Remember Webvan? So Does Amazon

August 1st, 2007 at 4:12 pm

It’s only in Seattle because they want to stay in business for a bit longer

Webvan got crushed because they spent all their dinero on building huge DC’s that they didn’t need yet as opposed to advertising the heck out of the thing and then getting killed with poor customer sat by not delivering well. Showed that both strategies are good ways to kill a business.

August 1st, 2007 at 4:17 pm

I actually believe that if anyone can pull this off it’s Amazon. I have some great friends that are executives at Amazon that really have instilled confidence in me that this will work. I believe though for this to be national Amazon needs to establish partnerships with nationwide grocery chains.

August 1st, 2007 at 4:18 pm

One more thing, this is a great experiment because it gives Amazon the opportunity to test drop locations which could translate into a new shipping and receiving medium for regular amazon items.

10.10.84

August 1st, 2007 at 4:20 pm

FreshDirect has been at is for years, and successfully so. It’s worth pointing out the successful stories along with the failures.

August 1st, 2007 at 4:24 pm

Since moving to Portland I’ve been doing all my shopping from the locally owned New Seasons online store. All organic, *locally owned*, biodiesel delivery van - I LOVE it. I see that van zipping around Portland all day long. They even deliver me beer.

August 1st, 2007 at 4:43 pm

It works in many countries already - they just have to copy those models and it will work in your country too.

August 1st, 2007 at 4:52 pm

THANK GOD!

I’ve often lamented the downfall of Webvan as the grocery store is one of the least pleasurable activities that I could imagine.

Like Joe said above, the only reason why Webvan flamed out is the fact that they expanded too quickly and to the wrong areas. Dallas? Please. Geography and traffic alone preclude that town without even going into the arguments of broadband and internet penetration. Areas with urban density (Seattle, San Francisco, Chicago, etc) can support such a service, whereas vast suburban cities will make logistics a bit more painful.

Bring it on, Amazon (hell, and if I can get my books and electronics the same way, I wouldn’t complain).

Cheers,
Randy

August 1st, 2007 at 5:09 pm

Vons supermarket here in Fresno does this on their own.

August 1st, 2007 at 5:21 pm

Fresh Direct has been doing this for at least four years in NYC. I used them repeatedly when I lived there and they always had great food at a low price and with a low delivery charge. Stop & Shop’s Pea Pod service can’t compare. Good luck to Amazon. For those of us living in a city this is a welcome service.

August 1st, 2007 at 5:27 pm

Kate (13), I’m not sure I follow your reasoning there. Let’s say that 10 people order their groceries through this service instead of driving to the supermarket themselves. Sure, the van is doing more miles than any one of those 10 drivers would have done individually, but it’s certainly doing less than all 10 combined as it can carry all of the groceries in one or two trips.

As far as I can see this is going to *reduce* emissions, not increase them.

August 1st, 2007 at 5:43 pm

It’s kinda lame. There’s more to shopping for groceries than getting them.
There’s package condition, freshness, and expiration dates. You can’t do much about all that if you’re getting it delivered. Or what if it’s extremely hot that day?

I do like the idea of the milk men, though. Fresh milk in a glass on my door step. I’m too old fashioned, I guess.

August 1st, 2007 at 5:53 pm

I think the guy running this for Amazon used to be at WebVan, funnily enough…

August 1st, 2007 at 5:55 pm

Awesome. Freshdirect in NYC rocks. Safeway also does online in CA.

August 1st, 2007 at 6:11 pm

I can think of a zillion types who would benefit from this type of service.

What about: pregnant or new mothers who can’t get out much for a period of months, and would love to have groceries delivered. This group is ever changing, but is very well networked, young, and net savvy; older folks living in senior apartments that would like to eat one or more meals in their rooms each day, and don’t like to drive, or can’t, or have physical limitations. Granted, many are not net savvy. Many, though, are becoming computer literate enough to e-mail and order gifts and items, and love the new found freedom; anyone with limitations/handicaps. I have a family member (in her 30s) with a tough form of epilepsy. She can’t drive, can’t get out of the house some days, but spends lots of time on her MacBook, some of it shopping for clothes, gifts and things. Groceries delivered to her door would be fabulous; And of course the busy professional who preorders food and supplies and has little time to spend cruising the aisles.

My money’s on Amazon. If anyone can do it they can.

August 1st, 2007 at 6:30 pm

This should be a local thing IMHO. In my area we have http://simondelivers.com

August 1st, 2007 at 7:43 pm

I’m in NYC and have found FreshDirect to be great (I use it for holidays) but keep hearing rumors about how it’s “not doing well.” I’ve heard weird reasons ranging from lack of growth to the fact that parking ticket fees apparently cut into revenue. No clue whether any of it’s true, but I certainly do see fewer FreshDirect trucks now than I did when I moved here a little over a year ago.

August 1st, 2007 at 8:29 pm

For the record, it was WebVan’s poor execution that brought itself down. Companies like PeaPod (still around) and HomeGrocer were much more successful. It’s interesting that as much as we lemented WebVan, there’s so many people who are disappointed that they went under. But having said that, there’s a lot of others in this industry now including Albertsons and SafeWay. Amazon would be a nice edition, provided they don’t get all upity like WebVan did.

Good job Amazon.

August 1st, 2007 at 9:33 pm

Amazon Fresh, please come to my town. I’m begging you. Actually go to everyone’s town. I laughed when I read that this is not environmentally friendly. Many Americans drive alone in their gas-guzzling SUVs along their paved paradise, the suburban wasteland, to grab one or two items at Walmart, the mecca of consumer choice. The Paradox of Choice written by Barry Schwartz expresses the

August 1st, 2007 at 10:07 pm

wups I hit summit on accident.

*expresses the unhappiness induced by too much choice, the thirty different types of chicken noodle soup for example. Grocery shopping online is the sanest, least carbon ommitting, healthiest, perhaps most conscious way of shopping. Imagine the possiblities of Amazon launching an open API for this thing. TreeHugger.com could build a widget that would rate a product’s organic, fair-trade qualties on a green scale. You’d have the depth of the Internet providing context to your food choices. Which is the best soup to buy? Ask Consumer Reports! The possibilites are very exciting.

Webvan failed for many reasons many which have been dutifully listed above. Amazon is in a unique position already overcoming all the obvious ones listed.

A laundry list of differences between webvan and Amazon seems appropriate. I’m fanboying Amazon Fresh right now.

The Internet of 2001 is not the Internet of 2007. (broadband penetration, YouTube, online-apps, social networking, new more powerful web languages: Silverlight, C#, AJAX, Ruby on Rails, Flash 9, XML; open APIs, mashups, and we can’t forget blogs) The Internet is an all together different beast. Imagine the Net Neutrality debate happening in 2001! ha

Webvan was part of a fiscally irresponsible — a startup borrowing to fuel unsustainable and unstable growth. Amazon is a web giant who will reach deep into their pockets. Reminds me of MS and its pet project the once-thought-to-be-crazy Xbox. Amazon might burn a lot of money figuring this equation out, but there is a need that they’ll eventually, profitably fill.

Amazon is king of logistics. The World is Flat anyone?

Amazon has the sense to only offer this in markets that will be profitable. DUH! That “duh” was directed at Webvan. Dallas? D’(id) Bush ever get dem deir Internets yet?

In Dieppe France, I got a bag with 6 pain au chocolate delivered to my host family’s house everyday. If Amazon can figure out an interface for local businesses to piggyback off Amazon’s delivery service, they could milk out even more profit.

Ultimately, IMHO, I see a deciding parallel between Amazon Fresh and Apple’s early iTunes. This market will be monopolized by the first multidisciplined outfit that elegantly combines software, hardware, and dealmaking with an emphasis on the last one. iTunes did not become the juggernaut it is today without serious, timeless dealmaking. They made deals with record companies while everyone else said it couldn’t be done. Amazon will have to make deals. There is room for Amazon to become a distribution platform (ie desktop=>Windows; social networking=> Facebook; selling stuff=> eBay).

The government should subsidise this which would reduce carbon ommisions today. With all our free time, maybe we’ll exercise more and we won’t be so fat… or maybe we’ll just read more TechCrunch. Doh.

August 1st, 2007 at 10:24 pm

I live in Seattle…haven’t seen any vans yet. Nor been solicited by Amazon, where I’ve had an account since the very beginning. Used to see HomeGrocer trucks everywhere, WebVan bought them out before the fall.

August 2nd, 2007 at 12:23 am

Would only work in a large metro area.

August 2nd, 2007 at 2:41 am

For everybody that has used or is familiar with this kind of service, what kind of fee is charged for delivery?

August 2nd, 2007 at 3:31 am

Logistics. I don’t know about in the US, but isn’t it normally FedEx or the postal service who delivers Amazon stuff? Not saying that Amazon doesn’t have extensive logistics IT, but doubt if it has fleets of vehicles.

In the UK, France and even here in Israel lots of supermarkets have a web ordering system. My wife with 2 young kids swears by it (not at it). I don’t know if it charges a premium, that’s how priceless it is.

If Amazon can aggregate local companies to act as last mile suppliers, it could make a go of it, rather than rolling out enormous chilled distribution centers. Just needs a whizzy logistics and scheduling info management system, which of course they have already.

August 2nd, 2007 at 6:03 am

Pass. Pink Dot brings me everything I need, when I need it.

http://www.pinkdot.com/

August 2nd, 2007 at 7:23 am

Webvan was ahead of its time but it was also a product of its time. The mantra of the day was “Get Big Fast”, and if Webvan had gone to their investors (and later The Street), with anything less than a homerun strategy, they would not have secured the financing that they did. The fact that they skipped straight to the end-state of enormous highly-automated distribution centers with very tight delivery windows and pricing comparable to the grocery stores (despite the enormous value being given away to the customers) was their downfall. In a business model where it would have been cheaper to mail a $20 bill to every customer who logged onto the web site rather than to fulfill their orders, the solution should not have been VOLUME. No wonder customers loved Webvan - they got a very valuable service essentially for free.

It should have been over before it began, really. The odd thing is that Webvan had actually achieved profitability in its more streamlined distribution centers (the ones inherited from Homegrocer) before the plug was pulled. Right up until that moment, things were going in the right direction and there was still plenty of cash left to continue refining the operation. The optimal DC solution was close to being worked out but the tremendous overhead wasted on things like re-branding the logo from the grocery bag to the W “squiggle”, was just a crying shame. There was a disconnect between those jumping ahead to look at the homerun strategy of providing the end-all solution to the last mile problem and those working to make tactical improvements. But without that strategy and the financing that it produced, the company never would have existed in the first place.

Amazon stands a better chance of succeeding at this because they will not be quite as beholden to investor/shareholder returns for this venture alone. They don’t have to waste money on brand-name recognition and customer acquisition - they did that 10 years ago. They already have the DCs, though grocery is a different animal with multiple ambiances, perishability, health codes, and extreme handling requirements for things like eggs. The DC model could work if they could get the VENDORS to stock the shelves like they do in a grocery store; the vendors should be happy about this because they could often drop the merchandise in bulk or at least display it with lower standards than the grocery stores have - who cares if the label is facing forward in the DC? Amazon also has a world-class business development office to explore partnerships with brick and mortar chains if the DCs aren’t equipped or a given market can’t support a DC.

Grocery is tough logistically and the margins are already razor-thin. Webvan knew that if you could solve grocery, everything else would be easy and they would then own the weekly customer delivery for other products as well. Amazon is coming from the other direction, first mastering dry goods sold intermittently. But they need to carefully consider the logistical difficulties of dealing with groceries. If Amazon is wise enough to price the products and the delivery service in a way that they will only serve customers that truly value the service, they’ll start well ahead of Webvan. My advice would be to set customer expectations early and then exceed them, rather than follow the path that Webvan took.

August 2nd, 2007 at 8:36 am

WebVan gets beat up at lot, but it was a simple case of the market not being ready and the mania of the times. I’m sure they made a ton of mistakes and building that business from scratch is crazy expensive.

But the Amazon’s take on it in 2007 is pretty exciting. To me, Amazon is doing the most really cool stuff in the web marketplace right now.

August 2nd, 2007 at 8:44 am

hmm.. I thought Albertson’s was doing it already..

https://www.albertsons.com/access/lt_whatwedo.asp

August 2nd, 2007 at 9:05 am

I used to work in the food distribution business. The company I worked for supplied 40% of the McDonald’s in the US as well as every Red Lobster, Olive Garden, Chik-Fil-A, Arby’s, TGI Friday’s, Chili’s and others. We had 16 warehouses, 9 of them were 1 million+ Square Foot warehouses spread throughout the country.

At the time, the company I word with had $9 Billion in sales, and only had $12 Million in profit. This is no Startup but a company that had given Ray Kroc his seed money to start McDonald’s and was very experienced. We were able to calculate that on average, our profit was 5 cents a case.

I can tell you exactly why Webvan failed, and why Amazon needs to take it slow, and the risks involved.

1. Dry / Refrigerated / Frozen – I order to supply grocery items, you must have a warehouse that is temperature controlled. That is not cheap. Since Freon (CFC’s) were banned due to the Ozone layer, alternatives for coolant now include Ammonia. Ammonia is highly toxic and deadly. It is used as a refrigerant. To comply with State / Fed / Local Environmental statutes when building and running a distribution center like this costs a lot of money. Special spacesuits need to hand on the walls in case of emergency, a retention pond needs to be on site to dilute ammonia in an emergency. All these things contribute to the high cost of building a dist center.

Then you have the product itself. The company I worked for only supplied Case Goods (No fresh fish or produce). You really have to know what you are doing to handle produce. Banana shelf life is a lot different that tomatoes, etc. Better to let the local produce guys handle that. It is their specialty. Fresh fish is also a major problem. Better to let the experts handle that as well.

2. Route Planning / Distribution - In planning your deliveries and routes you have to be ultra sensitive to time and cost, especially with gas prices, traffic / congestion. Then you have to plan the delivery window of when you are going to deliver. You also want to group your deliveries together as much as possible to make your deliveries as efficient as possible.
I’m not even talking about the actually transportation issues. We had a huge fleet of refrigerated semi trucks. Or drivers were bound by federal laws. They could only be on duty 10 hours. Only 8 hours of driving. If they ran out of hours while on a route, they had to pull over and wait for another truck to come and take over the delivery.

Distribution, especially food distribution when you add complexities of refrigeration has extremely tight margins. If you do not know what you are doing going in, your mistakes will be very costly. You’ve got to add in all those warehousing, trucking, inventory, and labor costs before you even see a dime.

August 2nd, 2007 at 9:32 am

HomeGrocer was awesome…they did everything right including having a name that perfectly described their business so that their trucks (which had a fresh, clean design) were rolling billboards. If Webvan (dumb name) hadn’t bought them out they probably would have done very well.

August 2nd, 2007 at 9:50 am

@John.
That would be true if these services were trucking the goods from the closest supermarket to the customers, in the same way that people drive the the closest or one of the closest supermarkets most of the time. However, the door to door grocers (not the supermarkets that deliver like Albertsons etc) are cheap because they buy in bulk, and truck in food from warehouses out in the boonies. That means that they’re driving longer distances, often on freeways, to get into the city, then driving all around the city to deliver. I don’t know about you, but when I drive to the store, I don’t go across town, and I rarely take a freeway.
Also, in large cities like new york, few people drive to the market at all, meaning that users of fresh direct are absolutely increasing emissions.
Sure, these services are easy, and for people who have a hard time getting around they may be useful. But for everyone else, it’s a huge waste.

August 2nd, 2007 at 12:28 pm

Re: “plus supermarkets don’t even bother doing this because they know it’s not profitable.” - er Safeway does it and they are profitable.

August 2nd, 2007 at 1:46 pm

Who can forget Webvan? It was supposed to be the wave of the future for grocery shopping. Though, I think that Amazon is better positioned to make it work because of it’s name and existing customer base.

August 3rd, 2007 at 10:44 am

The folks pointing to FreshDirect are correct to identify a model that works, albeit in NYC - a market with very special characteristics. I’ve lectured on FreshDirect in the past. Here’s a (crummy quality) podcast pointer to a year+ old lecture, but it does cover strategy issues (http://www.gallaugher.com/ecpodcastsspring2006.html - scroll to first two lectures). I’d be interested in comments from any who have insights on AMZN Fresh vs. FreshDirect. The evolution in this maket makes a great & constantly evolving teaching case.

August 11th, 2007 at 10:33 pm

I’ve ordered from FreshDirect every week since it opened in late 2002. Why the dot-com era online grocers didn’t start in New York I have no idea — population density doesn’t get any better plus New York has awful grocery stores. That combination plus great execution rocketed FreshDirect to success. Lately, many Gristedes locations have closed. Good riddance to those filthy stores.

August 18th, 2007 at 5:33 pm

hi nice post, i enjoyed it