Bob Swan, Webvan's former CFO and COO, was promoted to CEO on Thursday, replacing George Shaheen, who left earlier this month. On Friday, he sat down with senior writer Miguel Helft to discuss Webvan's prospects, its struggles with profitability, and the lessons it has learned along the way. Here is an edited transcript of the conversation:
TheStandard.com: Webvan has been retrenching for some time. How do you reverse that?
Swan: We have made some tough decisions in the past couple of weeks and in the past couple of months. As tough as those decisions were, the intention was clearly to contract, get a footprint that we believe with our current resources, both human and financial capital, that we can execute a business plan that fundamentally address the two questions that we get asked the most by outside world. One is: "Does the model work?" And two: "Do you have enough capital to survive?"
Q: On Thursday, you said your Fullerton, Calif., facility – one of the smaller facilities you inherited in your acquisition of HomeGrocer – turned cash-flow positive on an operating basis for the month of March. Is that a big deal?
A: That was our first and major step along the way to prove the fundamentals of the model: that this thing can generate cash on an operating basis. We believe that based on what we have learned along the way, we will be able to bring each one of the remaining facilities to cash-flow profitability in the near term. We haven't given a date. What we have said is we keep [improving] the metrics associated to bringing this model to break-even. Like the order size that continues to grow. Like the gross margins that continue to grow. And most recently, on the cost structure required to fulfill those orders that continues to shrink.
Q: What's the difference in getting to cash-flow positive in Fullerton, in the "small box" format, compared with doing so at the "big box" facilities in Oakland and Chicago?
A: There are few [things] that are replicable regardless of whether it is a large box or small box. One in particular: In the Fullerton facility, we operate with picking [in one shift] and delivery over a course of 12 hours. In the Bay Area, we pick on two shifts. We believe that given the improvements that we've made in our pick-rates, that we can consolidate picking to one shift in the Bay Area and thereby reduce our cost structure.
Secondly, in big boxes, historically we have had a bias to make everything: We cut our own meat, and seafood and produce. In the Fullerton facility, they relied much more on buying their product. That is much more attractive economically at lower volumes. In the Bay Area and Chicago, we have been migrating over the last 90 days to more [buying] of our fresh market product, and as such have been able to reduce our cost structure significantly.
Q: You have been retrenching for some time. Do you foresee any time when Webvan will be able to expand again?
A: Yes, clearly. Our ambitions 18 months ago were to establish a national footprint. Obviously, that assumed a certain capital-market environment, which is no longer a valid assumption. With the contraction of the capital markets, we have had to contract our footprint. But clearly our ambitions are no different today than they were 18 months ago. The time-horizon has changed. When we break even on a consolidated basis in the second half of [2002], we will be generating capital that we can use to re-embark on our national footprint aspirations.
Q: But even if you do turn profitable and have money to expand, the competitive landscape a couple of years out will be vastly different than it was 18 months ago. You really believe that Webvan can achieve the original vision of operating across the country, delivering
