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.
What will this bankruptcy mean for the online 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 were 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.
“[The] industry will survive the failure of Webvan, but growth will come
quite a bit slower because of it,” said Ken Cassar, a Jupiter Media Metrix
senior analyst.
“The lessons learned by Webvan will become a staple of business strategy
textbooks for years to come,” Cassar said. “The moral of this story is that
the ability to build a better mousetrap must be measured against consumers’
willingness to buy it.”
Jupiter’s surveys show only two percent of online users in the U.S. bought
groceries
online in the past 12 months — less than one percent of the total U.S.
population.
