The Last Mile 

When the Internet grocer Webvan opened a distribution center in East Oakland, it seemed that some of the area's e-commerce riches were beginning to trickle down to street level. Now, employees wonder if the salad days are over.

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It's still a work in progress, but the new marketing campaign definitely adheres to Webvan's original theme of saving time for busy people. On our way through the Oakland DC, we asked Mahood who Webvan's customer base is. He held up a giant package of Huggies. "Our target demographic is households with kids," he said. "How many people with kids want to drag them to the grocery store?"

Here are the e-commerce buzzwords from two summers ago: "footprint," "scalability," and "eyeballs." "Footprint" referred to how much geographic space a company could serve. "Scalability" measured how well you could take a program that worked on a few computers and make it work on many. "Eyeballs" was the term people used to indicate not just customers, but the number of people who merely looked at your site and, conceivably, remembered your brand name. They are the reason Webvan is in this mess. Booz-Allen & Hamilton's Tim Laseter says that during the initial "Internet land grab"--when hundreds of companies rushed to stake their claim on the Internet, businesses erroneously assumed zero-to-sixty was the best way to go. "If you had the choice to be the most famous or most profitable online grocer today, I think most people would take profitable," he says, but "During the heyday of the dot-com revolution, people were arguing that the old economy numbers don't matter anymore--only the number of eyeballs and the percentage growth rate. That drives you to replicate and expand your footprint, and it drove companies to expand too fast."

Webvan, he says, went national before its feasibility had been tested. "If you look back at Wal-Mart or Circuit City, they ran for years and years fine-tuning their sales model before they replicated it. Once they had something that was working well they built more all over the place. Webvan made a big gamble on it in Oakland. The level of automation, the offering of prepared meals, the size of the facility--there were a lot of questions they could have fine-tuned over time before they went and replicated the model."

Growing fast was expensive; it cost $35 million to build each distribution center. In 1999, Webvan contracted with Bechtel, the San Francisco-based engineering giant, to build 26 identical facilities across the US. Only four of them were built--in Seattle, Chicago, Baltimore, and North Bergen, New Jersey--and of those, only the first two are actually being used. (The Oakland DC is considered a hybrid facility--the actual building was inherited from HomeGrocer, but all the internal workings are Webvan's own design.) Webvan officials say the company's operations will eventually swell back out to the original 26-city plan, but, agrees Nobile, "If we had to do it again, we would have built it a little bit smaller and added on."

For the construction of all 26 sites, Bechtel was to be paid $1 billion, plus they would get 1.8 million shares of stock as an incentive for meeting work standards and deadlines. "We did meet those incentives and earn stock," says Bechtel spokesman Alexander Winslow. "So now we have this stock that, well, you know how much it's worth." For those of you not doing the math, at an average price of twelve cents a share, Bechtel's shares amount to about $216,000. Optimism had been infectious in the late '90s, and not just among the dot-coms.

Some of Webvan's earliest fans were its own employees. At first, Webvan recruited heavily from traditional grocery stores or shipping companies like FedEx. Many of Webvan's first employees were experienced grocery workers who were leaving union jobs, but they agreed to join a non-union shop because Webvan offered them an enticing package: comparable pay, promises of advancement, and offers of between 200 and 600 shares of stock. Plus, Webvan was an experimental company, an exciting place to be back in the summer of 1999. "I thought it would be an opportunity to be part of the cutting edge, a futuristic outlook on the way people shop for groceries," says Al Valentine, one of the company's first employees who worked in Webvan's meat, seafood, and deli department until he was laid off this spring.

"The reason I decided to work for Webvan was that the recruiter I spoke to was the happiest person on earth," says Devon Lewis (not his real name), a former customer-service supervisor who was laid off last month. "Everyone I spoke to was unbelievably happy. It was unreal."


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