Louis Borders, Webvan’s founder, has stepped down as Chairman.
Borders, previously best known for founding the eponymous chain of bookstores, set up Webvan in 1998. Backed by a strong group of investors, the concept was to provide a high-quality home distribution service, delivering groceries direct to customers’ homes within a thirty-minute window of their choosing. To achieve this, Webvan has invested in huge distribution centers, each capable of processing 2,000 orders per day and servicing a 60km radius catchment area.
Compared to other online grocers, Webvan has fared well. By investing so heavily in mechanization and distribution, it has avoided the fulfillment pitfalls that have dogged its competitors. Speedy distribution allows it to claim that its products are fresher than those of conventional supermarkets, while also being 5% cheaper.
But building up the business has not been cheap. Each distribution center costs $25 million to build and its commitment to low prices and free delivery for orders over fifty dollars means that margins are very low. Furthermore, the decision to buy its ailing rival HomeGrocer, has also added to the company’s costs and complicated its logistical simplicity. All of this has made investors anxious for a return on their capital the company’s shares have now fallen 90% from the high touched just after its flotation a year ago.
By prioritizing profits, Webvan is recognizing that there has been a sea change in investors’ attitudes, who now value sound fiscal management ahead of online ambitions. The company also knows that while it may have seen off its weaker rivals, it now faces a growing threat from Wal-Mart, which has been waiting in the wings before a full-scale entry in the online arena.
