Webvan Takes a Wrong Turn

No one can accuse Webvan of lacking the killer instinct. In the past year, the company has pledged to spend $1 billion (US$) on infrastructure and has steered itself into competition with the likes of Amazon.com.

But whether the company’s underlying strategy is sound is another matter. The real question may be whether the old adage — that the key to success is to do one thing and do it well — holds true in cyberspace.

Webvan’s latest plans involve spreading substantial resources across a vast range of Internet terrain. But if the company really hopes to win any of the wars it is entering, Webvan should pick its battles.

The Grocery Front

Last year, it seemed that Webvan was training its headlights on brick-and-mortar supermarkets in some of the top markets across the United States. Webvan hooked up with construction giant Bechtel to implement a plan to build 26 warehouses in 20 markets over the next few years.

Those warehouses are the essential ingredient for making timely, low-cost grocery deliveries possible. By acknowledging the importance of infrastructure, Webvan convinced many industry observers that the company was on its way to victory over Peapod and other online grocery competitors. Some people even speculated that Webvan could even give traditional grocery stores a run for their money.

Webvan’s strategy of carefully choosing markets and investing in the centralized assets needed to do the job effectively seemed to guarantee success.

The Electronics Front

But earlier this week, Webvan — which had previously said it would sell best-selling books along with groceries — added an array of consumer electronics offerings, including CDs, DVDs and big-ticket items such as CD players.

Webvan may have been following the advice of analysts who contend that distributors have to sell some high-margin items to make any real profits. According to their reasoning, a delivery to a suburban neighborhood could be converted from a loss to a profitable venture by tucking a few CDs into a basket of food.

Analysts also pound the table with the loyalty argument, which says that by backing up grocery sales with responsive, personal service, e-tailers can lock in customers who will then buy almost anything else from them.

Unite and Conquer

It is no accident that Webvan’s new strategy is based on a theory almost identical to the one that helped Jeff Bezos turn Amazon into such a looming e-commerce presence. So the two fronts meet. By establishing itself in the grocery business first, and then using its direct connection to people’s porches, Webvan hopes to become another gigantic one-stop shop.

However, there is a single piece missing in this puzzle: the consumer. Analysts say that Webvan can encourage impulse buying by cutting out the three, five or seven-day wait necessary for UPS or the Postal Service to ship a purchase across the United States. But there are several reasons why I don’t buy the argument that speedy delivery is enough to motivate a customer to buy $400 DVD player from a grocery store.

First, the idea just seems wrong. Maybe other shoppers will be able to shift their paradigms to accommodate Webvan’s vision, but in my mind’s eye, I see a supermarket with an extra aisle, where TVs flicker and game players chatter away. If I were ever to stumble across such a place, I might turn and run.

Why? It’s a gut reaction. I trust supermarkets to sell me food and home products — that’s what they know. What do they know about Nintendo?

What’s the Rush?

There is also the simple fact that for shoppers who crave instant gratification, chances are good that a brick-and-mortar store is only a short drive away.

For those who really want to shop online — well, it shouldn’t be too long before even the most lethargic department or specialty stores will allow Web fans to search and buy online, and then swing by the store later to pick up their goods.

Then there is the bottom-line nature of the Internet, where price comparisons are never more than a click away. Before dropping a big-ticket item into my Webvan shopping cart, I would certainly take a minute — maybe two — to check the price elsewhere. Online comparison shopping will force the same margin-cutting price slashing that makes it so challenging for any home delivery business to turn a profit.

Keep It Simple

Focusing on one line of products may indeed be an outdated notion. But Webvan should give it a try anyway. The company could boost margins within the grocery market — where it already has a foothold — by selling private labels and premium grocery items or by adding products to the mix that are more logical complements to groceries, such as books and magazines, for example.

I do agree with the theory that grocery delivery companies will forge more intimate relationships with their customers than other types of online stores because grocery customers will be more frequent, regular shoppers.

But even the most loyal customers will not buy anything and everything at a Web supermarket. In fact, they might be a bit put off if they have to keep clicking past CDs and Game Boys to find the cereal aisle.