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E-grocery retailing has not gained much success due to high delivery and logistical costs and other important factors (De Kervenoael et al. 186). Webvan had an ambitious project that had a great potential for developing a huge network delivering online grocery shopping services. Unfortunately, certain mistakes resulted in the companys fail. Studying the problems the company faced can help to suggest the possible courses of actions and see the potential changes that can benefit the e-grocery market.
Primary problems
Several problems led to the bankruptcy of Webvan in 2001. The first problem was the companys inability to provide enough sales to cover the expenses for the technology providing functioning of complex infrastructure model. The company focused on investing in technology while paying too little attention to methods for increasing demand.
Promoting the demand for shopping online is not an easy task, as most people are used to go to a grocery store on a weekly basis and do not want to pay for delivery charges. Sandoval mentioned the analysts notion that only 25 percent of online grocery customers make orders more than once per month (par. 12).
Such situation causes a low potential for developing high demand for online grocery sales services. Instead of investing in effective solutions to this problem, the company spent huge sums of money on creating highly automated algorithms of providing the services. Another problem was the companys quick expansion without maximizing operating efficiency.
The fast growth of the network did not rely on successful well-grounded strategy for providing the appropriate delivery aspect of operations. The companys ambitious plan to expand to 24 markets appeared to be a rash step, which did not bring the expected results.
Insights from The Case and Potential Decisions
The potential decision that could have saved the company from bankruptcy is gradual cutting down of the investments providing the growth of the network and redirecting this money in providing the sustainability of the existing distribution centers. Finding the methods for reducing the costs of delivery services is the central point of providing economization and the company services payback.
Webvans business model relied on economies of scale , which focused on reducing the costs of preparing orders and paying rent on the warehouses (Mcafee and Ashiya 14). Such economies of scale could not have a positive impact on optimization of the delivery process. The delivery of perishable goods at competitive prices was one of the biggest challenges the company faced.
The company offered delivery of groceries within a 30-minute window at prices competitive to conventional shopping (Mcafee and Ashiya 4). The company was unable to meet this challenge (Delaney-Klinger, Boyer, and Frohlich 188). The potential decision should have been focused on the understanding that low prices and personal delivery are incompatible (Delaney-Klinger, Boyer, and Frohlich 189).
Potential courses of actions
Potential actions that could have saved the company from failure are related to effective logistics. An efficacious logistic system is of great importance for e-grocery business, where margins are thin (Lunce et al. 1347). Webvan used a mega-warehouse model, which appeared to be ineffective.
The hybrid store-warehouse model could have been a good option. Another aspect of logistics is related to product delivery. Webvan used the home delivery scheme, which appeared to be too expensive and did not bring great benefits. Encouraging the customers to collect their purchases from a nearby pick-up point could have been an effective decision, as non-home delivery reduces logistical costs significantly (Colla and Lapoule 848).
Another course of action could have been related to organizing activities increasing the demand for e-grocery services. Such activities include organizing real-time activities promoting the brand and investing in Web advertising and creation of efficient programs helping the customers to experience high-quality easy-to-use services while purchasing groceries online.
The problems faced by Webvan could have been solved by employing different strategies, which could overcome the challenges of the e-grocery market.
Works Cited
Colla, Enrico, and Paul Lapoule. E-commerce: Exploring the Critical Success Factors. International Journal of Retail & Distribution Management 40.11 (2001): 842 864. Print.
De Kervenoael, Ronan, Didier Soopramanien, Jonathan Elms, and Alan Hallsworth. Exploring Value Through Integrated Service Solutions: The Case of E-grocery Shopping. Managing Service Quality 16.2 (2006): 185-202. Print.
Delaney-Klinger, Kelly, Kenneth Boyer, and Mark Frohlich. The Return of Online Grocery Shopping: A Comparative Analysis of Webvan and Tescos Operational Methods. The TQM Magazine 15.3 (2003): 187-196. Print.
Lunce, Stephen, Leslie Lunce, Yoko Kawai, and Balasundrum Maniam. Success and Failure of Pure-play Organizations: Webvan Versus Peapod, a Comparative Analysis. Industrial Management & Data Systems 106.9 (2006): 1344 1358. Print.
Mcafee, Andrew, and Mona Ashiya. Webvan.
Sandoval, Greg. Grocers Make Another Go at Home Delivery. Web.
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