Webvan Runs Out Of Gas

Its stock down to six cents a share, online grocer Webvan Group Inc. said today that it "has ceased operations in all markets and that it intends to file for protection under Chapter 11 of the U.S. Bankruptcy Code."

The company, which has been struggling for months and never made a dime after its IPO, said it will pursue "an orderly wind down of its operations" and try to sell its assets and business. About 2,000 remaining employees were let go.

Webvan's bankruptcy leaves Peapod and Netgrocer as the major players in the Internet grocery business.

The news is the final nail in the coffin of the Foster City, Calif.-based company that had been trying hard to recover from a series of devastating setbacks.

The company's Web site was not accessible as of late Sunday. KTVU-Channel 2, a San Francisco Bay Area television station, on Sunday reported some employees cleaning out their lockers at its Oakland warehouse in preparation for a shut down.

In the last two months, Webvan executives had been pleading with NASDAQ officials, begging them to keep its penny stock listed. It seemed like it might happen after shareholders approved a 1-for-25 reverse stock split late last month.

Webvan was also trying to consolidate assets by selling off unused equipment from its Atlanta warehouse and streamlining operations in the company's seven other U.S. markets.

"We've made significant progress in reducing our operating losses and burn rate, as well as improving the economics on each order we delivered," said Robert Swan, chief executive officer of Webvan, in a statement announcing the company's demise.

It just wasn't enough.

"...our order volume declined considerably during the second quarter ended June 30, accelerating our need for capital," Swan said. "In light of the tough climate for raising new funds and our second quarter order volume ... we took this action rather than continuing to operate with high losses and decreasing cash."

"... in a different climate I believe that our business model would prove successful," Swan said. "... however, the clock has run out on us."

The Internet grocer, which tried to operate using its own fleet of trucks, had served the Chicago, Los Angeles, Orange County (CA), Portland (OR), San Diego, San Francisco Bay, and Seattle markets.

The company had seemed to wander aimlessly after April 2000 when Webvan lost much of its client base in the form of hungry dot-commers lost during last year's shakeouts and when CEO George Shaheen resigned after 18 months on the job taking along with him a $375,000-per-year severance package for the rest of his life.

All told, as of March 31, 2001, Webvan had accumulated $829.7 million of red ink, according to CBS Marketwatch. The grocer lost $217 million in the March quarter alone, including a restructuring charge.

Last January the company had announced plans to achieve standalone profitability by shelving expansion plans and targeting its 10 existing markets, as well as implementing a cash conservation program to reduce annualized corporate and operating expenses.