Tuesday, June 2, 2009

Still Learning from Webvan's Failure

Exactly 10 years ago, Webvan opened its virtual doors as a U.S. online grocery shopping site. Alas, it was not long for this world. "After burning its way through more than $1.2 billion in two years after its high-profile launch, the company declared bankruptcy in July this year," said an insightful Knowledge at Wharton article in late 2001.

Today, online grocery shopping is not only alive but doing quite well in many countries. Webvan's spectacular failure didn't deter other competitors from finding new ways to profit from online grocery retailing. Convenience counts, reliability counts, selection counts.

Peapod (image above), owned by the people who operate Stop & Shop and other U.S. supermarket chains, has a solid customer base and revenues are up, despite the down economy. One reason for its success is brand recognition--it was one of the pioneers of the industry and has never stopped promoting itself. Even friends who prefer going in person to select that perfect package of strawberries or a ripe tomato from Stop & Shop sometimes shop for staples on Peapod's easy-to-navigate site.

Independent groceries are competing by offering online shopping but not delivery. This works for some shoppers and at least allows the independents to offer some online convenience--and avoid some of the logistical nightmares that tied Webvan up in expensive knots.

In the UK, Tesco's online grocery service, one of the first and certainly the largest in the region, remains an important part of the supermarket's business model. However, Ocado (which fulfills orders with foods from Tesco competitor Waitrose) is especially hot these days, with by far the highest customer satisfaction scores in a recent survey. Apparently customers like Ocado's accuracy, selection, prices, quality, and friendly service. Ocado has the magic touch that Webvan lacked.

Still, past performance is no guarantee of future results. Or, as another cliche notes, success is never final. In the end, Ocado and Peapod and their competitors have to win customers one order at a time, day after day after day, and keep them happy (or make things right) every time.

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