The company is determined "to put our footprint on the rest of the country," says George Shaheen, who left the top job at Andersen Consulting last September to head Webvan.
Raising the Stakes: as Wall Street Seeks Pre-IPO Investments, Conflicts May Arise (July 24)
Webvan Loss Widens Amid Expansion as Revenue Rises Beyond Expectations (July 14)
The boardroom debate over where to locate Webvan's first expansion beyond Northern California had raged for months as founder Louis Borders and his team weighed the pros and cons of cities like Seattle, which they considered technologically sound but too competitive because of HomeGrocer.com, and Chicago, which they viewed as too big a jump. Market data put Atlanta second only to San Francisco in terms of Internet shopping and ahead of the other cities in household income and population growth.
"Atlanta had everything we were looking for," recalls Mr. Shaheen, Webvan's president and chief executive officer.
Picked to head the Atlanta operation was 36-year-old Chris Ohlund, who had been an operations executive for General Electric Capital Corp.'s European business unit. He arrived here 11 months ago, haunted by the shadows of Peapod Inc. and Kroger Corp., whose online operations in Atlanta sank. But the day 2,000 people lined up to apply for 300 rank-and-file Webvan jobs, he got over his jitters.
New employees were offered salaries for production jobs $1 higher than local grocery chains, stock options, free catered lunches, up to $2,400 in annual performance bonuses, and medical benefits that began on day one.
Building on the experience in Oakland, where the company launched operations in June 1999 from a retrofitted warehouse, Mr. Ohlund set up a similar "hub and spoke" satellite delivery system from a 330,000-square-foot warehouse 20 miles north of downtown in one of the region's fastest growing areas. It is one of 26 being designed by Bechtel Corp. as part of a $1 billion two-year contract.
A database housed in San Jose, Calif., runs the automated warehouses, each of which is the size of four football fields and costs $35 million; but each packs the punch of 18 supermarkets that would run $90 million, analysts say. Orders are routed there before going back to warehouse computers that instruct a conveyor system to stamp a customer ID on a plastic tote and send it to an employee who retrieves goods from a carousel-like shelf. The tote is then loaded into an 18-wheeler on a preassigned delivery route.
All hasn't been smooth sailing here, particularly the traffic situation. Webvan's fleet runs on computerized routes determined by local maps. Like air-traffic controllers, local warehouse employees update drivers on traffic and directions, much needed in Atlanta where clogged arteries surround subdivisions so new that maps are quickly outdated. Lost drivers sometimes missed delivery times, costing the company money. To circumvent the problem, Mr. Ohlund equipped most of Webvan's 122 trucks with Global Positioning System navigational devices at $38 a month per truck.
A major job for Mr. Ohlund was figuring out what to sell. "Pillsbury told us biscuits were a really big deal in Atlanta, while Sara Lee told us we better go heavy on sausages," recalls Maigread Martinez, vice president of marketing and strategic alliances. Webvan cut deals with national suppliers as well as exclusive distribution deals with outfits like Georgia Dome hot dog vendor, Barkers. About 25% of Webvan's deliveries are locally made products, many unavailable in grocery stores.
The next step: getting the word out. "We knew this would be very different from Silicon Valley where everyone is cognizant of the players," says Webvan-Atlanta marketing director Mark San Frantello. "Here, we had to go in and explain the whole proposition" with a multimillion-dollar ad campaign and launch party hosted by home-run king Hank Aaron.
How will Webvan get the additional 2,000-odd orders a day, each averaging $103, it needs to break even here? The company is advertising as well as redoubling its word-of-mouth efforts, soliciting new customers through free ice-cream giveaways at corporate partners.
In the Bay Area, where it all began, Webvan now boasts about 100,000 customers and on-time delivery rates of 98%. Analysts estimate the company spends $140 to lure each customer but note that figure is down from $210 in the first quarter. To increase gross margins, Mr. Shaheen is moving the company beyond groceries. He calls Webvan a "last mile" delivery service that now also delivers everything from mass-transit passes to barbecue grills and compact disks, which the company gets from wholesalers and suppliers.
In Chicago, Webvan will encounter new challenges, including stiffer competition than it has experienced in Atlanta. Peapod, which recently got a $73 million bailout from Dutch grocer Royal Ahold, is poised for battle there, as is the smaller, Massachusetts-based Streamline.com Inc. Webvan plans to offer Chicagoans free delivery service for the first three months. Peapod and Streamline both charge.
Write to Jim Carlton at jim.carlton@wsj.com" |
