In Focus

Are Groceries On-The-Go Almost Gone?

Once upon a time, there was a mom who dreaded going to the grocery store. She didn't always feel this way, only since the birth of her second child. She would end up in a flop sweat after a grocery run with her toddlers. And on those few occasions when she could actually do it alone, she felt mildly resentful that her cherished moments to herself were spent buying diapers and macaroni & cheese. Who am I kidding? This is my nightmare... I mean fairy tale! But less than a year ago, my knight in shining armor appeared, only instead of riding a white stallion, he was driving a refrigerated grocery truck! Out stepped the man the kids so fondly called The Grocery Guy. "Hi, Grocery Guy!" they would yell as he rolled the neatly bagged groceries up to the door. And no, our hero didn't stop there, he merely paused to put on little sanitary booties so he could enter the house without a spot of dirt and place the bags on the kitchen counter right next to the fridge. Like a true romance novel, upon each visit, a little treat seemed to be left behind to remember him by. Once there was a mouse pad, the next time it was a handy "shopping list" memo pad, and occasionally nice discount offers would appear by e-mail. Yes, I still had to go to the grocery store for those times when I failed to plan ahead, but now I had options!

The company that made my fantasy a reality is Webvan Group, Inc. (Nasdaq: WBVN). I can't tell you what a skip they put into my step, until I heard something recently that almost made me fall flat. We were having friends over for dinner and the subject of groceries by delivery came up. The couple warned us that we better enjoy Webvan while we have it, because it probably wouldn't last much longer. I just couldn't believe it. Could that be why they've been sending me all those special e-mail offers? Are they desperate for my patronage? How could this be true? I've only recently begun seeing a strong television ad campaign. In typical Chick fashion, I decided to do some research, beginning with headline news.

The first story to catch my eye was from TheStreet.com, titled "Webvan Slips as CEO Resigns." Uh-oh, that didn't sound too good. Apparently, CEO George Sheehan resigned claiming the company just needed "a different kind of executive." Well, what does that mean? Hopefully, it means they can find somebody who can keep those groceries coming to my front door! Next, I decided to run their numbers -- you remember, those 8th grade level equations from our Chicks' Dozen? Their gross margins weren't quite Chicky, yet still healthy at 25%. They almost have as much cash as they do long term debt and their flow ratio wasn't bad, coming in at 1.62. The number that really made my jaw drop was their net margin, which is -212%! Yikes! They are spending all of their profits and then a ton more on top of that. No wonder my "Grocery Guy" is dusting off his resume! Even Nasdaq has seen the red flag and has informed the stock it may be delisted for no longer meeting its criteria for inclusion. Since the stock has gone from as high as $9 to as low as 6 cents recently, they have had difficulty meeting the requirement that their stock price stay above a dollar a share. How demoralizing. (Webvan is appealing this decision, however.)

So what went wrong? I'll tell you the problem... for an online grocer to achieve profitability, they need a hefty shift in consumer behavior. That's it, I'm the problem... and other shoppers like me! As much as I love this whole concept, and as cool as they make the whole virtual shopping experience, I still find myself barely using it. Here's why -- I need to enter my order one day in advance, which means I need to be organized (HA!). I need to spend at least $75 to waive the $9.95 delivery surcharge and lately I have found their prices going up. According to Liz Crawford's article "Why Webvan's Out of Gas" on CBS Marketwatch, my story is fairly typical. She mentions a recent survey by Greenfield Online that says, "78% of consumers said they would not pay extra to have groceries delivered to their home." That leaves only 22 percent who would be willing to try Webvan. However, for Webvan to achieve breakeven, 44 percent of people online must be willing to try the service. Gee, ya think Webvan should have conducted a similar survey before vaporizing $793 million dollars of investment capital?