Webvan raised $757M to launch in 10 cities before they had proven one leading to their demise in 2001. Webvan needed $1B for each distribution warehouse in a category with small margins (e.g., 5% on groceries), while the company had a 5:1 expense to revenue ratio.
Convincing shoppers to buy groceries online was an uphill battle. Webvan had to spend far more than traditional grocers on advertising and marketing to find customers. Those who did sign up weren’t ordering often enough or spending enough per order. The company struggled to achieve the scale necessary to turn a profit. Webvan also expanded too quickly to new markets, adding to its money woes.
The company spent two years constructing a 330,000-square-foot warehouse in Oakland, Calif., containing five miles of conveyor belts to automate the picking and packing of orders. Executives claimed the system was nearly 10 times more productive than sending shoppers into stores to fulfill orders by hand.