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eGROCERY: EVOLUTION,
REVOLUTION ORHALLUCINATION?
Novem ber 2000
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Coriolis Research Ltd. is a strategic market research firm founded in 1997 and based in ANew Zealand. Coriolis primarily works with clients in the food and fast moving consumsupply chain, from primary producers to retailers. In addition to working with clientregularly produces reports on current industry topics. Recent reports have included an athe impact of the arrival of the German supermarket chain Aldi in Australia.
!
The lead researcher on this report was Tim Morris, one of the founding partners oResearch. Tim graduated from Cornell University in New York with a degree in AgEconomics, with a specialisation in Food Industry Management. Tim has worked for a international retailers and manufacturers, including Nestl, Dreyers Ice Cream, KrafFoods, Safeway and Woolworths New Zealand. Before helping to found Coriolis Resewas a consultant for Swander Pace and Company in San Francisco, where he wmanagement consulting and acquisition projects for clients including Danone, Heinz, and ConAgra.
!
The coriolis force, named for French physicist Gaspard Coriolis (1792-1843), may be seenscale in the movement of winds and ocean currents on the rotating earth. It dominatepatterns, producing the counterclockwise flow observed around low-pressure zonNorthern Hemisphere and the clockwise flow around such zones in the Southern Hemispthe result of a centripetal force on a mass moving with a velocity radially outward in plane. In market research it means understanding the big picture before you get into the details.
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eGrocery
eGrocery
eGROCERY MARKET SHARE IN 2020
EVOLUTION REVOLUTION HALLUCINATION
2%
30%
0.02%
Projections of the p otential for eGrocery vary widely
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eGrocery
eGrocery
We believe that, at best, eGrocery retailing w ill be a niche bu siness
I. Revolutions based on technological change can and have occurred in grocery retailing
II. Internet grocery retailing appears to be a rapidly emerging new channel
III. The financial viability of the concept is still unproven
IV. The impact of this evolution on traditional supermarkets will be limited, however,
both man ufacturers and retailers should carefully consider th e consequences
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eGrocery
eGrocery
I. Revolution s based on techn ological change can and have occurr ed in grocery retailing
Major shifts in food bu ying behavior have been a result of techn ological change
The companies that have recognized and adapted to these changes h ave prospered
Successful concepts have shown massive and rap id growth
The sup ermarket proved to be an irresistible proposition for most shop pers that beat
home delivery once already
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eGrocery
eGrocery
Major shifts in food bu ying beh avior have been a result of techn ological change
FOUR ERAS IN FOO D RETAILING
Railroad
Automobile
(Truck)
-
Information
Superhighway
Transport App liances Media
Electric Oven
Can Opener
Refrigerator
Freezer
Microwave
Personal
Computer
Newspaper
Magazine
Telegraph
Telephone
Television
-
Internet
Web pages
1850s
1940s
1970s
1990s
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eGrocery
eGrocery
The companies that have recognized and adapted to these changes h ave prospered
FOUR ERAS IN FOO D RETAILING
Railroad
Newspaper
Automobile
Television
Refrigerator
Freezer
Microwave
Internet
PC
Transport Implications Companies
Massive increase in food produ ction in remote areas
Emergence of regional and national bran ds
Specialized produ ction; economies of scale
Long d istance spot ord ers; elimination of m iddlem an
Mail ord er catalog sales
Shopp ers can b uy m ore than they can carry
Shopp ers go to best price, not w here convenient
Interstate trucking - railroad for perishables
National promotion of national brand s
Reduce need to buy on d aily basis
Increase perishable item un it sizes
Heat food very rapidly Growth of convenien ce culture
Timely information on deman d
Sears Roebuck
A&P
Nabisco
Hormel
Pillsbury
Safeway
Kroger
P&G
Birds Eye
StouffersLean Cu isine
Webvan?
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eGrocery
eGrocery
$0.1 $0.7
$10.6
$37.8
$61.3
$106.2
$245.4
1 89 0 1 89 5 1 90 0 1 905 1 91 0 19 15 1 92 0
1 25 10 0 20 037 2
4,621
15,737
1 85 9 1 86 5 18 80 1 90 0 1 91 0 1 92 0 1 93 0
PAST REVOLUTION S IN RETAILING
A&P Store Numb ers
(1859-1930)
Sears Roebuck Sales
($Millions; 1890-1920)
Source: Lebhar(1952); Emmet(1950); Wal-M art(2000)
1 38
330
859
1,528
2,784
4,000
19 62 19 70 1 98 0 1 98 5 1 99 0 1 99 5 2 00 0
Wal-Mart Store Num bers
(1962-2000)
Successful concepts have shown massive and rap id growth
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eGrocery
eGrocery
5.8%
14.9%
36.5%
52.2%
63.9% 63.5%59.8%
48.0%
52.4%
51.1%
37.1%
27.0%
19.4% 18.1%
17.8%
2.4%7.2%
17.0%
14.1%
14.6%
11.2%
8.3%
7.3% 6.5% 4.8%
21.2%12.8%
8.2%
7.9%8.3%
7.7% 8.1% 8.4%13.8% 14.9%11.2%
7.3%4.2% 1.7% 1.4% 2.0%
1929 1939 1948 1958 1967 1977 1987 1996
The sup ermarket proved to be an irresistible proposition for most shoppers
FOO D AT HO ME MARKET SHARE1
(% of sales b y channel; 1929-1996)
Source: USDA ERS
Small GrocerConvenience
Supermarket
Butcher,Greengrocer,
Baker, etc.
Other
HomeDelivery
Mass/Club
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eGrocery
eGrocery
that b eat hom e d elivery once already
WHY DID IT FAIL THE FIRST TIM E? c1940
Convenience
Cost
Accuracy
Logistics
Home Delivery Supermarket
Wait for delivery boy
Women entering w orkforce
Cost of prod uct + cost of pickin g
+ cost of delivery
May forget to order items
May n ot get correct items
Usually sm all local grocery
Need to pick order
Buy through wh olesaler
Get in now
Get it on the way home from work
Large volume/economies of scale
No service, no frills, low p rices
Visual clues to order
Get wh at you p ay for
Super market
Factory to s tore
Buy in truckload qu antities
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eGrocery
eGroceryeGrocery CORIOLIS RESEARCH II - 10
II. Internet grocery retailing app ears to be a rapid ly emerging new chan nel
Internet retailing is currently a small but growing compon ent of food sales Intern et grocery retailing (eGrocery) is curren tly a small part of th e large and
highly competitive food at home m arket
On ly 540,000 hou sehold s in the Un ited States have ever used the intern et to order
groceries
Both major internet research firms agree that eGrocery will show massive growth
There app ears to be strong consum er interest in th e concept
Consum er surveys consistently ind icate a dem and for grocery hom e-delivery
Convenience app ears to play a key role in consumer d emand for home delivery
eGrocery has a clear base of target shopp ers
The eG rocery concept has qu ickly m oved from start-up to consolidation
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eGrocery
eGrocery
Supermarke ts
62 %
Other
8%
Other Grocery 9%
Convenience 5%
Warehou se Clubs 4%
Mass Me rchants 5%
Specia lty Food 5%
FOOD AT HO ME MARKET SHARE BY CHAN NEL(% of sales; 1999)
TO TAL = $450 Billion
Home Delivery/Mail Ord er 2%
eGro cery 0.02%
Source: US DA ; FMI; Progressive Grocer; Other; Coriolis analysis
Intern et grocery retailing (eGrocery) is curren tly a small part of the large and h ighly competitive
food at home mark et
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eGrocery
eGrocery
On ly 540,000 hou sehold s in the Un ited States have ever used the in ternet to order groceries
HO W BIG IS THE MARKET?(Millions; % of hou sehold s)
Population
278 mm
Households
106 mm
100%
Householdswith PC
56 mm
53%
andInternet
36 mm
34%
that h aveshoppedonline
18 mm
17%
forgroceries
ever
0.54 mm
0.5%
Source: US Census Bureau; PWC; Greenfield; Commerce Net; Nielsen Net Media; Coriolis analysis
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eGrocery
eGrocery
$148$350
$750
$1,600
$3,500
$7,500
$235$540
$1,200
$2,800
$6,400
$10,800
1998E 1999E 2000E 2001E 2002E 2003E
Both major internet research firm s agree that eGrocery will show massive growth
eGRO CERY M ARKET GRO WTH PROJECTION S
($ Millions; 1998-2003)
Note that projections vary widely: Anderson Consult ing $85 Billion by 2007; eMarketer $33.6 Billion by 2002; IDC $8.8 Billion by 2004
Source: Forrester Research; Jupiter Communications; Other
SALES
CAGR
98-03
115%
119%
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eGrocery
eGrocery
58 %
49 %
34 %
34 %
30 %
26 %
23 %
23 %
17 %
13 %
Prescription Drugs
Groceries
Flowers
Clothes
Gifts
Airline Ticke ts
Books
Office Supplies
Consum er Electronics
PCs
Consum er surveys consistently ind icate a dem and for grocery hom e-delivery
DEM AND FOR SAM EDAY FULFILLMENT BY CATEGO RY
(% rating im portan t; su rvey; March 2000)
Source: Jupiter Commun ications
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eGrocery
eGrocery
68 %
66 %
60 %
60 %
57 %
47 %
42 %
41 %
39 %
35 %
32 %
Convenience
24-hour access
Shop without leaving home
Saves t ime
Saves money
Prices compa re favorably
Won't forget i tems
Better selection
Can find n ew products
Can sh op from work
Hate to shop
Convenience app ears to play a key role in consumer d emand for home delivery
REASON S SHO PPERS WOULD BUY GRO CERIES ONLIN E
(% agreein g; 3/00)
Source: Netsmart Research
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eGrocery
eGrocery
eGrocery has a clear base of target shopp ers
WHO IS THE SHOPPER
Solid eGrocery Solid Trad itionalist
Techn ologically comp etent
High disp osable income
Time starved - willing to trade
money for time
Fashion conscious (mu st be seen
doing the latest thing)
Youn ger, female
White collar, profession al
Afraid of techn ology
Fixed or low in come
Available time - willing to trade
time for money
Price conscious (use coupon s, shop
aroun d, cherry pick specials)
Older, retired
Blue collar, less edu cated
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eGrocery
eGrocery
The eG rocery concept h as quickly moved f rom start-up to consolid ation
The eG rocery concept app eared h ighly attractive to a nu mb er of investors
The eG rocery concept is presented as a massive opp ortunity
There are clear cost savings from eGrocery/Home D elivery
A core group of leading companies h as already em erged
There are four competin g concepts for the structure of the eGrocery supp ly-cha in
While there are hun dreds of start-up s, there is only a small group of well financed,
operational eGrocers
In 1999, six eGrocers captu red 90% of onlin e grocery sales
The leading eGrocers have focused th eir efforts in the larger urban areas
The chann el has attracted investm ent from five of the top seven grocery retailers
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eGrocery
eGrocery
The eG rocery concept is presented as a massive opp ortunity
I believe that the In ternet grocery bu siness will eventually capture between 10 and 15
percent of the market. Now if we define the market - groceries, nonp rescription dru gs
and hom e replacemen t meals - thats $650 billion . So if the e-grocers get 15 percent th ats
close to $100 billion.
George Sh aheen , CEO, Webvan , Janu ary 2000
If onlin e retailers captu red ju st 30 percent of the US grocery mark et, theyd b e rakin g inmore than US$200 billion a year.
David Bergh, VP, Grocery Shop pin g Netw ork, Jan 2000
The m arket is h uge, and if the on -line grocers only get 10% seven or eight years from
now , that w ould be an $80 to $100 billion bu siness.
Barry Stouffer, An alyst, J.C. Brad ford , May 2000
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eGrocery
eGrocery
WHERE DO THE COST SAVING S COM E FROM ?
SAVINGS COSTS
No bricks-and -mortar
No expen sive real estate
Low-cost, efficient order creation
Less labor
Regional fulfillment centers
Fleet of trucks an d drivers
Team of compu ter programmers
Compu terized sorting and p icking
system
There are clear cost savings from eG rocery/Hom e Delivery
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eGrocery
eGrocery
There are four competin g concepts for the structure of the eGrocery supp ly-chain
Store Dedicated Courier One HourPick Warehouse & Mail Delivery
Replacethe shopper
Pick from retailstore at night
$110
PeapodAlbertsons.com
COM PETING eGROCERY MO DELS
Philosophy
Concept
AverageOrd er Size
Costs
Examples
Replacethe store
Pick from custombuilt w arehouse
$100
WebvanHomegrocerStreamline
Replace thesupply-chain
Mail or courierfrom national
distribution point
$30-40
Net G rocerGrocer Onlin e
Replacethe car
On e-hou r deliveryby b icycle or carfrom store or DC
$10-15
KozmoPDQuick
Urban Fetch
Capital
Labor
Delivery
Note: empty =low; half=medium; full=high
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eGrocery
eGrocery
While there are hun dreds of start-ups, there is only a small group of well financed, operational
eGrocers
SF Bay Area
(incl. Sacramento)
Atlanta
Chicago
Seattle, Portland
Los Angeles
Orange County
San Diego
Boston Sub urb s
Nth. New Jersey
Dallas/Ft. Worth
Houston
Delivery SKUs Sales Delivery AverageCompany Geography Method DC Size (Millions) Cost Order
Attended
delivery
Attended
delivery
Unattended
- install
refrigerator
Attended
delivery
$13.3 (99)
$21.6 (99)
$15.4 (99)
$10.0 (99E)
18,000 sku s
350k sq ft
12,000 sku s
100k sq ft
10,000 sku s
100k sq ft
15,000skus
120k sq ft
$4.95
$50+ free
$9.95
$75+ free
$30month
for 4
deliveries
Free
$90
$102
N/A
eGROCERY RETAILER PROFILES
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eGrocery
eGrocery
Delivery SKUs Sales Delivery AverageCompany Geography Method DC Size (Millions) Cost Order
$4 (99E)
$73 (99)
$5 (99E)
$10 (99E)
16,000 sku s
36+ Re tail
Stores
20,000 sku s
50-70k sqft
12,000 sku s
65-83k sqft
$5.95
$60+ free
$9.95
to free
N/A
$106
$105
Over $100
Seattle
Dallas
Boston, Chicago
SF Bay Area
Long Island
Connecticut
Boston Sub urb s
Sth. Conn ecticut
Boston
Attended
delivery
In-store
pick-up
Attended
delivery
Unattended
- install
refrigerator
Attended
delivery
eGROCERY RETAILER PROFILES
While there are hun dreds of start-up s, there is only a small group of well financed, operational
eGrocers
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eGrocery
eGrocery
While there are hun dreds of start-ups, there is only a small group of well financed, operational
eGrocers
eD ELIVERY RETAILER PRO FILES
Delivery SKUs Sales Delivery AverageCompany Geography Method DC Size (Millions) Cost Order
Same-day
(Under 1hr)
Attended
delivery
Same-day
bicycle-
courier
delivery
Same-day
(30 min )
Attendeddelivery
$3.5 (99)
$ (99)
$ (99)
20 Free
10am-
12am
Free
$2.99
6am-
3am
$10-15
B2C $8
B2B $50
$20
Los Angeles
NYC
SF Bay Area
8 Others
B2C
[New York
& Lond on
B2B closed]
Los Angeles
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eGrocery
eGrocery
National
National
National
DeliveryCompany Geography Method Notes
Mail,
Courier
Mail,
Courier
Print-out
coupon
Groceries by courier Started b y Israeli Special Forces Comm and o 22% ow ned by Parm alat (for $30mm ) Sales $6.5 mm (99)
eO THER RETAILER PRO FILES
Groceries by courier Deliver frozen in dry-ice pou ch
Bid on line for each of your groceries 150,000 customers week ly Take winn ing bid to store Recently shutd own du e to losses
While there are hun dreds of start-ups, there is only a small group of well financed, operational
eGrocers
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eGrocery
eGrocery
80+
Others
$10.0
6%
$13.3
8%
$15.4
10%
$21.6
14%
$73.046%
In 1999, six eGrocers captured 90% of on line grocery sales
1999 eGROCERY MARKET SH ARE
($Million s; % of total ; 1999)
$16.7
10%
$10.0
6%
TOTAL = $160 Million Dollars
Source: Company A nnual R eports; Hoovers; various articles; Coriolis estimates
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eGrocery
eGrocery
Boston
The leading eGrocers have focused their efforts in the larger urban areas
eGRO CERY OPERATION S BY REGION
(Actively trad ing; as of Sep t 31, 2000)
Source: various websites; Coriolis analysis
Dallas
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eGrocery
eGrocery
The chann el has attracted investm ent from five of the top seven grocery retailers
Company Key Action
Early adop ter; laun ched Walmart.com; na tional delivery of non-perish ables
Relaun ching revised w ebsite Q 4/2000
TO P SEVEN G RO CERY RETAILER eGROCERY ACTIVITY
Partnership with Peapod an d Priceline
Minimal activity
Laun ched Albertsons.com in Seattle and Dallas
Buildin g from scratch, good site, comm itted to concept
Early partn ership with Peapod ; pu rchased 50% of Grocery Works ($30mm )
Launchin g Safeway.com p owered by G rocery Works in D enver Q 4/2000
Early partn ership with Peapod ; pu rchased 51% (then 81%) of Peapod
Struggling Peapod now run by Ahold VP; strong commitmen t to concept
Recently pu rchased Hann aford Bros., found er of H omerun s.com
Parts of Homerun s sold off to investor groups
Minimal activity
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eGrocery
eGrocery
III. The finan cial viability of the concept is still un proven
Webvan, which has q uickly become the b ellwether of the ind ustry, has lost billions and
still n ot dem onstrated finan cial viability
Webvan represents the best chance for an eGrocery revolution
Webvan has everything going for it
Webvan has so far failed to deliver
With the popp ing of the internet bubb le, reality appears to have set in, and
demon strating DC p rofitability has become the key requ irement
It is still unclear wh o will u ltimately w in: clicks or b ricks & clicks
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eGrocery
eGrocery
Webvan represents the best chance for an eGrocery revolution
WHY WEBVAN ?
Re-engineered sup ermarket retailing from the ground up
Contains defensible techn ology and patents
- Preventing or limiting competition
- Allowin g national/international expansion
Achieves lower cost than su perm arkets if it achieves
required minimum volumes
Recognizes th at large scale change comes from :
- Lower cost/Higher p rofitability than comp etition
- Better consu mer valu e prop osition ($/conven ience)
Replaces labor with capital
Key Strengths of Webvan Mod el
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eGrocery
eGrocery
Webvan has everything going for it
Webvan has impeccable management and finan cial advisors
Webvan has the best bu siness model for eGrocery
The compan y is delivering on customer satisfaction
Webvan offers prices lower than conventional superm arkets
Webvan has the h ighest level of customer satisfaction of any eGrocer
The comp any is showin g strong growth
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eGrocery
eGrocery
Webvan has impeccable management and finan cial advisors
WEBVANS BLUE BLOOD
Founder
Louis Borders(Foun der of Borders
Books; MIT ed ucated
mathematician;genius)
First Roun d
Investors ($400mm)
Sequoia Capital($50mm)
Softbank Corp.($125mm)
Goldm an Sachs VC($100mm)
Benchmark CapitalKnight Ridder Co.
CBS Inc.
Yahoo!E*TradeLVMH
($125mm)
Chief Executive
Officer
George Shaheen(Ex-CEO Anderson
Consulting)
Initial Public
Offering ($375mm)1
Goldm an, Sachs &Co
Don aldson, Lufk in &
Jenrette
Merrill Lynch & Co.
Bear, Stearn s & Co.
Deutsche Bank AlexBrown
Robertson Stephen s
Thomas WeiselPartners
1. M anaging U nderwriter: Goldman Sachs; others: co-managers
Source: Various Webvan documents
G
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eGrocery
eGrocery
Webvan has the best bu siness model for eGrocery
Webvan has one of the most techn ologically advanced warehousing and d istribution
systems on the planet
Webvan designed its supply-chain u sing a blank sheet of paper
The h ub -and -spoke architecture allows one distribution center to service a 70+ squ are
mile urban area
The m odel keep s delivery costs below 5% of sales
Webvan has bu ilt partnerships with a n umb er of key manufacturers that give the
supp lier real information and inp ut
Webvans model has been p raised by the analysts, even w hen they q uestion the details
G
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eGrocery
eGrocery
Webvan has one of the most techn ologically advanced warehousing an d d istribution systems
A single worker, standing at a pod , will be surround ed by m otorized carousels holding
8,900 grocery item s, man y conveyer b elts, a host of electronic-eye bar code scann ers an d16 bins th at collect shopp ers orders. In just one hou r, the worker sh ould b e able to pack
450 grocery items - nearly 10 times the p roductivity of a traditional shop per strolling a
cart through a store or warehou se.
Food In du stry Report, April 1999
The automated warehou se gives u s a 10 percentage-point ed ge in p rofit margins over
traditional sup ermarkets, allowing the compan y to keep p rices down , avoid surcharges
and cover d elivery costs.
Kevin Czin ge, Chief Financial O fficer, Webvan , April 1999
Were taking the grocery indu stry and completely reengineering it from th e inside ou t.
Theres n othing th at resembles this distribution and delivery system. Were conq uering
the last mile of e-comm erce.
Mark Zaleski, SVP Area Op erations, Webvan , Jun e 2000
G
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eGrocery
eGrocery
on the p lanet
The Webvan facility is a combin ation tech-heads w et dream and chefs fantasy.
Workers carry small, han dh eld compu ters. Radio transmitters from a large comp uter tellthe work ers what items to p ut in the totes Freeways of conveyer belts carry partially
filled totes to workers in other parts of the warehou se Workers in wh ite frocks an d
hair bon nets cut fresh m eat Emp loyees in a 70-degree room sort tropical fruit. Other
workers in a b akery and a k itchen for prepared m eals fix sum ptuou s-smelling treats.
Tom D avey, Red H erring, March 2000
The Oakland distribution center for Webvan is an impressive sight. Covering an areaof 330,000 square feet, it is divided into th ree b road, colour-coded segmen ts. Yellow is
for ambient: dry goods, the h eavier of wh ich (such as soft d rinks) are manip ulated
around by giant insect-like mechpods. Green an d b lue are respectively, for chilled
and frozen The center processed som e 2,000 orders a d ay, involvin g up to 20,000
totes The contents of the ord er are compu terized. That triggers a system of lights, as
the tote travels around the wareh ouse, to show the packers precisely what n eeds to be
added to the tote at each p oint None of the 150-odd packing work ers needs to move
more th an 19 feet to fill each item in an order.
Th e Economist, Feb 2000
eGrocery
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eGrocery
eGrocery
Webvan designed its supply-chain u sing a blank sheet of paper
WEBVAN DISTRIBUTION SYSTEM
Distribution
Center
Delivery
StationWebVan
Direct Delivery
Consumer
Wholesaler
350,000 sqft.
50,000 items
4 mi. conveyer belt
Picked into p lastic totes
8,000 orders/da y
$300 million/year sales
$35 million build/equ ip
30X/year inventory turns
Perishables
Greenleaf Produ ceNiman Ranch
Mon terey Fish
Semifreddis
Large truck delivery
Pure cross-dock to
Webvans
0-60 mile radius
12-15 stations/D C
144-225 tru cks/DC
3 Temperatures
0-10 mile radius
12-15 trucks/stati on
30-45 min to sh op
Attended delivery
5-7 days
7am to 10pm
30 minute w indow
92% on-time
98-99% accuracy
Grocery
Frozen
Dairy
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eGrocery
eGrocery
The hu b-and-spoke architecture allows one d istribution center to service a 70+ square m ile urban
area
WEBVAN DISTRIBUTION SYSTEM
Distribution
Center
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
Delivery
Station
0-60 Miles 0-10 Miles
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eGrocery
eGrocery
The m odel keep s delivery costs below 5% of sales
ECONO MICS OF AN ORDER
Courier wage & benefits $17-18
Station manager cost $1-2
Van cost $2-4Total cost per hour $20-24
Deliveries per hour 5
Average order size $90-100
Revenue per hour $450-500
Cost as a % of revenue 4-5%
Cost per Hou r
Source: Webvan; E*Offering
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eGrocery
eGrocery
Webvan has built partnerships with a n umb er of key manufacturers
WEBVAN ALLIAN CES
Kimberly-Clark Feminine care , facial ti ssue, bath t issue , adult care
Coca-Cola Carb on ated soft d rin ks, b ottled w aters, b ottled teas, b ottled
ju ice drinks
Pillsb ury Refrigerated d ough, frozen p izza, M exican food
Kellogg Ready-to-eat cereals
Nestl Frozen entrees, pet food
Quaker Hot cereals, sports beverages
Nabisco Cook ies and crackers
Clorox Bleach , cleaning products
Company Categories
Source: Webvan press releases
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eGrocery
eGrocery
that give the sup plier real information and in pu t
VALUE OF ALLIANCES TO PARTN ER
Condu ct research and gather data
Develop key insights on the emerging online channel
Test new interactive prom otional vehicles
Assist with p roduct assortment, merchandising, marketing & sup ply-chain
management
Realize new bran d bu ilding opportun ities
Create a powerfu l and n ew p ersonalized shop ping experience for customers
Key Points
Source: Webvan press releases
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y
eGrocery
Webvans model has b een praised by the analysts
The compan y has a big opp ortunity, strong management an d a strong value
prop osition. STRON G BUY.
Hen ry Blodget, Analyst, M errill Lynch, Jan 2000
Webvan has the most promising business model Its business model is basically adream for the on-line grocery chann el.
Evie Black D ykem a, Researcher, Forrester Research, July 1999
Webvan is in the best position to succeed in the busin ess. Its driving gains and cuttingcosts. Bricks-and -mortar grocers spend betw een 4% and 6% of their prof its on leasingcosts for their space. Webvan need s to spen d 1% of their profits on its space, since itsbu ilt on cheap land and is so automated. STRON G BUY.
Peter Swan , Analyst, Pacific Grow th Equ ities, March 2000
We view Webvan as one of the few true e-tailing enablers leveraging Webtechn ology to allow customers to shop in a w ay that was imp ossible without th e
internet. Webvan own s every inch of its business, from the time its products areinitially pu rchased form its sup pliers to d elivery to a custom er. BUY.
Lauren Cook s Levitan, Analyst, Robertson Steph ens, January 2000
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y
eGrocery
even w hen they question the details
Webvan has done it the new economy way: Raise as much money as you can and b et
the ranch. They have determined in advance, withou t experience, that they have theright model. Webvan is redu cing picking costs through a lot of automation. The
qu estion is: Is that th e best right trade-off, spendin g lots of capital to lower p icking
costs? You sp end capital to save not that m uch m oney. Plus theres the risk of not getting
deman d in th e first place BUY.
Barry Stou ffer, An alyst, J.C. Brad ford , Feb 2000
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Webvan offers prices lower than conventional supermark ets
SHOPPING BASKET COM PARISON 1
($Actu al; 25 item su rvey ; 7/99)
1. Including all delivery charges and fees
Source: San Jose Mercury N ews
$92.43
$90.09
$88.99
$86.33
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7.35
7.13
6.37
6.24
5.77
5.62
5.58
5.39
4.96
4.77
Webvan has the h ighest level of customer satisfaction of any eGrocer
CUSTOMER SATISFACTION RATING 1
(10 = Perfect; Fall 2000)
1. Combined score from multiple categories: ease of use, on-site resources, meal-solution shopper, customer confidence, relationship services and overall cost
Source: Gomez A dvisors
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The comp any is showin g strong growth
The order metrics of the Webvan model are showing constant improvement
Webvan has show n very strong sales growth, growing at a compoun d rate of 340% a
quarter
Webvan has qu ickly gained the dominan t market position and almost 50% market share
Webvan is expand ing beyond groceries into higher value goods and services
With its merger with Hom egrocer, Webvan now q uickly approaching a n ationaldistribution
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4,000 22,000
47,000
87,000
162,000
524,000
Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00
The order metrics of the Webvan model are showing constant improvement
WEBVAN O RDER M ETRICS1
$58.06
$72.53
$81.31
$90.33 $91.00
$103.00
Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00
Average Order Size
($Actual)
Active Customer s
(Actual)
N/A
N/A
46%
64%
7 8% 7 8%76% 75%
Q1/99 Q2/99 Q 3/99 Q 4/99 Q 1/00 Q2/00 Q3/00
Repeat Purchase
(% of Custom ers)
1. Q3/00 figures includes Homegrocer
Source: Webvan 10K; 10Q
# o f
DCs1 1 1 1 1 2 9
N/A N/A
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Webvan has show n very strong sales growth, growing at a compoun d rate of 340% a quarter
WEBVAN SALES GRO WTH
($ Thousands; Q1/99-Q2/00)
$12 $383$3,841
$9,069
$16,269
$28,300
$87,384
Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00
1. Q3/00 figures includes Homegrocer
Source: Webvan 10K; 10Q
QUARTERLY
SALES
CG RQ1/99-Q3/00
340%
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$7 3$9 0
$1 3
$170
$2 2
$5 2
$100
1999E 2000E
Webvan has qu ickly gained the dominan t market position and almost 50% market share
eGRO CERY SALES GRO WTH
($Millions; 1999 v. 2000)
Other
$160
$360
Other
SALES
CAGR
98-03
125%
92%
386%
23%
Source: Company An nual Reports; Hoovers; Mult ex; DBAB; S SB; various articles; Coriolis estimates
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Webvan is expan ding b eyond groceries into higher value goods and services
EXPANSIO N BEYON D GRO CERY
Dry grocery
Perishables
Non-food
Pet Food
Source: Webvan press releases
Grocery
HBA
OTC Drugs
Dru g Store
Dry Cleaning
Flowers
Stamps
(25% of orders )
Bus Passes
Bridge Token s
Services
Books
Software
CD/DVD/Video
Appliances
Electronics
Apparel
Office Sup plies
Hardware
Party Sup pliesSmoke Shop
DepartmentStore
Chef-prepared
Meals
Fast Food /Foodservice
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With its merger with Hom egrocer, Webvan now qu ickly approaching a national distribution
WEBVAN GRO UP PRO JECTED O UTLETS
(Distribu tion centers b y location; comp any projection; Dec 31, 2000)
Source: Webvan press release
2001
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Webvan has so far failed to deliver
Webvan has not shown impressive bottom line performance
Webvan has had massive losses, both on a total and on a per customer basis
Webvans capital intensive distribution center appears to very negatively impact
center profitability wh en n ot operating at full capacity
For the time being, bricks appear to b e beating clicks on the top an d b ottom line
Webvans model h as fallen over because it has been un able to achieve high enough
penetration
Webvans stock has not been a good investment
Webvans stock h as taken a pu nishin g, despite the best efforts of the analysts
Webvan and Hom egrocer have seen a combin ed $11.3 Billion fall off their market
capitalization highs
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$1 2 $383$3,841
$9,069$16,269
$28,300
$87,384
($11,690)
($23,444)
($60,437)
($48,998)($57,815)
($74,365)
($120,234)
Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00
Webvan has had m assive losses, both on a total and on a per customer basis
WEBVAN SALES GRO WTH
Sales vs. Net Loss($Thousands)
Sales vs. Net Loss Per Active Custom er($Actual)
($5,861)
($2,747)
($1,043)($665)
($459)($229)
$9 6 $175 $193 $187 $175 $167
Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00
N/A
1. Q3/00 figures includes Homegrocer
Source: Webvan 10K; 10Q
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Webvans capital intensive distribution center appears to very negatively impact center
profitability wh en n ot operating at full capacity
WEBVAN FINAN CIAL PERFORMANCE Q1 2000
Sales 100.0% $91.00 $16,269
COGS 74.6% 67.89 12,138
Gross Margin 25.4% 23.11 4,131
Distribution 125.0% 113.75 20,336G&A 114.7% 104.38 18,657
Engineering & Software Development 33.9% 46.77 5,523
Sales & Marketing 51.4% 30.85 8,359
Total Operating Expenses 325.0% 295.75 52,875
Loss from Operations (299.8%) ($275.64) ($48,774)
Less depreciation of deferred compen sation 108.9% 99.10 17,720
Plus net in terest income 53.2% 48.41 8,649
Net Loss 355.3% ($323.36) ($57,815)
Source: Webvan 10Q; DBA B; E*Offering; Coriolis analysis
% ofSales
Per order($)
Total($MM)
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For the time bein g, bricks app ear to be beating clicks on the top an d b ottom line
FINAN CIAL PERFORM ANCE: BRICKS VS. CLICKS
Sales 100% 100.0% 100.0%
COGS 75% 74.6% 70.5%
Gross Margin 25% 25.4% 29.5%
Operating & Administration 13% 325.0% 22.6%
Operating Profit 12% (299.8%) 6.9%
Source: Webvan prospectus; Webvan 10Q; DBAB; E*Offering; Safeway An nual Report; Coriolis analysis
Q1/2000 FY1999Model
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Webvans model h as fallen over because it has been un able to achieve high enough pen etration
There are three k ey comp onents to strong eGrocery sales
The Webvan mod el is only operating at 22% of plann ed capacity driven by lower ordersizes and lower penetration
The average spend per trip is over $91 dollars, and growin g this to $103 does notappear to p ose a challenge
The average Webvan customers is shopp ing online eight times a year, a similar
frequen cy to Warehouse Club stores, bu t much lower than at supermark ets
In Q1/00, Webvan had orders from 3.1% of Bay Area households, bu t achieved on ly0.55% mark et share, in a h ighly comp uter literate region th at includ es Silicon Valley, butwh ere it battles two strong sup ermarket chains
To achieve the p lann ed 8,000 orders p er day, either existing customers n eed to bu y morefrequen tly or more customers n eed to b e attracted
It appears that Webvan customers are un able to commit the time and plann ing requiredto shop m ore frequently and that the service may not b e as convenient as initiallyexpected
eGrocery
h h k G l
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There are three key compon ents to strong eGrocery sales
COM PON ENTS OF eGRO CERY SALES
Ord er Size
OrderFrequency
HouseholdPenetration
Type of sh opp ing occasion (e.g.stock-up)
Frequen cy of shop Hou sehold size / demographics
Consum er plann ing horizon Ord er size Pack size Willingness to hold inventory Disposable income
Hou seholds with comp uters andinternet
Know ledge of service
Household demographics Consum er behavior patterns
Variab les Challenges
Grow th in frequ ency or penetrationmay lower order size
Requires w eekly shop/large order Not set up for large num ber of small
orders
Reasonab ly high level of plann ingrequired Availability of d esired delivery
slot/window
Hou seholds most able to order maybe least w illing to order
- Gen X&Y not plan nin g meals
- High food away pu rchase- Breakdown of traditional m eals
Shopp er will pass traditionalsup ermarket at least two times a day
Component
eGrocery
Th W b d l i l i 22% f l d i d i b l d i d
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The Webvan model is only operating at 22% of plann ed capacity driven by lower order sizes and
lower p enetration
WEBVAN D ISTRIBUTION CENTER FINAN CIAL MOD EL
Average
Order1
$103.00
Daily
Orders
8,000
7 days/week
364 d ays/year $300 Million/Year
Prospectus Finan cial Mod el
Average
Order
$90.33
Daily
Orders
2,000
7 days/week
364 d ays/year $16.2 Million /Q1
$65.1 Million/Year
(annualized)
Actual Q1/2000221.7% Cap acity
1. Prospectus model assumed 8,000 orders, 225,000 items, for 28.2 items/order at $3.65 each; 1-3% penetration (i.e. weekly shop); 2. Q 1 used for clarity because financial
Data is for one DC (SF) and one concept (Webvan); Q2 includes Atlant a DC; Q3 data includes Homegrocer; Source: Webvan prospectus, and 10Q; press articles; Coriolis analysis
eGrocery
Th d t i i $91 d ll
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$91.00
$81.57
$36.34
$31.82
$17.72
$10.22
$9.23
Webvan
Warehouse Clubs
Mass Mer chan ts
Grocery/Supercenter
Dr ug
Dollar Stores
Convenience/Gas
The average spen d p er trip is over $91 dollars
AVERAGE SPEND IN G PER SHO PPING TRIP BY OUTLET TYPE1
($ per sh opp ing trip ; those th at shop chann el; 2000)
1. A verage amount spent per visit by customers who shop t he channel; Webvan data for average Q1 customer
Source: ACNielsen; Webvan; Coriolis analysis
eGrocery
and growing this to $103 does not appear to pose a challenge
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and growing this to $103 does not appear to pose a challenge
AVERAGE ORDER SIZE
($ per de livery; Q 1-Q2/20001
)
$128
$102
$100
$98
$91
1. Peapod uses FY 1999 data
Source: Webvan 10Q; Homegrocer 10Q; Peapod 10Q; press reports
eGrocery
The average Webvan customers is shopp ing online eight times a year a similar frequency to
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90
26
15
13
10
9
8
Grocery/Supercenter
Mass Mer chan ts
Dr ug
Convenience/Gas
Dollar Stores
Warehouse Clubs
Webvan
The average Webvan customers is shopp ing online eight times a year, a similar frequency to
Warehouse Club stores, bu t much lower than at sup ermarkets
SHOPPIN G TRIPS PER YEAR BY OUTLET TYPE1
(# of shop pin g trips; those that sh op chan nel; 2000)
1. A verage number of times customers who shop the channel visit the store type; Webvan data annu alized from average Q1 customer
Source: ACN ielsen; W ebvan; Coriolis analysis
eGrocery
In Q 1/00 Webvan had orders from 3 1% of Bay Area househ olds bu t achieved only 0 55% mark et
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In Q 1/00, Webvan had orders from 3.1% of Bay Area househ olds, bu t achieved only 0.55% mark et
share
WEBVAN M ARKET SHARE - BEST CASE SCENARIO
SF Bay Area Hou sehold s1 2,787,506 HH
Webvan customers 87,000 HH
Webvan HH Penetration 3.1%
Grocery/Drug Store expenditure per HH per year $4,250 HH/year
Region al Grocery Sales in Q1 $2,962 mi llion
Web van Sales in Q1 $16.3 mil lion
Webvan Market Share 0.55%
1. Includes households in nearby Sacramento region
Source: US Census Bureau; FMI; W ebvan 10Q; Coriolis analysis
eGrocery
in a h ighly comp uter literate region th at includ es Silicon Valley bu t wh ere it battles two
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in a h ighly comp uter literate region th at includ es Silicon Valley, bu t wh ere it battles two
strong supermark et chains
SF BAY AREA MAR KET SHARE1
(# of ou tlets; % of Sales; Q1/2000)
129 stores28.7%
118 stores
26.2%1 Distribution center15 Delivery Stations
225 Delivery Vans
0.55%
Other44.5%
1. Includes San Francisco, Oakland and San Jose areas
Source: ACNielsen M arket M onitor; Webvan 10Q; Coriolis analysis
eGrocery
To achieve th e plan ned 8,000 orders p er day, either existing customers n eed to bu y more
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13.1%
10.5%
8.1%
4.0%
2.0%
To achieve th e plan ned 8,000 orders p er day, either existing customers n eed to bu y more
frequen tly or more customers n eed to b e attracted
PENETRATION AS A FUNCTION OF YEARLY SHO PPING FREQUENCY1
(% hou sehold s shop pin g vs. vans/hou sehold /year; to achieve p lann ed 8,000 orders/day)
Average number of deliveries per household per year
Percent of SF Bay Areahouseholds required
as customers
1. Percent of households required as customers as a function of annual average household order frequency; to reach 8000 orders per day;
2. Q1 results on an annualized basis; Source: Webvan prospectus; Coriolis analysis
Actual Q1
8/year2Five Weekly
10/year
Four Weekly
13/year
Fortnightly
26/year
Weekly
52/year
3.1%
Actual
Required
eGrocery
It appears that Webvan customers are unable to commit the time and plann ing required to shop
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pp p g q p
more frequen tly and that th e service may n ot be as convenient as initially expected
ORD ER PROCESS
Drive from
home to
store
5-10 min
Time
to shop
15-45 min+
Drive from
store to
home
5-10 min
Total time
to shop
25-65 min+
Start
computer
& logon
internet
5 min
Time
to shop1
15-45 min
Time to
delivery2
1-5 days
Time to
delivery3
1-5 days
Total time
to shop
50-70 min
Delivery
window
30 min+ + + +
Traditional Superm arket
WebVan
1. M ay be company time (i.e. free); 2. Limited delivery slot availability at popular times (e.g. 6pm) m eans first available delivery window may be days away
3. Shopper will probably pass a convent ional supermarket t wice a day durin g this period
eGrocery
Webvans stock h as taken a pu nishin g, despite the best efforts of the analysts
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$0
$5
$1 0
$1 5
$2 0
$2 5
$3 0
$3 5
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
Aug-00
Sep-00
Oct-00
p g p y
WEBVAN STO CK PRICE SINCE FLOAT
(US$ per sh are; high /low/close; Nov99-Oct00)
Merrill Lynch (Strong Buy)Deutsche Bank (Strong Buy)
Thomas Weisel (Strong Buy)
Robertson Stephens (Buy)
Donald son, Lufkin & Jenrette (Buy)
Pacific Growth (Strong Buy)
JC Branford (Buy)
Bank of America (Market Perform)
E*Offering (Strong Buy)Bear Stearns (Attractive)
Thomas Weisel (Downgrade)
Prudential (Hold)AG Edwards (Accumu late)
Thomas Weisel (Downgrade)
Deutsche Bank (Strong Buy)
Merrill Lynch (Downgrade)
Deutsche Bank1 (Downgrade)
SSB (Neutral)
AG Edwards (Downgrade)
1. This is sometimes described as closing the stable door after the horses have bolted
Source: BigCharts; Briefing.com
Prudential (Sell)
eGrocery
Webvan and Homegrocer have seen a combin ed $11.3 Billion fall off their m arket capitalization
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11 Oct 2000
$2,080.7
$387.8
10 Ma rch 2000 11 Oct 2000
$10,220.2
$580.4
5 Nov 1999 11 Oct 2000
highs
MARKET CAPITALIZATION H IGH S AND LOWS1
($thou sand s; mark et capitalization; open ing day h igh vs. current)
1. M erger actually September 5th, 2000; 1.07605 shares of WBVN for every 1 share of HOMG
Source: Briefing.com; Webvan; Coriolis analysis
($9.6 Billion )
($1.7 Billion )
$968.2
(Merged G roup)
eGrocery
With the poppin g of the internet bub ble, reality appears to have set in, and d emonstrating DC
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profitability has become the key requiremen t
There have recently been a n um ber of high profile failures causing th ree compan ies to
close all or part of their operations and an on going wave of consolidation is takin g place
A num ber of people questioned th e idea from the very start
For the time b eing, the market ap pears to be mu ch smaller than previously expected
The k ey everyone is looking for is p roof of DC profitability, includ ing Webvan s
competitors
eGrocery
There have recently been a nu mb er of high profile failures
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RECENT FAILURES
Houston, TXDallas, TXAustin , TXColombus, OH
Closed Oct, 2000 afterlosin g $360 mi llion
Used investor moneyto subsid ize savings
End ing B2C in N YCand London Focusing on profitable
B2B in NYC
Suddenly shutdown Ceased operations
Novem ber 2000
Sold Washington D Cand Chicago to Peapod
Ceased operationNovem ber 2000
eGrocery
causing three comp anies to close all or part of their operations
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Boston
eGRO CERY OPERATION S BY REGION
(Actively trad ing; as of Sep t 31, 2000)
Source: various press releases
eGrocery
and an on going wave of consolidation is taking place
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RECENT M ERGER AND TAKEOVER ACTIVITY
(Chicago & Washington DC))
(22%)
($73mm; 50%)
($30mm; 50%)
eGrocery
A num ber of people questioned th e idea from the very start
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The current m odel of neighborh ood grocery stores will not be overtaken by Web-based
grocers. The distribution pattern for low value-added goods exists for a reason It will
be very tough sledd ing except for very high-income areas Who the hell am I to
qu estion Webvan wh en th ey have an $8 billion m arket cap? Were at $12 billion, and Im
almost ash amed to say we h ave $2.4 billion in EBITDA.
Fred Smith , Foun der/CEO, Federal Express, N ovemb er 1999
Theyre expecting consum er beh avior to change bu t are expecting the competition
won t chan ge.
Francis Gask ins, Gaskin s IPO New s, Augu st 1999
I don t believe they will b e able to op erate an online grocery store more cheaply than a
bricks-and -mortar store in the n ext five or ten years.
Ken Cas sar, Jup iter Comm un ications, July 1999
eGrocery
For the time b eing, the m arket app ears to be m uch smaller than previously expected
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HO W BIG IS THE MARKET?
Households
With
compu ters &
internet
In densely
populated
cities
Order
Size
$
Order
frequency
Times/year
Penetration
of
Households
Basic Unit Ability to
Order
Ability to
deliver
How much? How often? How many?
Th e 1999
Internet Bub ble
Equation
Th e 2001
Internet Bust
Equation
=$85 Billion
Market1
= $500 Million
Market
1. Anderson Consulting, by 2007
eGrocery
The k ey everyone is looking for is p roof of DC p rofitability
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Were not overly concerned with the entire company gen erating p rofits, but w e need to
see a distribution center move to profitability. We want to know , can they give the
Street any guidan ce on expected cash flow profitability of a particular d istribution
center wh ether it be in San Francisco or Atlanta, or at least at one of Hom eGrocers
facilities?
Shaw n M ilne, E-Offering An alyst, October 2000
The qu estion is w hether or n ot theyre going to be able to turn each of th ese
distribution centers into profit centers.
Matt Stam ski, Gom ez Advisors, July 2000
The problems that I have with Webvan are basically that its an un proven bu siness
model, and that they h avent show n yet th at they can m ake m oney delivering groceries.
Mark Rowen , Pruden tial Secur ities, July 2000
Does it have enough fuel to mak e it into orbit?
Unn amed Analyst, Wall Street Journal, O ct 2000
eGrocery
including Webvans competitors
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I don t believe you move forward withou t profitability. Im n ot saying the comp any h as
to be profitable. But the model has to be profitable - and you h ave to prove you have a
profitable m odel.
Marc van G elder, CEO Peapod , ex-Ahold VP, July 2000
Once we have achieved u nit profitability, then an d on ly then w ill we proceed with ou r
rollout stra tegy.
Edward Albertian , Presiden t, Streamlin e, Sept 2000
We recognize that what th e market is looking for is b oth top-line growth and bottom-
line performance.
Mary Taylor, CEO Hom eGrocer, [now on Web van board], May 2000
eGrocery
It is still unclear wh o will u ltimately w in: clicks or b ricks & clicks
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Existing supermark ets are still rush ing to go online, bu t appear to be repeating the
evolution of the ind ustry
The braw n of traditional superm arkets appear to be overcoming the b rains of Webvan
If DC-based eG rocery can dem onstrate fin ancial viability, we expect significant
consolid ation to occur as those w ith better fin ancing or better techn ology thrive
Just as Warehouse Clubs evolved from a large num ber of competing chains into two
surviving indep end ents and a division of a retail chain
eGrocery
Existing sup ermarkets are still rush ing to go on line
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Broward & Palm Beachcoun ties, Florida
Washington D .C.
Dallas, Texas
Hou ston, Texas
Austin , Texas
Phoen ix, Arizona
Denver, Colorado
Charlotte, North Carolin a
RECENTLY ANNOUNCED eG RO CERY ACTIVITY BY SUPERMARKETS
Launchin g Pu blixDirect (April 2001)
Building regional distribution center
Laun ching co-brand ed Peapod by G iant
Rebrandin g Grocery Works by Tom Thum b
Rebrandin g Grocery Works b y Rand alls
Launchin g Grocery Works by Ran dalls
Laun ching Grocery Works b y Safeway
Laun ching Grocery Works b y Safeway
Launched Harris Teeter Express Lane
Internet ord er, store p ick-up
ActionLocationChain
eGrocery
bu t appear to be repeating the evolution of the indu stry
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Stage I Stage II Stage III
Store Pick Manual DC Automated D C
Low cost start-up
Use existing facilities
Unable to hand le large
volumes
Clog up existing stores
Cost plus ap proach
High error rate
No econom ies of scale
Peapod (initially) Albertsons
Harris Teeter
THE TH REE STAGES OF eG ROCERY IMPLEMENTATION
Strengths
Weaknesses
Examples
Minim ize risk
Flexible to low or
variable volum es
Hard to achieve lowest
cost position
Lower m argins than
high-volum e Stage III
Ahold/Peapod (current) Safeway/Grocery Works
PublixDirect
Lower total cost thansupermarkets
Defensible techn ology
& patents
High initial capital cost
($35 mil lion /DC)
Requires high
minimum volumes to
achieve profitability
[WebVan]
eGrocery
The braw n of traditional supermark ets appear to be overcoming the b rains of Webvan
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WHO WILL WIN?
New-economy min dset and b lank slate
approach to the bu siness
- Access to program mers and technology
resources via stock op tions
- No commitmen t to existing system orsup ply chain
- Op portun ity to associate new b rand
with n ew m ind-space
Sustainable comp etitive advantage
- Defensible techn ology
- Patent pro tection
- Ow nersh ip of critical conveyer belt
equipment manufacturer Well finan ced throu gh VC and initial IPO
bu t burn ing cash at a rapid rate
Existing merchandise volumes and discoun ts
give lower cost of goods
Existing, in -place structures
- Buying
- Warehousing- Distribution
- Marketing
Existing consu mer relationsh ip
- Brand
- Trust/history
- Location
Existing bu siness can cross-subsid ize web
venture for a long time
eGrocery
If DC-based eG rocery can dem onstrate fin ancial viability, we expect significant consolidation to
occur as those with b etter finan cing (Ahold ) or better techn ology (Webvan ) thrive
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POTENTIAL CON SOLIDATION IN eGROCERY
1999 2002
eGrocery
Just as Warehouse Clubs evolved from a large num ber of comp eting chains into two surviving
indep enden ts and a d ivision of a retail chain
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CONSO LIDATION IN WAREHO USE CLUBS
BJs (46)
Costco (114)
Max Clubs (10)
Pace (120)
Price Clu b (102)
Price Rite (3)Sams Clu b (329)
Source Club (7)
Warehou se Club (10)
Wholesale D epot (10)
Supermarket
Club Aisles
1992 2000
Costco (292)
BJs (107)
Sams Clu b (512)
(Wal-Mart)
eGrocery
IV. The imp act of this evolution on traditional sup ermarkets will be limited
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THREE SCENARIOS FOR eG ROCERY
Hallucination
Flash in the pan - a case
study in internet mania
Consum ers un willing to
change
Limited group w illing to pay
premiu m for home delivery Short consum er planning
horizon limits order
frequency
Cant achieve min imum
delivery area h ousehold
penetration
Concept disapp ears when
cash run s out
Emerges a new an d viable
retail chann el
3-5% h ousehold penetration;
fortnightly orders
DCs achieve lim ited
profitab ility in 20-40 high lypopulated urban regions
Market sh are loss spread
throughout market
Evolution Revolution
Replaces significant percent
of supermarket trips
20-40% penetration; weekly
orders
DCs achieve econom ies of
scale and are very profitable Conventional sup ermarkets
mak e major chan ges; large
nu mb er close
eGrocery
how ever, both m anufacturers and retailers should carefully consider the consequ ences
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IMPLICATIO NS O F SUCCESS
What percent of food sales will this chann el
finally achieve?
Where will the bu siness come from?
- Superm arket stock-up sh op
- Warehouse Club s- Standard shopp ing-cart staples
Where wont the b usiness come from?
- Impulse purchases
- Last minute requ irements
- Convenience foods
Should we laun ch a h ome delivery service?
- Leading ed ge or bleeding edge?
- It there a down side to waiting?
Manufacturers
Man ufacturer bran ds m ay be a historical
anomaly related to self-service supermarkets
eGrocers have absolu te control over the
point-of-purchase
Items in the regu lar cart have lock-in With scale, wh at percent of sales will
u ltimately b e pr ivate lab el? 20%? 40%? 60%?
Existing Retailers