From: Linda (joelinda1@home.com)
Date: Tue Jun 27 2000 - 17:45:58 PDT
[Some interesting thoughts on Webvan by Jim Seymour
from TheStreet.com's new website, RealMoney.com.
BTW, am I the only one not receiving FoRK posts via e-mail
today?
--Linda]
http://www.thestreet.com/p/comment/techsavvy/978676.html
Grocery Delivery a Feint for Webvan?
By Jim Seymour
Special to TheStreet.com
6/27/00 11:32 AM ET
Groceries, groceries, groceries... Is there a sacker around?
While most of the market was obsessed Monday with the Philip
Morris (MO:NYSE - news - boards) deal to pick up Nabisco
(NA:NYSE - news - boards)for Philip Morris' Kraft Foods unit
-- a very smart deal, with lots of subtleties and additional
fallout ahead, way beyond the planned post-deal IPO for 20% of
the new Kraft -- a smaller but also important "groceries" deal
drew a lot less attention: Webvan (WBVN:Nasdaq - news - boards)
bought HomeGrocer.com(HOMG:Nasdaq - news - boards).
As I said in a RealMoney.com Columnists' Conversation post early
Monday, this is yet another example of the stronger-get-stronger
consolidation that will continue for at least another year to
sweep the dot-com world. Webvan hasn't exactly ripped up the
market since its IPO last November: It fell from its opening-day
close of around 25 to its recent closes in the high single digits.
Monday, after the deal was announced, it was off another buck and
a half to 7 10/32.
HomeGrocer was playing the same game: From an opening-day close
price of 13 in March, it had slipped to 8 and change Friday and
was off Monday to 6 14/16.
Can you say consolidation?
Though as regular readers know, I'm interested in this phenomenon
of ordering your groceries over the Web and I think it's going to
be a good business, there was nothing "grocery-specific" about
this deal: It was a Web rollup distress sale, period.
Webvan and HomeGrocer have almost diametrically opposed business
models, from Webvan's capital-intensive plan to build huge,
high-tech, highly automated distribution centers, to HomeGrocer's
cheaper, faster, smaller-scale centers. As I said Monday, it'll be
interesting to see which model prevails.
My guess #1: Ex-Andersen Consulting boss George Shaheen, now CEO of
Webvan (and the surviving CEO in this deal), is likely to watch both
models run just a little longer, then migrate to one or another,
systemwide.
My guess #2: It'll be the Webvan approach that survives. I say that
in large part because Shaheen has been buttonholing reporters,
analysts and anyone else who'd listen for months, saying Webvan
isn't at all just a "home grocer," but rather, a company that wants
to own the "last-mile" (sorry about the cliche...) delivery
system for all kinds of e-commerce.
As TheStreet.com Editor Dave Kansas opined on RealMoney.com yesterday
(if you're not following the Columnists' Conversations on the site,
you're missing a lot!)Shaheen's "structuralist" background in
large-scale consulting could well lead him to see the company much
more as a logistics-and-delivery manager for many other
Web commerce outfits.
As noted here in early June, Webvan has already begun selling and
delivering a wide range of nongrocery products for its own account,
from personal electronics to best-selling books, from over-the-counter
drugs to magazines, antifreeze to PDAs, camcorders to Old Navy T-shirts.
A logistics-focused Webvan would need those vast and well-organized
warehouses. And it's worth noting that with the HomeGrocer acquisition
comes at least the hint of a potential deal with Amazon.com
(AMZN:Nasdaq - news - boards), which had a 22% stake in HomeGrocer.com.
Amazon wouldn't have to abandon its existing relationships with
carriers, particularly the U.S. Postal Service, to start pushing
some local deliveries through the Webvan system.
Just as Webvan itself had been cherry-picking the book business,
stocking and delivering only fast-moving best-sellers, Amazon.com
could divert to the Webvan trucks only its best-seller orders, and
of course only in the areas presently servedby Webvan. The USPS,
FedEx (FDX:NYSE - news - boards) and others could continue to carry
the rest of the load.
Indeed, it's interesting to speculate about which forms of e-commerce
would be enhanced by the potential of almost-instant same-day home
delivery in the areas served by the new Webvan. I can see Amazon.com
plugging that ability to deliver almost immediately on its Web site,
and I can imagine other kinds of vendors eager to scratch our impulsive
itches with the promise of same-day delivery: sporting goods, for
example; CDs, certainly; cosmetics, videos, gifts, flowers, maybe
apparel.
The key here -- and the big danger for Webvan -- is the need to
inventory all these items in all its warehouses. That's a
manageable risk, however, by never taking title to the goods
-- they would remain the property of the Web sites selling them -- to
keep them off the books at Webvan. (This is already a well-established
pattern, of course, set by companies such as FedEx, which as you
may know inventories vast quantities of goods for resellers at its
Memphis complex, then fills orders immediately, pushing the boxes
onto the FedEx jets every night, on electronic commands from those
"logistics-management" customers.)
The Web retailers would carry the increased risks -- it obviously
costs a lot more to keep x number of Tag Heuer watches on the shelves
of 50 warehouses scattered across the country than just one cache of
them in a Web company's own single warehouse, for slower but
single-point shipping.
Still, the idea of same-day delivery has long been seen as one of
the golden opportunities in e-commerce, a potentially very long lever
to increase sales, and I think more than a few e-commerce outfits
would welcome the inventory-cost risk in return for jumping ahead
of their competitors in the instant-delivery area. This would still
involve some cherry-picking -- I can't imagine an Ashford.com
(ASFD:Nasdaq - news - boards) stocking many of its items on Webvan
shelves across the country -- but with the instant sales data
available to Web companies, determining which items are your few
very best-sellers, then offering only those for local quick
delivery, could be an effective strategy. It's 80/20 time again
-- and maybe 95/5.
And it's a strategy only Webvan is in a position to support.
The merged company serves nine large metro areas now, and expects
to increase that number to 13 by year-end. That's another form of
cherry-picking, too, of course -- picking just those markets big
enough to support the service -- and my guess is that Webvan will
better serve its investors and its present and potential customers
as well by focusing on growing fairly slowly by increasing the
quality and depth of service offered in its service areas.
More this afternoon on the next big question for Webvan:
Whom do they buy next?
_____________________________
http://www.thestreet.com/p/comment/techsavvy/979366.html
Next Up on Webvan's Shopping List?
By Jim Seymour
Special to TheStreet.com
6/27/00 4:06 PM ET
Monday's announcement of Webvan's (WBVN:Nasdaq - news - boards)
acquisition of its stumbling competitor, HomeGrocer.com
(HOMG:Nasdaq - news - boards), just three months after the
latter's March IPO, leads inevitably to the who's next question:
Which competitor will the Webvan Group gobble up next?
Let's look at some possibilities.
Peapod (PPOD:Nasdaq - news - boards), which has been
struggling for years, might have been an obvious candidate a
few months ago, but it was acquired (read: bailed out) by the
Dutch mega-grocer Royal Ahold in March. After spending
$73 million for a 51% share of Peapod, Royal Ahold -- which
said at the time that this was just its first step into the
lucrative U.S. market -- seems unlikely to sell. And while
buying Peapod might bring a decent customer list and some
local facilities, Peapod's scale and operations approach have
been far from Webvan's, which could do better simply by moving
into Peapod markets and demolishing the company, city by city.
Acquisition odds: 1 in 5.
Pink Dot, a respected Los Angeles-area grocery-delivery
service, might be a logical target; it just announced a name
change and ambitious plans to move into 30 new cities over the
rest of the year. But Pink Dot, which is really an extension
of a chain of brick-and-mortar stores in the L.A. area, is
small change. The company, privately held and -- gasp! --
profitable, is a tiny niche player, and its announced plans
seem ambitious for so small acompany -- rolling out a 30-city
expansion on an underwhelming new capitalinflux of just
$20 million. If Webvan takes out Pink Dot, it's exactly that
-- just taking a competitor off the table, to reduce the noise
in its markets, rather than for an intrinsic value.
Acquisition odds: 1 in 5.
Streamline (SLNE:Nasdaq - news - boards), a very
well-thought-of Boston home-delivery outfit that also serves
Washington, D.C., would be a nice addition. It uses yet another
very different delivery scheme -- the company installs a
combination pantry-refrigerator in customers' garages, then
delivers to those units whether customers are home or not.
This entails a substantial capital expense per customer --
those garage boxes are notcheap -- but adds a lot of convenience
for the customer.
Streamline also has been smart about adding ancillary services
-- for example, dry-cleaning pickup and delivery -- to its basic
grocery deliveries. If Webvan were to acquire Streamline, it
would face a tough battle to persuade Streamline's generally
very happy customers to give up those convenient garage boxes.
Last October, Streamline bought tiny but also respected
Beacon Home Direct, another locally popular service that
operates under the name Scotty's Home Market and delivers
groceries in the Chicago area. Scotty's did only about
$7 million in business last year, but it does add a little
reach. Acquisition odds: 1 in 2.
GroceryWorks, a small, Dallas-based company that recently
announced plans to jump into Northern California in
head-to-head competition withWebvan, would be a very smart
buy. But GroceryWorks just sold 50% of itself for $30 million
to Safeway (SWY:NYSE - news - boards), and took in another
$20 million from an unidentified source.
Safeway is expected to use GroceryWorks as its fighting
brand, to protect its immense retail-store operation while
experimenting with Web ordering of groceries. An alliance
between an online delivery service and an existing,
well-established bricks-and-mortar outfit such as Safeway,
makes enormous sense in the home-grocer market. And while
GroceryWorks is tiny now, with giant Safeway backing and
running it, it would be a serious competitor for
Webvan. Acquisition odds: zero.
HomeRuns.com, begun by Maine's Hannaford Bros., sold a
majority stake to private investor Cypress Group in January
for $100 million, and announced plans to expand to 20 cities
nationwide. For now, HomeRuns.com serves only the Boston area
-- where, to judge from my reader mail, is as well liked as
Webvan in the Bay Area and Atlanta -- but could build on a
strong brand and operations strength. As a jump to the
opposite coast for West Coast-focused Webvan -- and given
its ownership by the investment firm -- HomeRuns.com would
be an excellent and affordable acquisition for Webvan.
Acquisition odds: 2 in 3.
There are other players, mainly small local outfits, which
Webvan probably will gobble up to speed entry into new markets.
None offer the scale or potential, however, of these larger
businesses.
It's clear we're only in the first inning of the home-grocer
business -- and that Webvan wants to dominate that business,
nationwide. I give them a good chance to succeed -- but the
threat from delivery services launched by huge and successful
retail chains such as Albertson's (ABS:NYSE - news - boards) and
Safeway is very real.
The advantages of combining a retail operation plus a delivery
service into a bricks-and-clicks operation is considerable.
For the existing grocery chains, this helps them protect their
flanks against the new idea, and to flow assets in that
direction if Web shopping for groceries takes off. On the
delivery side, the advantages of not having to select, buy
and inventory groceries and supplies, of being able to share
advertising with the retailers, and of having their Web
addresses splashed all over their retail partners' stores,
are simply immense.
I have tended to prefer "pure" Web plays in most e-commerce
ventures -- as with Webvan -- because I think many customers
open to the new way actually will prefer a Web-only company,
rather than one they see as a side business of an existing
retail chain.
But in Web groceries, I still expect to see major market
share grabbed by the biggest, meanest and most powerful
bricks-and-mortar people. And with its own-name stores,
plus Dominick's, Tom Thumb, Vons, Carrs and Randall's -- a
1,663-stores-and-growing empire across the U.S. and Canada
turning almost $30 billion in annual sales -- they don't
come much bigger, meaner and more powerful than Safeway.
_____________________________
Jim Seymour is president of Seymour Group, an
information-strategies consulting firm working with corporate
clients in the U.S., Europe and Asia, and a longtime
columnist for PC Magazine. Under no circumstances does the
information in this column represent a recommendation to buy
or sell stocks. At time of publication, neither Seymour nor
Seymour Group held positions in any securities mentioned in
this column, although holdings can change at any time. Seymour
does not write about companies that are current or recent
consulting clients of Seymour Group. While Seymour cannot
provide investment advice or recommendations, he invites
your feedback at jseymour@thestreet.com
This archive was generated by hypermail 2b29 : Tue Jun 27 2000 - 17:44:28 PDT