Ocado revives memories of WebVan

(By Richard Holway)
Do you remember Webvan?

Back in those crazy dot.com days of 1999, everyone (including me!) got really hyped up about the potential for sales via the internet with online grocery sales being the most hyped. Indeed, I gave many lectures at the time incorporating a rather risqué joke about my dear wife’s dreams being answered by a man arriving at our house at the allotted hour each Friday….delivering her grocery order from Tesco.com.

At the time, the debate was whether you should build big distribution centres or pick and deliver from local supermarkets. Tesco had choosen the latter and has prospered. Webvan chose the former and… Well, Webvan IPOed in 1999 and had the ‘best opening day in history’ – soaring from a valuation of $375m to $8.5billion in one day. Yep, those were indeed crazy days. But the concept and the company failed spectacularly and after burning all the cash, Webvan went bust in 2001.

In the UK, the nearest we have to the Webvan concept is Ocado. Ocado’s main customer is Waitrose which has a 29% stake in the venture. Ocado has so far raised £277m of equity “more than any other startup in Europe”. A further£20m fundraising is about to be completed. Ocado, which has built a revenue of £320m, has yet to make a profit after 8 years of operation –although a profit of £1-£2m before all the bad stuff is rumoured for FY2008.

Despite Waitrose’s history with Ocado, they too are moving to the ‘Pick and deliver from stores’ model. Indeed the Waitrose Deliver service is already available from half of Waitrose’s 180 stores and being rolled out to another 40 soon.

Further speculation about whether Waitrose might offload its Ocado stake – maybe even dump the service itself - arose with news that John Lewis puts Ocado stake into its pension (FT 8th Nov 08). The transfer price (£128m) puts a theoretical value of £441m on Ocado. Jason Gissing, Ocado’s CFO said that while the £441m independent valuation by KPMG and NM Rothschild was less than the £500m price-tag put on Ocado in its last round of fundraising 18 months ago, he was "happy with it".

"The world has changed since that last valuation," said the co-founder."What could you buy with $100m three years ago and what could you buy today? You could buy half an investment bank for that much," Gissing joked.

Or, put another way, perhaps investment banks were just like dot.com companies. I wonder what we would have thought if the US Goverment had raced to the rescue of WebVan?