Why Did Online Grocer Webvan Crashes With a Thud? Here are some possible reasons: Excessive fixed costs, Ambitious expansion strategy, and a lack of profit margins. If you’re interested in reading more, register at Computerworld’s forums and post your questions! Remember: You can only post in our forums if you’re a member of Computerworld magazine360.
Cost of delivery for online grocers
The plight of online grocers is not new. The cost of delivery is an important consideration when it comes to delivering orders to homes. Consumers expect free home delivery of heavy orders, but this is not possible for Webvan. The logistics required to deliver large packages from stores are expensive and the company isn’t able to afford the added costs healthwebnews.
For now, it’s unclear how much the company’s losses will be. Webvan has received backing from Silicon Valley investors and planned to open 26 distribution centers in the U.S., but its first quarter losses were almost $1 billion. While Webvan’s stock has recovered, the company isn’t expected to make any money until it turns a profit.
But webvan failure doesn’t mean the online grocery business is dead. Webvan’s business model relied on stand-alone distribution centers, ambitious turnaround times, and inventory management systems. Other startups are building on the model, including Peapod, owned by Dutch supermarket conglomerate Royal Ahold NV. Peapod is also looking to enter new markets by partnering with existing retailers and utilizing existing warehouse space. It is working with Giant Food Inc., which is another Royal Ahold subsidiary.
Excessive fixed costs
Businesses face excessive fixed costs when they sell products online. These costs are not based on the quantity of the product but on the price. They may need to increase prices in order to meet budgetary constraints. As a result, consumers may see higher prices than they expect. However, these costs can be minimized by checking out the fine print before making a purchase. Here are some tips on minimizing these expenses theinteriorstyle.
Ambitious expansion strategy
The earliest financial backers of online grocery retailer Webvan argued that the company had no choice but to follow the internet rallying cry. Yet, their ambitious expansion strategy never worked as expected. The company promised investors it would take 15 months to become profitable in each new market, and none of them ever did. Despite having a solid business model, Webvan’s growth rate never reached the three-percent-per-year mark that it expected marketbusiness.
The reason why Webvan failed to achieve profitability is not that it did not understand the online grocery industry well. While online grocery retail offers enormous promise, it is not viable in most markets. It’s a niche market that can only be successfully tapped if the consumer base is small enough. It might even work in areas where there is low population density. Regardless, Webvan’s expansion strategy was flawed and should have been revisited.
Failure to turn a profit
A recent bankruptcy filing shows the company’s struggles to make a profit. Webvan was in the process of laying off 885 employees and closing its service in Atlanta, Georgia, a move that failed to stem the decline. After the merger failed, the company was forced to cut marketing and other expenses and report a $453 million loss in 2000. It also reported that it was spending more money on acquisitions than it was selling. Some analysts estimated that Webvan was losing more than $130 per order thecarsky.
Conclusion
The company tried to compete with traditional grocers but never managed to lure enough customers to turn a profit. The company’s CEO, George Shaheen, is lining up with other creditors to collect his share of the online grocer’s golden parachute, worth $375,000 a year. However, the success of Webvan’s service may not be enough to persuade consumers to make the move online.
