Coriolis eGrocery Hallucination

7/30/2019 Coriolis eGrocery Hallucination

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eGROCERY: EVOLUTION,

REVOLUTION ORHALLUCINATION?

Novem ber 2000


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Coriolis Research Ltd. is a strategic market research firm founded in 1997 and based in ANew Zealand. Coriolis primarily works with clients in the food and fast moving consumsupply chain, from primary producers to retailers. In addition to working with clientregularly produces reports on current industry topics. Recent reports have included an athe impact of the arrival of the German supermarket chain Aldi in Australia.

!

The lead researcher on this report was Tim Morris, one of the founding partners oResearch. Tim graduated from Cornell University in New York with a degree in AgEconomics, with a specialisation in Food Industry Management. Tim has worked for a international retailers and manufacturers, including Nestl, Dreyers Ice Cream, KrafFoods, Safeway and Woolworths New Zealand. Before helping to found Coriolis Resewas a consultant for Swander Pace and Company in San Francisco, where he wmanagement consulting and acquisition projects for clients including Danone, Heinz, and ConAgra.

!

The coriolis force, named for French physicist Gaspard Coriolis (1792-1843), may be seenscale in the movement of winds and ocean currents on the rotating earth. It dominatepatterns, producing the counterclockwise flow observed around low-pressure zonNorthern Hemisphere and the clockwise flow around such zones in the Southern Hemispthe result of a centripetal force on a mass moving with a velocity radially outward in plane. In market research it means understanding the big picture before you get into the details.


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eGrocery

eGrocery

eGROCERY MARKET SHARE IN 2020

EVOLUTION REVOLUTION HALLUCINATION

2%

30%

0.02%

Projections of the p otential for eGrocery vary widely


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eGrocery

eGrocery

We believe that, at best, eGrocery retailing w ill be a niche bu siness

I. Revolutions based on technological change can and have occurred in grocery retailing

II. Internet grocery retailing appears to be a rapidly emerging new channel

III. The financial viability of the concept is still unproven

IV. The impact of this evolution on traditional supermarkets will be limited, however,

both man ufacturers and retailers should carefully consider th e consequences


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eGrocery

eGrocery

I. Revolution s based on techn ological change can and have occurr ed in grocery retailing

Major shifts in food bu ying behavior have been a result of techn ological change

The companies that have recognized and adapted to these changes h ave prospered

Successful concepts have shown massive and rap id growth

The sup ermarket proved to be an irresistible proposition for most shop pers that beat

home delivery once already


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eGrocery

eGrocery

Major shifts in food bu ying beh avior have been a result of techn ological change

FOUR ERAS IN FOO D RETAILING

Railroad

Automobile

(Truck)

-

Information

Superhighway

Transport App liances Media

Electric Oven

Can Opener

Refrigerator

Freezer

Microwave

Personal

Computer

Newspaper

Magazine

Telegraph

Telephone

Television

-

Internet

Web pages

1850s

1940s

1970s

1990s


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eGrocery

eGrocery

The companies that have recognized and adapted to these changes h ave prospered

FOUR ERAS IN FOO D RETAILING

Railroad

Newspaper

Automobile

Television

Refrigerator

Freezer

Microwave

Internet

PC

Transport Implications Companies

Massive increase in food produ ction in remote areas

Emergence of regional and national bran ds

Specialized produ ction; economies of scale

Long d istance spot ord ers; elimination of m iddlem an

Mail ord er catalog sales

Shopp ers can b uy m ore than they can carry

Shopp ers go to best price, not w here convenient

Interstate trucking - railroad for perishables

National promotion of national brand s

Reduce need to buy on d aily basis

Increase perishable item un it sizes

Heat food very rapidly Growth of convenien ce culture

Timely information on deman d

Sears Roebuck

A&P

Nabisco

Hormel

Pillsbury

Safeway

Kroger

P&G

Birds Eye

StouffersLean Cu isine

Webvan?


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eGrocery

eGrocery

$0.1 $0.7

$10.6

$37.8

$61.3

$106.2

$245.4

1 89 0 1 89 5 1 90 0 1 905 1 91 0 19 15 1 92 0

1 25 10 0 20 037 2

4,621

15,737

1 85 9 1 86 5 18 80 1 90 0 1 91 0 1 92 0 1 93 0

PAST REVOLUTION S IN RETAILING

A&P Store Numb ers

(1859-1930)

Sears Roebuck Sales

($Millions; 1890-1920)

Source: Lebhar(1952); Emmet(1950); Wal-M art(2000)

1 38

330

859

1,528

2,784

4,000

19 62 19 70 1 98 0 1 98 5 1 99 0 1 99 5 2 00 0

Wal-Mart Store Num bers

(1962-2000)

Successful concepts have shown massive and rap id growth


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eGrocery

eGrocery

5.8%

14.9%

36.5%

52.2%

63.9% 63.5%59.8%

48.0%

52.4%

51.1%

37.1%

27.0%

19.4% 18.1%

17.8%

2.4%7.2%

17.0%

14.1%

14.6%

11.2%

8.3%

7.3% 6.5% 4.8%

21.2%12.8%

8.2%

7.9%8.3%

7.7% 8.1% 8.4%13.8% 14.9%11.2%

7.3%4.2% 1.7% 1.4% 2.0%

1929 1939 1948 1958 1967 1977 1987 1996

The sup ermarket proved to be an irresistible proposition for most shoppers

FOO D AT HO ME MARKET SHARE1

(% of sales b y channel; 1929-1996)

Source: USDA ERS

Small GrocerConvenience

Supermarket

Butcher,Greengrocer,

Baker, etc.

Other

HomeDelivery

Mass/Club


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eGrocery

eGrocery

that b eat hom e d elivery once already

WHY DID IT FAIL THE FIRST TIM E? c1940

Convenience

Cost

Accuracy

Logistics

Home Delivery Supermarket

Wait for delivery boy

Women entering w orkforce

Cost of prod uct + cost of pickin g

+ cost of delivery

May forget to order items

May n ot get correct items

Usually sm all local grocery

Need to pick order

Buy through wh olesaler

Get in now

Get it on the way home from work

Large volume/economies of scale

No service, no frills, low p rices

Visual clues to order

Get wh at you p ay for

Super market

Factory to s tore

Buy in truckload qu antities


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eGrocery

eGroceryeGrocery CORIOLIS RESEARCH II - 10

II. Internet grocery retailing app ears to be a rapid ly emerging new chan nel

Internet retailing is currently a small but growing compon ent of food sales Intern et grocery retailing (eGrocery) is curren tly a small part of th e large and

highly competitive food at home m arket

On ly 540,000 hou sehold s in the Un ited States have ever used the intern et to order

groceries

Both major internet research firms agree that eGrocery will show massive growth

There app ears to be strong consum er interest in th e concept

Consum er surveys consistently ind icate a dem and for grocery hom e-delivery

Convenience app ears to play a key role in consumer d emand for home delivery

eGrocery has a clear base of target shopp ers

The eG rocery concept has qu ickly m oved from start-up to consolidation


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eGrocery

eGrocery

Supermarke ts

62 %

Other

8%

Other Grocery 9%

Convenience 5%

Warehou se Clubs 4%

Mass Me rchants 5%

Specia lty Food 5%

FOOD AT HO ME MARKET SHARE BY CHAN NEL(% of sales; 1999)

TO TAL = $450 Billion

Home Delivery/Mail Ord er 2%

eGro cery 0.02%

Source: US DA ; FMI; Progressive Grocer; Other; Coriolis analysis

Intern et grocery retailing (eGrocery) is curren tly a small part of the large and h ighly competitive

food at home mark et


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eGrocery

eGrocery

On ly 540,000 hou sehold s in the Un ited States have ever used the in ternet to order groceries

HO W BIG IS THE MARKET?(Millions; % of hou sehold s)

Population

278 mm

Households

106 mm

100%

Householdswith PC

56 mm

53%

andInternet

36 mm

34%

that h aveshoppedonline

18 mm

17%

forgroceries

ever

0.54 mm

0.5%

Source: US Census Bureau; PWC; Greenfield; Commerce Net; Nielsen Net Media; Coriolis analysis


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eGrocery

eGrocery

$148$350

$750

$1,600

$3,500

$7,500

$235$540

$1,200

$2,800

$6,400

$10,800

1998E 1999E 2000E 2001E 2002E 2003E

Both major internet research firm s agree that eGrocery will show massive growth

eGRO CERY M ARKET GRO WTH PROJECTION S

($ Millions; 1998-2003)

Note that projections vary widely: Anderson Consult ing $85 Billion by 2007; eMarketer $33.6 Billion by 2002; IDC $8.8 Billion by 2004

Source: Forrester Research; Jupiter Communications; Other

SALES

CAGR

98-03

115%

119%


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eGrocery

eGrocery

58 %

49 %

34 %

34 %

30 %

26 %

23 %

23 %

17 %

13 %

Prescription Drugs

Groceries

Flowers

Clothes

Gifts

Airline Ticke ts

Books

Office Supplies

Consum er Electronics

PCs

Consum er surveys consistently ind icate a dem and for grocery hom e-delivery

DEM AND FOR SAM EDAY FULFILLMENT BY CATEGO RY

(% rating im portan t; su rvey; March 2000)

Source: Jupiter Commun ications


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eGrocery

eGrocery

68 %

66 %

60 %

60 %

57 %

47 %

42 %

41 %

39 %

35 %

32 %

Convenience

24-hour access

Shop without leaving home

Saves t ime

Saves money

Prices compa re favorably

Won't forget i tems

Better selection

Can find n ew products

Can sh op from work

Hate to shop

Convenience app ears to play a key role in consumer d emand for home delivery

REASON S SHO PPERS WOULD BUY GRO CERIES ONLIN E

(% agreein g; 3/00)

Source: Netsmart Research


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eGrocery

eGrocery

eGrocery has a clear base of target shopp ers

WHO IS THE SHOPPER

Solid eGrocery Solid Trad itionalist

Techn ologically comp etent

High disp osable income

Time starved - willing to trade

money for time

Fashion conscious (mu st be seen

doing the latest thing)

Youn ger, female

White collar, profession al

Afraid of techn ology

Fixed or low in come

Available time - willing to trade

time for money

Price conscious (use coupon s, shop

aroun d, cherry pick specials)

Older, retired

Blue collar, less edu cated


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eGrocery

eGrocery

The eG rocery concept h as quickly moved f rom start-up to consolid ation

The eG rocery concept app eared h ighly attractive to a nu mb er of investors

The eG rocery concept is presented as a massive opp ortunity

There are clear cost savings from eGrocery/Home D elivery

A core group of leading companies h as already em erged

There are four competin g concepts for the structure of the eGrocery supp ly-cha in

While there are hun dreds of start-up s, there is only a small group of well financed,

operational eGrocers

In 1999, six eGrocers captu red 90% of onlin e grocery sales

The leading eGrocers have focused th eir efforts in the larger urban areas

The chann el has attracted investm ent from five of the top seven grocery retailers


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eGrocery

eGrocery

The eG rocery concept is presented as a massive opp ortunity

I believe that the In ternet grocery bu siness will eventually capture between 10 and 15

percent of the market. Now if we define the market - groceries, nonp rescription dru gs

and hom e replacemen t meals - thats $650 billion . So if the e-grocers get 15 percent th ats

close to $100 billion.

George Sh aheen , CEO, Webvan , Janu ary 2000

If onlin e retailers captu red ju st 30 percent of the US grocery mark et, theyd b e rakin g inmore than US$200 billion a year.

David Bergh, VP, Grocery Shop pin g Netw ork, Jan 2000

The m arket is h uge, and if the on -line grocers only get 10% seven or eight years from

now , that w ould be an $80 to $100 billion bu siness.

Barry Stouffer, An alyst, J.C. Brad ford , May 2000


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eGrocery

eGrocery

WHERE DO THE COST SAVING S COM E FROM ?

SAVINGS COSTS

No bricks-and -mortar

No expen sive real estate

Low-cost, efficient order creation

Less labor

Regional fulfillment centers

Fleet of trucks an d drivers

Team of compu ter programmers

Compu terized sorting and p icking

system

There are clear cost savings from eG rocery/Hom e Delivery


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eGrocery

eGrocery

There are four competin g concepts for the structure of the eGrocery supp ly-chain

Store Dedicated Courier One HourPick Warehouse & Mail Delivery

Replacethe shopper

Pick from retailstore at night

$110

PeapodAlbertsons.com

COM PETING eGROCERY MO DELS

Philosophy

Concept

AverageOrd er Size

Costs

Examples

Replacethe store

Pick from custombuilt w arehouse

$100

WebvanHomegrocerStreamline

Replace thesupply-chain

Mail or courierfrom national

distribution point

$30-40

Net G rocerGrocer Onlin e

Replacethe car

On e-hou r deliveryby b icycle or carfrom store or DC

$10-15

KozmoPDQuick

Urban Fetch

Capital

Labor

Delivery

Note: empty =low; half=medium; full=high


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eGrocery

eGrocery

While there are hun dreds of start-ups, there is only a small group of well financed, operational

eGrocers

SF Bay Area

(incl. Sacramento)

Atlanta

Chicago

Seattle, Portland

Los Angeles

Orange County

San Diego

Boston Sub urb s

Nth. New Jersey

Dallas/Ft. Worth

Houston

Delivery SKUs Sales Delivery AverageCompany Geography Method DC Size (Millions) Cost Order

Attended

delivery

Attended

delivery

Unattended

- install

refrigerator

Attended

delivery

$13.3 (99)

$21.6 (99)

$15.4 (99)

$10.0 (99E)

18,000 sku s

350k sq ft

12,000 sku s

100k sq ft

10,000 sku s

100k sq ft

15,000skus

120k sq ft

$4.95

$50+ free

$9.95

$75+ free

$30month

for 4

deliveries

Free

$90

$102

N/A

eGROCERY RETAILER PROFILES


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eGrocery

eGrocery


$4 (99E)

$73 (99)

$5 (99E)

$10 (99E)

16,000 sku s

36+ Re tail

Stores

20,000 sku s

50-70k sqft

12,000 sku s

65-83k sqft

$5.95

$60+ free

$9.95

to free

N/A

$106

$105

Over $100

Seattle

Dallas

Boston, Chicago

SF Bay Area

Long Island

Connecticut

Boston Sub urb s

Sth. Conn ecticut

Boston

Attended

delivery

In-store

pick-up

Attended

delivery

Unattended

- install

refrigerator

Attended

delivery

eGROCERY RETAILER PROFILES

While there are hun dreds of start-up s, there is only a small group of well financed, operational

eGrocers


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eGrocery

eGrocery


eGrocers

eD ELIVERY RETAILER PRO FILES


Same-day

(Under 1hr)

Attended

delivery

Same-day

bicycle-

courier

delivery

Same-day

(30 min )

Attendeddelivery

$3.5 (99)

$ (99)

$ (99)

20 Free

10am-

12am

Free

$2.99

6am-

3am

$10-15

B2C $8

B2B $50

$20

Los Angeles

NYC

SF Bay Area

8 Others

B2C

[New York

& Lond on

B2B closed]

Los Angeles


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eGrocery

eGrocery

National

National

National

DeliveryCompany Geography Method Notes

Mail,

Courier

Mail,

Courier

Print-out

coupon

Groceries by courier Started b y Israeli Special Forces Comm and o 22% ow ned by Parm alat (for $30mm ) Sales $6.5 mm (99)

eO THER RETAILER PRO FILES

Groceries by courier Deliver frozen in dry-ice pou ch

Bid on line for each of your groceries 150,000 customers week ly Take winn ing bid to store Recently shutd own du e to losses


eGrocers


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eGrocery

eGrocery

80+

Others

$10.0

6%

$13.3

8%

$15.4

10%

$21.6

14%

$73.046%

In 1999, six eGrocers captured 90% of on line grocery sales

1999 eGROCERY MARKET SH ARE

($Million s; % of total ; 1999)

$16.7

10%

$10.0

6%

TOTAL = $160 Million Dollars

Source: Company A nnual R eports; Hoovers; various articles; Coriolis estimates


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eGrocery

eGrocery

Boston

The leading eGrocers have focused their efforts in the larger urban areas

eGRO CERY OPERATION S BY REGION

(Actively trad ing; as of Sep t 31, 2000)

Source: various websites; Coriolis analysis

Dallas


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eGrocery

eGrocery

The chann el has attracted investm ent from five of the top seven grocery retailers

Company Key Action

Early adop ter; laun ched Walmart.com; na tional delivery of non-perish ables

Relaun ching revised w ebsite Q 4/2000

TO P SEVEN G RO CERY RETAILER eGROCERY ACTIVITY

Partnership with Peapod an d Priceline

Minimal activity

Laun ched Albertsons.com in Seattle and Dallas

Buildin g from scratch, good site, comm itted to concept

Early partn ership with Peapod ; pu rchased 50% of Grocery Works ($30mm )

Launchin g Safeway.com p owered by G rocery Works in D enver Q 4/2000

Early partn ership with Peapod ; pu rchased 51% (then 81%) of Peapod

Struggling Peapod now run by Ahold VP; strong commitmen t to concept

Recently pu rchased Hann aford Bros., found er of H omerun s.com

Parts of Homerun s sold off to investor groups

Minimal activity


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eGrocery

eGrocery

III. The finan cial viability of the concept is still un proven

Webvan, which has q uickly become the b ellwether of the ind ustry, has lost billions and

still n ot dem onstrated finan cial viability

Webvan represents the best chance for an eGrocery revolution

Webvan has everything going for it

Webvan has so far failed to deliver

With the popp ing of the internet bubb le, reality appears to have set in, and

demon strating DC p rofitability has become the key requ irement

It is still unclear wh o will u ltimately w in: clicks or b ricks & clicks


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eGrocery

eGrocery

Webvan represents the best chance for an eGrocery revolution

WHY WEBVAN ?

Re-engineered sup ermarket retailing from the ground up

Contains defensible techn ology and patents

- Preventing or limiting competition

- Allowin g national/international expansion

Achieves lower cost than su perm arkets if it achieves

required minimum volumes

Recognizes th at large scale change comes from :

- Lower cost/Higher p rofitability than comp etition

- Better consu mer valu e prop osition ($/conven ience)

Replaces labor with capital

Key Strengths of Webvan Mod el


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eGrocery

eGrocery

Webvan has everything going for it

Webvan has impeccable management and finan cial advisors

Webvan has the best bu siness model for eGrocery

The compan y is delivering on customer satisfaction

Webvan offers prices lower than conventional superm arkets

Webvan has the h ighest level of customer satisfaction of any eGrocer

The comp any is showin g strong growth


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eGrocery

eGrocery

Webvan has impeccable management and finan cial advisors

WEBVANS BLUE BLOOD

Founder

Louis Borders(Foun der of Borders

Books; MIT ed ucated

mathematician;genius)

First Roun d

Investors ($400mm)

Sequoia Capital($50mm)

Softbank Corp.($125mm)

Goldm an Sachs VC($100mm)

Benchmark CapitalKnight Ridder Co.

CBS Inc.

Yahoo!E*TradeLVMH

($125mm)

Chief Executive

Officer

George Shaheen(Ex-CEO Anderson

Consulting)

Initial Public

Offering ($375mm)1

Goldm an, Sachs &Co

Don aldson, Lufk in &

Jenrette

Merrill Lynch & Co.

Bear, Stearn s & Co.

Deutsche Bank AlexBrown

Robertson Stephen s

Thomas WeiselPartners

1. M anaging U nderwriter: Goldman Sachs; others: co-managers

Source: Various Webvan documents

G


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eGrocery

eGrocery

Webvan has the best bu siness model for eGrocery

Webvan has one of the most techn ologically advanced warehousing and d istribution

systems on the planet

Webvan designed its supply-chain u sing a blank sheet of paper

The h ub -and -spoke architecture allows one distribution center to service a 70+ squ are

mile urban area

The m odel keep s delivery costs below 5% of sales

Webvan has bu ilt partnerships with a n umb er of key manufacturers that give the

supp lier real information and inp ut

Webvans model has been p raised by the analysts, even w hen they q uestion the details

G


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eGrocery

eGrocery

Webvan has one of the most techn ologically advanced warehousing an d d istribution systems

A single worker, standing at a pod , will be surround ed by m otorized carousels holding

8,900 grocery item s, man y conveyer b elts, a host of electronic-eye bar code scann ers an d16 bins th at collect shopp ers orders. In just one hou r, the worker sh ould b e able to pack

450 grocery items - nearly 10 times the p roductivity of a traditional shop per strolling a

cart through a store or warehou se.

Food In du stry Report, April 1999

The automated warehou se gives u s a 10 percentage-point ed ge in p rofit margins over

traditional sup ermarkets, allowing the compan y to keep p rices down , avoid surcharges

and cover d elivery costs.

Kevin Czin ge, Chief Financial O fficer, Webvan , April 1999

Were taking the grocery indu stry and completely reengineering it from th e inside ou t.

Theres n othing th at resembles this distribution and delivery system. Were conq uering

the last mile of e-comm erce.

Mark Zaleski, SVP Area Op erations, Webvan , Jun e 2000

G


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eGrocery

eGrocery

on the p lanet

The Webvan facility is a combin ation tech-heads w et dream and chefs fantasy.

Workers carry small, han dh eld compu ters. Radio transmitters from a large comp uter tellthe work ers what items to p ut in the totes Freeways of conveyer belts carry partially

filled totes to workers in other parts of the warehou se Workers in wh ite frocks an d

hair bon nets cut fresh m eat Emp loyees in a 70-degree room sort tropical fruit. Other

workers in a b akery and a k itchen for prepared m eals fix sum ptuou s-smelling treats.

Tom D avey, Red H erring, March 2000

The Oakland distribution center for Webvan is an impressive sight. Covering an areaof 330,000 square feet, it is divided into th ree b road, colour-coded segmen ts. Yellow is

for ambient: dry goods, the h eavier of wh ich (such as soft d rinks) are manip ulated

around by giant insect-like mechpods. Green an d b lue are respectively, for chilled

and frozen The center processed som e 2,000 orders a d ay, involvin g up to 20,000

totes The contents of the ord er are compu terized. That triggers a system of lights, as

the tote travels around the wareh ouse, to show the packers precisely what n eeds to be

added to the tote at each p oint None of the 150-odd packing work ers needs to move

more th an 19 feet to fill each item in an order.

Th e Economist, Feb 2000

eGrocery


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eGrocery

eGrocery

Webvan designed its supply-chain u sing a blank sheet of paper

WEBVAN DISTRIBUTION SYSTEM

Distribution

Center

Delivery

StationWebVan

Direct Delivery

Consumer

Wholesaler

350,000 sqft.

50,000 items

4 mi. conveyer belt

Picked into p lastic totes

8,000 orders/da y

$300 million/year sales

$35 million build/equ ip

30X/year inventory turns

Perishables

Greenleaf Produ ceNiman Ranch

Mon terey Fish

Semifreddis

Large truck delivery

Pure cross-dock to

Webvans

0-60 mile radius

12-15 stations/D C

144-225 tru cks/DC

3 Temperatures

0-10 mile radius

12-15 trucks/stati on

30-45 min to sh op

Attended delivery

5-7 days

7am to 10pm

30 minute w indow

92% on-time

98-99% accuracy

Grocery

Frozen

Dairy

eGrocery


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eGrocery

eGrocery

The hu b-and-spoke architecture allows one d istribution center to service a 70+ square m ile urban

area

WEBVAN DISTRIBUTION SYSTEM

Distribution

Center

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

Delivery

Station

0-60 Miles 0-10 Miles

eGrocery


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eGrocery

eGrocery

The m odel keep s delivery costs below 5% of sales

ECONO MICS OF AN ORDER

Courier wage & benefits $17-18

Station manager cost $1-2

Van cost $2-4Total cost per hour $20-24

Deliveries per hour 5

Average order size $90-100

Revenue per hour $450-500

Cost as a % of revenue 4-5%

Cost per Hou r

Source: Webvan; E*Offering

eGrocery


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eGrocery

eGrocery

Webvan has built partnerships with a n umb er of key manufacturers

WEBVAN ALLIAN CES

Kimberly-Clark Feminine care , facial ti ssue, bath t issue , adult care

Coca-Cola Carb on ated soft d rin ks, b ottled w aters, b ottled teas, b ottled

ju ice drinks

Pillsb ury Refrigerated d ough, frozen p izza, M exican food

Kellogg Ready-to-eat cereals

Nestl Frozen entrees, pet food

Quaker Hot cereals, sports beverages

Nabisco Cook ies and crackers

Clorox Bleach , cleaning products

Company Categories

Source: Webvan press releases

eGrocery


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39

eGrocery

eGrocery

that give the sup plier real information and in pu t

VALUE OF ALLIANCES TO PARTN ER

Condu ct research and gather data

Develop key insights on the emerging online channel

Test new interactive prom otional vehicles

Assist with p roduct assortment, merchandising, marketing & sup ply-chain

management

Realize new bran d bu ilding opportun ities

Create a powerfu l and n ew p ersonalized shop ping experience for customers

Key Points


eGrocery


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40

y

eGrocery

Webvans model has b een praised by the analysts

The compan y has a big opp ortunity, strong management an d a strong value

prop osition. STRON G BUY.

Hen ry Blodget, Analyst, M errill Lynch, Jan 2000

Webvan has the most promising business model Its business model is basically adream for the on-line grocery chann el.

Evie Black D ykem a, Researcher, Forrester Research, July 1999

Webvan is in the best position to succeed in the busin ess. Its driving gains and cuttingcosts. Bricks-and -mortar grocers spend betw een 4% and 6% of their prof its on leasingcosts for their space. Webvan need s to spen d 1% of their profits on its space, since itsbu ilt on cheap land and is so automated. STRON G BUY.

Peter Swan , Analyst, Pacific Grow th Equ ities, March 2000

We view Webvan as one of the few true e-tailing enablers leveraging Webtechn ology to allow customers to shop in a w ay that was imp ossible without th e

internet. Webvan own s every inch of its business, from the time its products areinitially pu rchased form its sup pliers to d elivery to a custom er. BUY.

Lauren Cook s Levitan, Analyst, Robertson Steph ens, January 2000

eGrocery


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41

y

eGrocery

even w hen they question the details

Webvan has done it the new economy way: Raise as much money as you can and b et

the ranch. They have determined in advance, withou t experience, that they have theright model. Webvan is redu cing picking costs through a lot of automation. The

qu estion is: Is that th e best right trade-off, spendin g lots of capital to lower p icking

costs? You sp end capital to save not that m uch m oney. Plus theres the risk of not getting

deman d in th e first place BUY.

Barry Stou ffer, An alyst, J.C. Brad ford , Feb 2000

eGrocery


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42eGrocery

Webvan offers prices lower than conventional supermark ets

SHOPPING BASKET COM PARISON 1

($Actu al; 25 item su rvey ; 7/99)

1. Including all delivery charges and fees

Source: San Jose Mercury N ews

$92.43

$90.09

$88.99

$86.33

eGrocery


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43eGrocery

7.35

7.13

6.37

6.24

5.77

5.62

5.58

5.39

4.96

4.77

Webvan has the h ighest level of customer satisfaction of any eGrocer

CUSTOMER SATISFACTION RATING 1

(10 = Perfect; Fall 2000)

1. Combined score from multiple categories: ease of use, on-site resources, meal-solution shopper, customer confidence, relationship services and overall cost

Source: Gomez A dvisors

eGrocery


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44eGrocery

The comp any is showin g strong growth

The order metrics of the Webvan model are showing constant improvement

Webvan has show n very strong sales growth, growing at a compoun d rate of 340% a

quarter

Webvan has qu ickly gained the dominan t market position and almost 50% market share

Webvan is expand ing beyond groceries into higher value goods and services

With its merger with Hom egrocer, Webvan now q uickly approaching a n ationaldistribution

eGrocery


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45eGrocery

4,000 22,000

47,000

87,000

162,000

524,000

Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00

The order metrics of the Webvan model are showing constant improvement

WEBVAN O RDER M ETRICS1

$58.06

$72.53

$81.31

$90.33 $91.00

$103.00

Q1/99 Q2/99 Q3/99 Q4/99 Q1/00 Q2/00 Q3/00

Average Order Size

($Actual)

Active Customer s

(Actual)

N/A

N/A

46%

64%

7 8% 7 8%76% 75%

Q1/99 Q2/99 Q 3/99 Q 4/99 Q 1/00 Q2/00 Q3/00

Repeat Purchase

(% of Custom ers)

1. Q3/00 figures includes Homegrocer

Source: Webvan 10K; 10Q

# o f

DCs1 1 1 1 1 2 9

N/A N/A

eGrocery


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46eGrocery

Webvan has show n very strong sales growth, growing at a compoun d rate of 340% a quarter

WEBVAN SALES GRO WTH

($ Thousands; Q1/99-Q2/00)

$12 $383$3,841

$9,069

$16,269

$28,300

$87,384

Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00



QUARTERLY

SALES

CG RQ1/99-Q3/00

340%

eGrocery


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47eGrocery

$7 3$9 0

$1 3

$170

$2 2

$5 2

$100

1999E 2000E

Webvan has qu ickly gained the dominan t market position and almost 50% market share

eGRO CERY SALES GRO WTH

($Millions; 1999 v. 2000)

Other

$160

$360

Other

SALES

CAGR

98-03

125%

92%

386%

23%

Source: Company An nual Reports; Hoovers; Mult ex; DBAB; S SB; various articles; Coriolis estimates

eGrocery


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48eGrocery

Webvan is expan ding b eyond groceries into higher value goods and services

EXPANSIO N BEYON D GRO CERY

Dry grocery

Perishables

Non-food

Pet Food


Grocery

HBA

OTC Drugs

Dru g Store

Dry Cleaning

Flowers

Stamps

(25% of orders )

Bus Passes

Bridge Token s

Services

Books

Software

CD/DVD/Video

Appliances

Electronics

Apparel

Office Sup plies

Hardware

Party Sup pliesSmoke Shop

DepartmentStore

Chef-prepared

Meals

Fast Food /Foodservice

eGrocery


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49eGrocery

With its merger with Hom egrocer, Webvan now qu ickly approaching a national distribution

WEBVAN GRO UP PRO JECTED O UTLETS

(Distribu tion centers b y location; comp any projection; Dec 31, 2000)

Source: Webvan press release

2001

eGrocery


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50eGrocery

Webvan has so far failed to deliver

Webvan has not shown impressive bottom line performance

Webvan has had massive losses, both on a total and on a per customer basis

Webvans capital intensive distribution center appears to very negatively impact

center profitability wh en n ot operating at full capacity

For the time being, bricks appear to b e beating clicks on the top an d b ottom line

Webvans model h as fallen over because it has been un able to achieve high enough

penetration

Webvans stock has not been a good investment

Webvans stock h as taken a pu nishin g, despite the best efforts of the analysts

Webvan and Hom egrocer have seen a combin ed $11.3 Billion fall off their market

capitalization highs

eGrocery


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51eGrocery

$1 2 $383$3,841

$9,069$16,269

$28,300

$87,384

($11,690)

($23,444)

($60,437)

($48,998)($57,815)

($74,365)

($120,234)

Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00

Webvan has had m assive losses, both on a total and on a per customer basis

WEBVAN SALES GRO WTH

Sales vs. Net Loss($Thousands)

Sales vs. Net Loss Per Active Custom er($Actual)

($5,861)

($2,747)

($1,043)($665)

($459)($229)

$9 6 $175 $193 $187 $175 $167

Q 1/99 Q 2/99 Q 3/99 Q 4/99 Q 1/00 Q 2/00 Q 3/00

N/A



eGrocery


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52eGrocery

Webvans capital intensive distribution center appears to very negatively impact center

profitability wh en n ot operating at full capacity

WEBVAN FINAN CIAL PERFORMANCE Q1 2000

Sales 100.0% $91.00 $16,269

COGS 74.6% 67.89 12,138

Gross Margin 25.4% 23.11 4,131

Distribution 125.0% 113.75 20,336G&A 114.7% 104.38 18,657

Engineering & Software Development 33.9% 46.77 5,523

Sales & Marketing 51.4% 30.85 8,359

Total Operating Expenses 325.0% 295.75 52,875

Loss from Operations (299.8%) ($275.64) ($48,774)

Less depreciation of deferred compen sation 108.9% 99.10 17,720

Plus net in terest income 53.2% 48.41 8,649

Net Loss 355.3% ($323.36) ($57,815)

Source: Webvan 10Q; DBA B; E*Offering; Coriolis analysis

% ofSales

Per order($)

Total($MM)

eGrocery


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53eGrocery

For the time bein g, bricks app ear to be beating clicks on the top an d b ottom line

FINAN CIAL PERFORM ANCE: BRICKS VS. CLICKS

Sales 100% 100.0% 100.0%

COGS 75% 74.6% 70.5%

Gross Margin 25% 25.4% 29.5%

Operating & Administration 13% 325.0% 22.6%

Operating Profit 12% (299.8%) 6.9%

Source: Webvan prospectus; Webvan 10Q; DBAB; E*Offering; Safeway An nual Report; Coriolis analysis

Q1/2000 FY1999Model

eGrocery


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54eGrocery

Webvans model h as fallen over because it has been un able to achieve high enough pen etration

There are three k ey comp onents to strong eGrocery sales

The Webvan mod el is only operating at 22% of plann ed capacity driven by lower ordersizes and lower penetration

The average spend per trip is over $91 dollars, and growin g this to $103 does notappear to p ose a challenge

The average Webvan customers is shopp ing online eight times a year, a similar

frequen cy to Warehouse Club stores, bu t much lower than at supermark ets

In Q1/00, Webvan had orders from 3.1% of Bay Area households, bu t achieved on ly0.55% mark et share, in a h ighly comp uter literate region th at includ es Silicon Valley, butwh ere it battles two strong sup ermarket chains

To achieve the p lann ed 8,000 orders p er day, either existing customers n eed to bu y morefrequen tly or more customers n eed to b e attracted

It appears that Webvan customers are un able to commit the time and plann ing requiredto shop m ore frequently and that the service may not b e as convenient as initiallyexpected

eGrocery

h h k G l


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55eGrocery

There are three key compon ents to strong eGrocery sales

COM PON ENTS OF eGRO CERY SALES

Ord er Size

OrderFrequency

HouseholdPenetration

Type of sh opp ing occasion (e.g.stock-up)

Frequen cy of shop Hou sehold size / demographics

Consum er plann ing horizon Ord er size Pack size Willingness to hold inventory Disposable income

Hou seholds with comp uters andinternet

Know ledge of service

Household demographics Consum er behavior patterns

Variab les Challenges

Grow th in frequ ency or penetrationmay lower order size

Requires w eekly shop/large order Not set up for large num ber of small

orders

Reasonab ly high level of plann ingrequired Availability of d esired delivery

slot/window

Hou seholds most able to order maybe least w illing to order

- Gen X&Y not plan nin g meals

- High food away pu rchase- Breakdown of traditional m eals

Shopp er will pass traditionalsup ermarket at least two times a day

Component

eGrocery

Th W b d l i l i 22% f l d i d i b l d i d


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56eGrocery

The Webvan model is only operating at 22% of plann ed capacity driven by lower order sizes and

lower p enetration

WEBVAN D ISTRIBUTION CENTER FINAN CIAL MOD EL

Average

Order1

$103.00

Daily

Orders

8,000

7 days/week

364 d ays/year $300 Million/Year

Prospectus Finan cial Mod el

Average

Order

$90.33

Daily

Orders

2,000

7 days/week

364 d ays/year $16.2 Million /Q1

$65.1 Million/Year

(annualized)

Actual Q1/2000221.7% Cap acity

1. Prospectus model assumed 8,000 orders, 225,000 items, for 28.2 items/order at $3.65 each; 1-3% penetration (i.e. weekly shop); 2. Q 1 used for clarity because financial

Data is for one DC (SF) and one concept (Webvan); Q2 includes Atlant a DC; Q3 data includes Homegrocer; Source: Webvan prospectus, and 10Q; press articles; Coriolis analysis

eGrocery

Th d t i i $91 d ll


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57eGrocery

$91.00

$81.57

$36.34

$31.82

$17.72

$10.22

$9.23

Webvan

Warehouse Clubs

Mass Mer chan ts

Grocery/Supercenter

Dr ug

Dollar Stores

Convenience/Gas

The average spen d p er trip is over $91 dollars

AVERAGE SPEND IN G PER SHO PPING TRIP BY OUTLET TYPE1

($ per sh opp ing trip ; those th at shop chann el; 2000)

1. A verage amount spent per visit by customers who shop t he channel; Webvan data for average Q1 customer

Source: ACNielsen; Webvan; Coriolis analysis

eGrocery

and growing this to $103 does not appear to pose a challenge


59/82

58eGrocery

and growing this to $103 does not appear to pose a challenge

AVERAGE ORDER SIZE

($ per de livery; Q 1-Q2/20001

)

$128

$102

$100

$98

$91

1. Peapod uses FY 1999 data

Source: Webvan 10Q; Homegrocer 10Q; Peapod 10Q; press reports

eGrocery

The average Webvan customers is shopp ing online eight times a year a similar frequency to


60/82

59eGrocery

90

26

15

13

10

9

8

Grocery/Supercenter

Mass Mer chan ts

Dr ug

Convenience/Gas

Dollar Stores

Warehouse Clubs

Webvan

The average Webvan customers is shopp ing online eight times a year, a similar frequency to

Warehouse Club stores, bu t much lower than at sup ermarkets

SHOPPIN G TRIPS PER YEAR BY OUTLET TYPE1

(# of shop pin g trips; those that sh op chan nel; 2000)

1. A verage number of times customers who shop the channel visit the store type; Webvan data annu alized from average Q1 customer

Source: ACN ielsen; W ebvan; Coriolis analysis

eGrocery

In Q 1/00 Webvan had orders from 3 1% of Bay Area househ olds bu t achieved only 0 55% mark et


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60eGrocery

In Q 1/00, Webvan had orders from 3.1% of Bay Area househ olds, bu t achieved only 0.55% mark et

share

WEBVAN M ARKET SHARE - BEST CASE SCENARIO

SF Bay Area Hou sehold s1 2,787,506 HH

Webvan customers 87,000 HH

Webvan HH Penetration 3.1%

Grocery/Drug Store expenditure per HH per year $4,250 HH/year

Region al Grocery Sales in Q1 $2,962 mi llion

Web van Sales in Q1 $16.3 mil lion

Webvan Market Share 0.55%

1. Includes households in nearby Sacramento region

Source: US Census Bureau; FMI; W ebvan 10Q; Coriolis analysis

eGrocery

in a h ighly comp uter literate region th at includ es Silicon Valley bu t wh ere it battles two


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61eGrocery

in a h ighly comp uter literate region th at includ es Silicon Valley, bu t wh ere it battles two

strong supermark et chains

SF BAY AREA MAR KET SHARE1

(# of ou tlets; % of Sales; Q1/2000)

129 stores28.7%

118 stores

26.2%1 Distribution center15 Delivery Stations

225 Delivery Vans

0.55%

Other44.5%

1. Includes San Francisco, Oakland and San Jose areas

Source: ACNielsen M arket M onitor; Webvan 10Q; Coriolis analysis

eGrocery

To achieve th e plan ned 8,000 orders p er day, either existing customers n eed to bu y more


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62eGrocery

13.1%

10.5%

8.1%

4.0%

2.0%

To achieve th e plan ned 8,000 orders p er day, either existing customers n eed to bu y more

frequen tly or more customers n eed to b e attracted

PENETRATION AS A FUNCTION OF YEARLY SHO PPING FREQUENCY1

(% hou sehold s shop pin g vs. vans/hou sehold /year; to achieve p lann ed 8,000 orders/day)

Average number of deliveries per household per year

Percent of SF Bay Areahouseholds required

as customers

1. Percent of households required as customers as a function of annual average household order frequency; to reach 8000 orders per day;

2. Q1 results on an annualized basis; Source: Webvan prospectus; Coriolis analysis

Actual Q1

8/year2Five Weekly

10/year

Four Weekly

13/year

Fortnightly

26/year

Weekly

52/year

3.1%

Actual

Required

eGrocery

It appears that Webvan customers are unable to commit the time and plann ing required to shop


64/82

63eGrocery

pp p g q p

more frequen tly and that th e service may n ot be as convenient as initially expected

ORD ER PROCESS

Drive from

home to

store

5-10 min

Time

to shop

15-45 min+

Drive from

store to

home

5-10 min

Total time

to shop

25-65 min+

Start

computer

& logon

internet

5 min

Time

to shop1

15-45 min

Time to

delivery2

1-5 days

Time to

delivery3

1-5 days

Total time

to shop

50-70 min

Delivery

window

30 min+ + + +

Traditional Superm arket

WebVan

1. M ay be company time (i.e. free); 2. Limited delivery slot availability at popular times (e.g. 6pm) m eans first available delivery window may be days away

3. Shopper will probably pass a convent ional supermarket t wice a day durin g this period

eGrocery

Webvans stock h as taken a pu nishin g, despite the best efforts of the analysts


65/82

64eGrocery

$0

$5

$1 0

$1 5

$2 0

$2 5

$3 0

$3 5

Nov-99

Dec-99

Jan-00

Feb-00

Mar-00

Apr-00

May-00

Jun-00

Jul-00

Aug-00

Sep-00

Oct-00

p g p y

WEBVAN STO CK PRICE SINCE FLOAT

(US$ per sh are; high /low/close; Nov99-Oct00)

Merrill Lynch (Strong Buy)Deutsche Bank (Strong Buy)

Thomas Weisel (Strong Buy)

Robertson Stephens (Buy)

Donald son, Lufkin & Jenrette (Buy)

Pacific Growth (Strong Buy)

JC Branford (Buy)

Bank of America (Market Perform)

E*Offering (Strong Buy)Bear Stearns (Attractive)

Thomas Weisel (Downgrade)

Prudential (Hold)AG Edwards (Accumu late)

Thomas Weisel (Downgrade)

Deutsche Bank (Strong Buy)

Merrill Lynch (Downgrade)

Deutsche Bank1 (Downgrade)

SSB (Neutral)

AG Edwards (Downgrade)

1. This is sometimes described as closing the stable door after the horses have bolted

Source: BigCharts; Briefing.com

Prudential (Sell)

eGrocery

Webvan and Homegrocer have seen a combin ed $11.3 Billion fall off their m arket capitalization


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65eGrocery

11 Oct 2000

$2,080.7

$387.8

10 Ma rch 2000 11 Oct 2000

$10,220.2

$580.4

5 Nov 1999 11 Oct 2000

highs

MARKET CAPITALIZATION H IGH S AND LOWS1

($thou sand s; mark et capitalization; open ing day h igh vs. current)

1. M erger actually September 5th, 2000; 1.07605 shares of WBVN for every 1 share of HOMG

Source: Briefing.com; Webvan; Coriolis analysis

($9.6 Billion )

($1.7 Billion )

$968.2

(Merged G roup)

eGrocery

With the poppin g of the internet bub ble, reality appears to have set in, and d emonstrating DC


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66eGrocery

profitability has become the key requiremen t

There have recently been a n um ber of high profile failures causing th ree compan ies to

close all or part of their operations and an on going wave of consolidation is takin g place

A num ber of people questioned th e idea from the very start

For the time b eing, the market ap pears to be mu ch smaller than previously expected

The k ey everyone is looking for is p roof of DC profitability, includ ing Webvan s

competitors

eGrocery

There have recently been a nu mb er of high profile failures


68/82

67eGrocery

RECENT FAILURES

Houston, TXDallas, TXAustin , TXColombus, OH

Closed Oct, 2000 afterlosin g $360 mi llion

Used investor moneyto subsid ize savings

End ing B2C in N YCand London Focusing on profitable

B2B in NYC

Suddenly shutdown Ceased operations

Novem ber 2000

Sold Washington D Cand Chicago to Peapod

Ceased operationNovem ber 2000

eGrocery

causing three comp anies to close all or part of their operations


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68eGrocery

Boston

eGRO CERY OPERATION S BY REGION

(Actively trad ing; as of Sep t 31, 2000)

Source: various press releases

eGrocery

and an on going wave of consolidation is taking place


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69eGrocery

RECENT M ERGER AND TAKEOVER ACTIVITY

(Chicago & Washington DC))

(22%)

($73mm; 50%)

($30mm; 50%)

eGrocery

A num ber of people questioned th e idea from the very start


71/82

70eGrocery

The current m odel of neighborh ood grocery stores will not be overtaken by Web-based

grocers. The distribution pattern for low value-added goods exists for a reason It will

be very tough sledd ing except for very high-income areas Who the hell am I to

qu estion Webvan wh en th ey have an $8 billion m arket cap? Were at $12 billion, and Im

almost ash amed to say we h ave $2.4 billion in EBITDA.

Fred Smith , Foun der/CEO, Federal Express, N ovemb er 1999

Theyre expecting consum er beh avior to change bu t are expecting the competition

won t chan ge.

Francis Gask ins, Gaskin s IPO New s, Augu st 1999

I don t believe they will b e able to op erate an online grocery store more cheaply than a

bricks-and -mortar store in the n ext five or ten years.

Ken Cas sar, Jup iter Comm un ications, July 1999

eGrocery

For the time b eing, the m arket app ears to be m uch smaller than previously expected


72/82

71eGrocery

HO W BIG IS THE MARKET?

Households

With

compu ters &

internet

In densely

populated

cities

Order

Size

$

Order

frequency

Times/year

Penetration

of

Households

Basic Unit Ability to

Order

Ability to

deliver

How much? How often? How many?

Th e 1999

Internet Bub ble

Equation

Th e 2001

Internet Bust

Equation

=$85 Billion

Market1

= $500 Million

Market

1. Anderson Consulting, by 2007

eGrocery

The k ey everyone is looking for is p roof of DC p rofitability


73/82

72eGrocery

Were not overly concerned with the entire company gen erating p rofits, but w e need to

see a distribution center move to profitability. We want to know , can they give the

Street any guidan ce on expected cash flow profitability of a particular d istribution

center wh ether it be in San Francisco or Atlanta, or at least at one of Hom eGrocers

facilities?

Shaw n M ilne, E-Offering An alyst, October 2000

The qu estion is w hether or n ot theyre going to be able to turn each of th ese

distribution centers into profit centers.

Matt Stam ski, Gom ez Advisors, July 2000

The problems that I have with Webvan are basically that its an un proven bu siness

model, and that they h avent show n yet th at they can m ake m oney delivering groceries.

Mark Rowen , Pruden tial Secur ities, July 2000

Does it have enough fuel to mak e it into orbit?

Unn amed Analyst, Wall Street Journal, O ct 2000

eGrocery

including Webvans competitors


74/82

73eGrocery

I don t believe you move forward withou t profitability. Im n ot saying the comp any h as

to be profitable. But the model has to be profitable - and you h ave to prove you have a

profitable m odel.

Marc van G elder, CEO Peapod , ex-Ahold VP, July 2000

Once we have achieved u nit profitability, then an d on ly then w ill we proceed with ou r

rollout stra tegy.

Edward Albertian , Presiden t, Streamlin e, Sept 2000

We recognize that what th e market is looking for is b oth top-line growth and bottom-

line performance.

Mary Taylor, CEO Hom eGrocer, [now on Web van board], May 2000

eGrocery

It is still unclear wh o will u ltimately w in: clicks or b ricks & clicks


75/82

74eGrocery

Existing supermark ets are still rush ing to go online, bu t appear to be repeating the

evolution of the ind ustry

The braw n of traditional superm arkets appear to be overcoming the b rains of Webvan

If DC-based eG rocery can dem onstrate fin ancial viability, we expect significant

consolid ation to occur as those w ith better fin ancing or better techn ology thrive

Just as Warehouse Clubs evolved from a large num ber of competing chains into two

surviving indep end ents and a division of a retail chain

eGrocery

Existing sup ermarkets are still rush ing to go on line


76/82

75eGrocery

Broward & Palm Beachcoun ties, Florida

Washington D .C.

Dallas, Texas

Hou ston, Texas

Austin , Texas

Phoen ix, Arizona

Denver, Colorado

Charlotte, North Carolin a

RECENTLY ANNOUNCED eG RO CERY ACTIVITY BY SUPERMARKETS

Launchin g Pu blixDirect (April 2001)

Building regional distribution center

Laun ching co-brand ed Peapod by G iant

Rebrandin g Grocery Works by Tom Thum b

Rebrandin g Grocery Works b y Rand alls

Launchin g Grocery Works by Ran dalls

Laun ching Grocery Works b y Safeway

Laun ching Grocery Works b y Safeway

Launched Harris Teeter Express Lane

Internet ord er, store p ick-up

ActionLocationChain

eGrocery

bu t appear to be repeating the evolution of the indu stry


77/82

76eGrocery

Stage I Stage II Stage III

Store Pick Manual DC Automated D C

Low cost start-up

Use existing facilities

Unable to hand le large

volumes

Clog up existing stores

Cost plus ap proach

High error rate

No econom ies of scale

Peapod (initially) Albertsons

Harris Teeter

THE TH REE STAGES OF eG ROCERY IMPLEMENTATION

Strengths

Weaknesses

Examples

Minim ize risk

Flexible to low or

variable volum es

Hard to achieve lowest

cost position

Lower m argins than

high-volum e Stage III

Ahold/Peapod (current) Safeway/Grocery Works

PublixDirect

Lower total cost thansupermarkets

Defensible techn ology

& patents

High initial capital cost

($35 mil lion /DC)

Requires high

minimum volumes to

achieve profitability

[WebVan]

eGrocery

The braw n of traditional supermark ets appear to be overcoming the b rains of Webvan


78/82

77eGrocery

WHO WILL WIN?

New-economy min dset and b lank slate

approach to the bu siness

- Access to program mers and technology

resources via stock op tions

- No commitmen t to existing system orsup ply chain

- Op portun ity to associate new b rand

with n ew m ind-space

Sustainable comp etitive advantage

- Defensible techn ology

- Patent pro tection

- Ow nersh ip of critical conveyer belt

equipment manufacturer Well finan ced throu gh VC and initial IPO

bu t burn ing cash at a rapid rate

Existing merchandise volumes and discoun ts

give lower cost of goods

Existing, in -place structures

- Buying

- Warehousing- Distribution

- Marketing

Existing consu mer relationsh ip

- Brand

- Trust/history

- Location

Existing bu siness can cross-subsid ize web

venture for a long time

eGrocery

If DC-based eG rocery can dem onstrate fin ancial viability, we expect significant consolidation to

occur as those with b etter finan cing (Ahold ) or better techn ology (Webvan ) thrive


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78eGrocery

POTENTIAL CON SOLIDATION IN eGROCERY

1999 2002

eGrocery

Just as Warehouse Clubs evolved from a large num ber of comp eting chains into two surviving

indep enden ts and a d ivision of a retail chain


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79eGrocery

CONSO LIDATION IN WAREHO USE CLUBS

BJs (46)

Costco (114)

Max Clubs (10)

Pace (120)

Price Clu b (102)

Price Rite (3)Sams Clu b (329)

Source Club (7)

Warehou se Club (10)

Wholesale D epot (10)

Supermarket

Club Aisles

1992 2000

Costco (292)

BJs (107)

Sams Clu b (512)

(Wal-Mart)

eGrocery

IV. The imp act of this evolution on traditional sup ermarkets will be limited


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80eGrocery

THREE SCENARIOS FOR eG ROCERY

Hallucination

Flash in the pan - a case

study in internet mania

Consum ers un willing to

change

Limited group w illing to pay

premiu m for home delivery Short consum er planning

horizon limits order

frequency

Cant achieve min imum

delivery area h ousehold

penetration

Concept disapp ears when

cash run s out

Emerges a new an d viable

retail chann el

3-5% h ousehold penetration;

fortnightly orders

DCs achieve lim ited

profitab ility in 20-40 high lypopulated urban regions

Market sh are loss spread

throughout market

Evolution Revolution

Replaces significant percent

of supermarket trips

20-40% penetration; weekly

orders

DCs achieve econom ies of

scale and are very profitable Conventional sup ermarkets

mak e major chan ges; large

nu mb er close

eGrocery

how ever, both m anufacturers and retailers should carefully consider the consequ ences


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81eGrocery

IMPLICATIO NS O F SUCCESS

What percent of food sales will this chann el

finally achieve?

Where will the bu siness come from?

- Superm arket stock-up sh op

- Warehouse Club s- Standard shopp ing-cart staples

Where wont the b usiness come from?

- Impulse purchases

- Last minute requ irements

- Convenience foods

Should we laun ch a h ome delivery service?

- Leading ed ge or bleeding edge?

- It there a down side to waiting?

Manufacturers

Man ufacturer bran ds m ay be a historical

anomaly related to self-service supermarkets

eGrocers have absolu te control over the

point-of-purchase

Items in the regu lar cart have lock-in With scale, wh at percent of sales will

u ltimately b e pr ivate lab el? 20%? 40%? 60%?

Existing Retailers

Coriolis eGrocery Hallucination

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