Another one bites the dust

Store Equipment & Design, Nov, 2000

It looks like William Shatner will be singing a blues nine in the next set of Priceline.com commercials. The company has stopped operation of its Internet grocery service WebHouse Club, as well as its gasoline service. What went wrong, and what does it mean to the future of Internet grocery sales?

After a rocky start, WebHouse Club looked like it might actually have a chance of succeeding as the first national Internet grocery service. The company had the support of most major retailers in its initial marketing areas, especially along the East Coast, and was in the middle of a national rollout thanks to an agreement with Kroger. At the time of its demise, WebHouse Club was affiliated with 7,200 grocery stores and 6,000 gasoline stations, and claimed to have about two million customers.

WebHouse Club's woes can be traced to two sets of problems. First, Priceline.com claims the reason it shut WebHouse was not for a lack of customers, but that it ran out of capital. Could it be that the service expanded too fast? Probably, but one would think expansion wouldn't be much of a problem for WebHouse Club because they handled no inventory, and needed neither distribution centers nor delivery operations. WebHouse Club simply wasn't making enough money from the orders it did process to cover advertising and other marketing and staff expenses.

Initially the WebHouse Club model took its earning from agreements with suppliers. Retailers with whom SE&D spoke throughout the course of WebHouse Club's development had speculated when, not if, Priceline.com would try to extract some financial compensation from them to cover the discounts given to consumers.

The second consideration which may have begun to weigh heavily on WebHouse Club's operations is the convenience factor. WebHouse Club was really the test case for the argument of whether convenience is actually, as most research suggests, more important than price to consumers. Most of the other Internet grocery services stress the convenience of home shopping as a marketing point to their busy consumers; WebHouse took the opposite tack. Shopping via WebHouse Club was perhaps the most inconvenient way to shop for groceries. The consumer still had to go through all the things he hated about supermarket shopping--driving to the store, parking, walking the aisles and waiting in checkout lines--plus spend time online as well. WebHouse Club's appeal was strictly on saving money! It appears at first glance that convenience may have won out over price, but we may never know that unless Priceline.com releases data on repeat consumer use.

What does WebHouse's failure mean to the future of Internet grocery shopping? According to some recent consumer research, shoppers who used Internet services, including WebHouse Club, are still willing to use such services in the future. Given that WebHouse Club's operations were so different from most other services, its failure should not adversely effect them. Without WebHouse Club's operation competing within a given market area, the way maybe cleared for other services to open up.