Why is Britain's Tesco.com thriving in the online grocery business when Webvan failed in the U.S.? A comparison of the two companies' strategies and operations reveals crucial differences.
A BOOST FROM BRICKS
Tesco: Britain's No. 1 grocer picks and packs its online orders from existing supermarkets, then delivers in nearby neighborhoods using only a few trucks per store. By leveraging its brand, suppliers, and database of 10 million affinity-card holders, Tesco launched online shopping for just $56 million.
Webvan: Startup Webvan spent $1.2 billion to build its business from scratch, including $35 million automated food warehouses. With no existing customers or suppliers, costs soared. A lack of experience hurt, too: None of Webvan board members came from the grocery industry.
ONE STEP AT A TIME
Tesco: The British giant spent years developing and fine-tuning its online order and delivery systems. After launching with just one store in 1996, Tesco gradually rolled out online service to about one-third of its 690 British outlets today. That puts it within a half-hour of 91% of the British population.
Webvan: Webvan tried to run before it could walk. It aimed to enter 24 U.S. markets within three years, and opened warehouses in the San Francisco Bay area, Atlanta, and Chicago in its first 15 months. Even though none of the warehouses broke even, Webvan kept building facilities in New Jersey and Maryland that never opened.
NO FREE LUNCH
Tesco: E-commerce gurus thought grocery buyers wouldn't pay for delivery. Tesco bucked the trend and charged 5 ($7.25) per order. The chain now gets more than 70,000 online orders weekly and collects $27 million per year for deliveries alone--the difference between profit and loss. Plus, the fee encourages customers to place larger orders.
Webvan: Newcomer Webvan wooed customers with free delivery for orders over $50, adding millions in unrecovered costs. Analysts figure that Webvan lost from $5 to $30 on every order it handled.
THE WEB'S NOT EVERYTHING
Tesco: Tesco.com doesn't have to prove itself as a stand-alone business to be a win for the grocer. The online operation helps extend the brand: Tesco.com says that half its customers come from rivals' stores. Those customers, Tesco hopes, will start shopping at its supermarkets.
Webvan: The startup had to survive on its Web sales alone. Yet the dot-com meltdown is proving that the Net is less an end than a means. Customers had no connection to Webvan except through their PCs, so the online grocer couldn't profit from a quick stop-in for milk, coffee, or junk food.
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