CA - "latest dot-com failure" - Webvan delivers bad news : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Webvan delivers bad news The online grocer will declare bankruptcy, making it the latest dot-com failure.

July 10, 2001

From staff and news services

SAN FRANCISCO Webvan Group Inc., which sought to revolutionize grocery shopping by taking orders online and delivering to customers' homes, became the latest dot-com to fold Monday after burning through $830 million without making a profit.

The Foster City-based company plans to file for Chapter 11 bankruptcy within the next two weeks before auctioning off the remains of its business, including a fleet of delivery trucks and seven distribution centers. Two thousand people will lose their jobs.

Delivery service will be stopped for its 750,000 active customers in seven markets - Orange County, Los Angeles, San Diego, San Francisco, Seattle, Chicago and Portland, Ore.

Employees didn't see it coming.

Glen Robison, 28, of Huntington Beach, was one of Webvan's 100 drivers based out of Fullerton. He had worked for Webvan for a year.

"They didn't tell us anything -- I found out watching TV today on my day off, and I called in and found out I was out of a job," Robison said. "I was really shocked to hear the news. From my end, it seemed like the business was on a slow, steady increase. Honestly, I though we had a good thing going there. This whole thing was out of the blue."

Launched in mid-1999 with plans to serve 26 U.S. metropolitan markets, Webvan had been one of the Internet's highest profile businesses, raising about $800 million from venture capitalists and Wall Street.

Webvan's expenses reeled out of control, hampering acquisitions that aimed to expand the company's geographic reach and ultimately sending it to the dot-com graveyard populated by once-hyped Internet retailers such as, EToys Inc. and

Webvan tried to stay in business by raising delivery prices and buying rival Inc. for $1.01 billion in stock in September.

The company cut 4,500 employees in recent months, delayed expansion into new markets, ended deliveries in Atlanta and Dallas, and began subleasing warehouses it didn't need.

The company never came close to making money, losing $830 million on its way to one of the biggest e-commerce flops so far.

But Webvan spokesman Bud Grebey was undeterred Monday. "We are very proud of what we accomplished," he said. "We do believe we had a brilliant concept. We were just ahead of our time."

Industry analysts, though, said Webvan's concept, like so many other ambitious Internet business plans, was flawed from the start.

"They tried to do too much, too fast with too little money," said Whit Andrews, an e-commerce analyst with the Gartner Group in Omaha, Neb. "These people were throwing all their money into what they perceived to be a winner-take-all game."

Before its collapse, Webvan had established itself as the nation's leading online grocer. With first-quarter sales of $77 million, Webvan had a 46 percent share of the online grocery market, according to Jupiter Media Metrix, a research firm.

But Webvan was competing as much against traditional grocers as online delivery services, forcing the company to sell groceries at nearly the same price as well-established supermarkets. Meanwhile, Webvan had to absorb an estimated $10 to $15 in extra costs on each delivery, analysts estimated.

That made it virtually impossible for Webvan to turn a profit, analysts said, because traditional supermarkets typically make only $2 to $4 on every $100 in sales.

For the first quarter, Webvan lost $218 million.

With Webvan's failure, Jupiter Media Metrix predicted the online grocery market this year will register $800 million in sales - about 20 percent below the firm's previous estimates.

A recent Jupiter survey of consumers found that less than 1 percent of the U.S. population had ordered groceries online in the past year.

When it files for bankruptcy, Webvan's unsecured creditors will include Webvan's former Chief Executive George Shaheen, who resigned in April, triggering a clause in his contract that required the company to pay him $31,250 per month for the rest of his life.

Webvan dealt with 75 distributors and 500 vendors, according to its Securities and Exchange Commission filings.

The bankruptcy represents a final blow for Webvan's devastated shareholders. The company's market value has plunged by $7.2 billion since Webvan's November 1999 initial public offering at $15 per share. The stock peaked at $34 shortly after the IPO, but has been stuck below $1 per share all of this year.

Shares fell 1 cent to close at 5 cents Monday on the Nasdaq, poised to delist Webvan.

The Associated Press, Bloomberg News, Reuters and Register staff writer Shaya Mohajer contributed to this report.

-- PHO (, July 10, 2001

Moderation questions? read the FAQ