Case Study – WebVan and Peapod Group - 2

Agenda Business Models of WebVan & Peapod Peapod’s Success WebVan’s Failure Relevant Business Model – Current Scenario

Business Models of WebVan & Peapod Parameters WebVan Peapod Strategy Massive expansion into new markets Another medium to purchase groceries Expand as per market requirement Organisational Structure Vertical Integration Horizontal Integration Tie-ups with Ahold and Stop & Shop stores Operations Used technologies for providing automated process Relied on human labour Delivery Model Hub & Spoke Model Hybrid model Infrastructure High Tech distribution centres 26 warehouses Existing infrastructures Delivery-Time First come first serve basis (Half hour delivery windows) Delivery as per customer convenience (Either pick up from Stop & Shop or deliver the next day) Product Portfolio Perishable and Non Perishable food products Over the counter drugs General Merchandise Groceries Pricing & Order Size $15 per order Any order size Varies with order amount Minimum $50

Peapod’s Success Use of existing facilities to lower infrastructure cost. Realistic model of 10,000 customers. Use of minimum order size of $50 and variable delivery fee Alliance with local supermarket chain in developing grocery business (Quick Pick Centres) Use of human labour

WebVan’s Failure High Investment in high tech Distribution Centre, each cost $25-35 million and model of 26 cities Utilization of Resources was about 20-30% - Demand was uncertain Violates Fundamental Strategic principles (eg: need to align Supply Chain operation with Marketing). High Break even point of 4000 orders per day Wrong Distribution policy - Lead to loss of $130 per order Failure in delivering groceries at the same price as in brick & mortar stores Merger with HomeGrown

Relevant Business Model – Current Scenario Some websites still use existing facilities and some have come up with their own infrastructure. Today e-commerce websites are following mix of both models: Have a tie-up with a store, customer can come and buy the product at a low price showing coupon, or he/she can buy the same from a new website. (Eg. Flipkart and Snapdeal) A customer can choose from a portfolio of products from the website and can do online payment or cash on delivery. Companies can opt for drop ship strategy for warehousing, thus saving on infrastructural costs. (Saltnsoap.com)