'. ..,- .",.~c_-.:__-,-.-.-~-,,,, _4"'@OO~lifIt~Engineeri ng Costs
and Cost Estimating
Webvan Hits the Skids
Webvan, an on-line supermarket, aimed to revolutionize the humdrum business of selling
groceries. Consumers could order their weekly provisions with a few clicks and have the
goods delivered right to their door. It sounded like a great business plan, and the company
had no trouble attracting capital during the dotcom boom of the late 1990s. Eager investors
happily poured hundreds of millions into the company.
With that kind of money to spend, We-
bvan invested lavishly in building infrastruc-
ture, including large warehouses capable of
filling 8000 orders a day. The firm rapidly
expanded to serve multiple cities nationwide
and even acquired a competing on-line com-
pany, Home Grocer.
But the hoped-for volume of customers
never materialized. By early 2000, Internet
grocers had managed to capture only a small
part of the food sales market-far short of the
20% they had anticipated. When the dotcom
boom went bust, Webvan suddenly looked
much less attractive to investors, who quickly
snapped their wallets shut.
Without new money coming in, Webvan
suddenly had to face an uncomfortable fact:
it was spending far more than it was earning.
Finally, in 2001, Webvan went bankrupt. A
rival on-line grocer, Peapod, narrowly escaped the same fate-but only becausea Dutch
retailer was willing to buy the company and continue pumping money into it.
Interestingly, at the same time Webvan was burning through millions in dotcom cash,
a bricks-and-mortar supermarket chain in Britain called Tesco also decided to get into the
on-line grocery business. Tesco invested around $56 million in a computerized processing
system and, instead of building warehouses, had employees in each store walk the aisles
filling orders. Unlike Webvan, Tesco made a profit.III
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