Over the last decade, the number of internet users has grown at a truly astonishing rate and today the online community is comprised of over 2 billion people. Given that in 2013 we will spend a staggering $1.3 trillion shopping online, it’s not surprising businesses put so much emphasis on their online retail operations.
Despite the vast number of online shoppers, the internet is an unforgiving environment, especially when it comes to online grocery shopping. While the likes of Wal-Mart and Tesco have established profitable ecommerce operations, not all businesses have been as successful.
Take for instance Webvan; in 2001 the online grocery retailer made history as one of the most expensive e-business failures to date. With the promise of cheap groceries and market leading 30 minute delivery windows, Webvan was expected to completely redefine how Americans bought their groceries. However, at the very peak of the dot-com era, the online retailer crashed out of business.
When Webvan was first launched in 1999, it was the biggest online operation of its kind and attracted huge investment from the likes of Goldman Sachs and Yahoo. Given that the value of online sales was expected to be worth $6.5 billion by 2003, Webvan saw massive potential in online grocery shopping. In order to capitalize on this opportunity, Webvan embarked upon an aggressive growth strategy and began investing millions of dollars in their supply chain as they quickly expanded across America.
While shareholders were repeatedly assured that the heavy investments in giant distribution centres and cutting edge automated technology would pay off, ultimately Webvan grew too big, too quickly. Through massively over-estimating demand, Webvan developed a supply chain which far exceeded their actual demand requirements.
For example, at over 350,000 square feet, each distribution center was capable of fulfilling 8000 customer orders per day and could hold up to 50,000 SKU’s. In reality however, each warehouse only stocked around 20,000 items and received just over 2000 orders every day. Given that the capabilities of their supply chain were more than double what Webvan actually required, the excessive capacity was costing the online grocer millions every year. To make matters worse, Webvan adopted this standardized approach to every new state they expanded into, multiplying the problem until they eventually had little choice but to file for bankruptcy.
Although Webvan failed to live up to expectations, perhaps if they had taken a more appropriate approach to supply chain management, their fortunes may have been different. With a little more patience, Webvan could have taken more time to develop an accurate understanding of actual demand and thus aligned their expansion strategy to the needs of the market. In turn, this could have prevented the costly underutilization of resources which eventually suffocated them.
Although the demise of Webvan highlighted the pitfalls of online grocery shopping, businesses today continue to realize the potential of this risky area of ecommerce. For instance, Amazon has recently started to penetrate the online grocery market, offering food and beverages to customers in Los Angeles and Seattle. Given that Amazon is already a well-established internet giant, their entry into the online grocery arena could completely shakeup the retail industry.
One of the most surprising things about Amazon’s approach to the grocery sector is that the internet giant is utilizing technology, resources and even some of the original management team who were responsible for the collapse of Webvan. Unlike Webvan however, Amazon is expanding their operation gradually, taking time to perfect their supply chain. Before expanding their fresh services to LA for example, Amazon had been experimenting in Seattle for five years.
Although providing an online grocery shopping service has proved an unsuccessful venture for some, early indications suggest that Amazon’s expansion into food delivery is going well. Given that Amazon has also recently started to offer non-refrigerated food products to Canadian shoppers, perhaps it won’t be long until Amazon becomes your local supermarket.
Considering that Amazon’s online grocery shopping service is still very much in its infancy; can you think of any supply chain issues which could disrupt their growing grocery operation?
