Webvan announced yesterday that its fourth quarter sales were 19% below expectations.
It’s not been a good Christmas for Webvan. On Tuesday the firm announced that fourth quarter revenues were down 19% on forecasts, at just $84 million, even though Christmas is the busiest period for grocery retailers. Webvan’s results were only 2% higher than its third quarter revenues and it took 8% fewer orders in the period compared to the last. All the evidence suggests that customers are turning away. That the average order size was up 10% is little comfort.
The difficulties of Webvan highlight that the pureplay grocery retailer model is looking increasingly unlikely to succeed. The lack of scale and the challenge of developing brand awareness, customer loyalty and efficient supply chains in as rapid a time-scale as possible is causing these retailers to run low on cash. Something will have to give.
Some analysts believe that Webvan will run out of money within the next two quarters, foretelling cuts in marketing, job lay-offs or similar to reduce expenditure. Meanwhile the bricks-and-clicks operators are leveraging their existing assets, financial resources and existing customer base to drive their online business models.
Since being purchased by Ahold, Peapod has had its supply chain overhauled and now benefits from Ahold’s purchasing power. The backup of such a large operator with financial resources and retail know-how gives Peapod distinct advantages over internet only operators.
It is high time for the pureplays to reassess their models. Teaming up with an old fashioned retailer, like Groceryworks’ deal with Safeway in the US, may just be the way forward.
