HomeGrocer: Anatomy of a Failure

Rohini Avadhanam, Robert Cardenas, Daniel Reynolds

Executive Summary • Internet Grocery Store • Environment • Industry • Firm resources & capabilities • Strategy & execution • Recommendations

Environment • e-Commerce • The “Dot Com

Bubble” • Venture Capital

(VC) • Initial Public

Offerings

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

Jan 98 Jan 99 Dec 99 Dec 00

Nasdaq® Stock Market Index 1998-2000

U.S. Grocery Industry • Mature Industry • Mass market • Buyer knowledge • Low profit margins • Slow growth • Unpleasant task for

consumers Grocery

27%

1999 retail sales

Seattle Grocery Market • 10th largest in U.S. • Oligopoly of 4 large

chains • Supplier

concentration • Threat of new

entry

Safeway 28%

Quality Food 13%

Albertson's 12%

Fred Meyer

12%

All others 35%

Seattle Market Share

Key Success Factors

1. Create Awareness

2. Promote Loyalty

3. Attain Density

Firm Resources

1. Skilled Management

2. Customer Fulfillment Center

3. Delivery Fleet

4. Proprietary Technology

5. Venture Capital Financing

Strategy

Efficient operation

Shopping experience

Order fulfillment

Home delivery

Shopping Experience • Interactive &

personalized Storefront

• Convenience • Fresh, quality

products • Competitive prices • Extensive product

offering

Order Fulfillment Integrated Systems • Storefront • Warehouse (CFC) • Inventory • Billing • Routing

Customer Fulfillment Center

Home Delivery Next-day delivery

• 7 days/week • 90-minute window • Straight to kitchen • “Peach” logo trucks • Uniformed drivers • No tipping

Operational Efficiency • Customer Fulfillment Centers • Technology and Delivery Systems • Maximize delivery density • Inbound Logistics • Operations • Outbound Logistics

3,286

8,736

19,538

36,500

1998 Q3 1998 Q4 1999 Q1 1999 Q2

Seattle Daily Revenue

July 1998: Open for Business

• Create Awareness • Promote Loyalty • Attain Density

Seattle Daily Results

Revenue 93,650

COGS 67,709

Variable 17,606

Fixed 8,335

Business Plan at 14 Months

Revenue 36,500 COGS

29,930

Variable 10,115

Fixed 38,004

Actual Results at 12 Months

Flood of Venture Capital

0.3 8.8

158.9

245.5

0

50

100

150

200

250

1997 1998 1999 2000

$ m

illio

ns

Investment funds raised

VC Control

28%

14%

14% 5%

6%

6%

27%

Shares owned Amazon.com

Kleiner Perkins

Hummer Winblad

Jim Barksdale

Terry Drayton

Mary Alice Taylor

All others

• Opened in San Francisco Bay Area • Founded by Louis Borders of Borders

Books • Raised even more money than

HomeGrocer • Announced national expansion including

Seattle

Webvan Threat

5.7 10.8 21.2

29.8 42.4

56.0 64.7

88.2

1999 Q3 1999 Q4 2000 Q1 2000 Q2

Revenue Costs

National Expansion • National expansion • Filed for IPO • New management team

39.8

245.5

158.6

January 1 2000 IPO Proceeds June 30 2000

Checkout • Dot Com Bubble

burst • Cash hemorrhage • “Merger” with

Webvan

Recommendations • Strategic

– Defer national expansion

– Focus on Seattle

• Tactical – Introduce daily

specials – Lower delivery

threshold – Unattended delivery

27.71 12.80

Current Break-even

Expense/Order

365 2,500

Current Break-even

Orders/Day

Questions?

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