The most prominent of these companies was Webvan, which reached a stock market value of $7.9 billion at the end of its IPO. Webvan, Home Grocer, PeaPod and several other Internet grocers made huge bets that selling groceries online was a growth market and represented a new way of doing business. Unfortunately, as has been illustrated by the widely publicized collapses of these high profile Internet grocers, there was a substantial gap between theory and practical application.
In contrast, there are currently several examples of grocery and other food delivery companies that appear to be making effective use of the Internet as a link with customers. In particular, both Tesco in the UK and Albertson's in the USA currently have Internet channels for selling groceries that are profitable (Hall, pp.A9; Koller, 13-14). Whereas many of the failed Internet grocers appeared to be hoping to capture a large portion of the overall grocery market, companies such as Tesco and Albertson's view Internet ordering of groceries more as an additional sales channel. This channel is unlikely to ever represent a majority of grocer sales, but even a small portion of sales can be quite significant due to the huge size of the overall market.
We will first focus on t...
We will also examine Webvan and Tesco using a methodology for analyzing the benefits and challenges of e-services in virtually any industry (Boyer et al., 177-90). This methodology borrows from the product profiling method developed by Hill and used in operations strategy (Hill, 2004). It allows for comparisons between traditional and e-commerce methods on nine operations-related scales. This will provide a pictorial explanation of why Webvan was unable to succeed while demonstrating why Tesco is more likely to be more successful.
One stream of research on operations strategy has focused on the strategic process, including how strategies are developed and refined. In retrospect it is possible to explain the failure of a company such as Webvan and the relative success of Tesco through an evaluation of the strategic process. This section reviews basic theory on the strategic process and utilizes this theory to better understand the likelihood of success in the Internet grocery business. Porter (2001, p. 62) criticized many of the pioneers of Internet business for violating basic strategic principles: "Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy". We will examine Webvan as an example of a company that in a rush to prove it was a model "new economy" company, violated several fundamental strategic principles, including the need to match operations and marketing strategies.
The operations strategy process is most often modeled as a hierarchical one in which functional strategies such as operations, logistics, marketing and finance are driven by the higher level business strategy. A key