Webvan Campaign Meets Heavy Criticism

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Retail analysts were scratching their heads last week after financially stressed online grocer Webvan kicked off a nine-city television/radio ad campaign.


The campaign began last Wednesday night with TV spots in Webvan's operational markets of Atlanta; Chicago; Orange County, CA; Portland, OR; Sacramento, CA; San Diego; San Francisco; Seattle; and Los Angeles.


The commercials will run during programs such as ABC's "20/20" and Fox's "Ally McBeal" through this spring.


The spots depict a mother -- or, in another version, a father -- who during various points in her day spontaneously blurts out the things she would like to do but cannot because she is too busy.


Radio versions of the ads are scheduled to begin later this month.


Webvan's core demographic -- online parents -- makes up the typical audience for the television and radio programs on which the company has purchased ads, said Amy Nobile, spokeswoman for the firm.


Her company would not release its budget for the campaign, but that did not stop industry analysts from questioning the move.


Mass television and radio advertising has already proved too costly for online pure plays like Webvan, said Barrett LaMothe Ladd, senior retail analyst at Gomez Inc., Waltham, MA.


"EToys is the perfect example," she said, referring to the online toy firm that declared bankruptcy last week. "The new trend with online retailers is to use more direct [marketing] strategies, because high-dollar mass advertising has only helped a lot of companies go down the tubes."


Webvan, Foster City, CA, is under pressure from investors and the Nasdaq to get its stock price up. The firm's stock was around 25 cents for most of last week -- well below the $1 mark required by Nasdaq to be listed. Webvan has less than 90 days to raise the price above $1 and avoid being delisted from the index.


The company has disclosed that it needs to round up at least $40 million in additional funding to make it through 2001.


Many industry analysts believe Webvan needs to sell out or partner with a major offline supermarket company and form a relationship similar to the deal Internet grocer Peapod has with Dutch food giant Royal Ahold.


Royal Ahold, the majority shareholder of Peapod, distributes dry foods throughout the eastern United States and has been providing supplier prices to the online grocer. In addition, Peapod has been able to drive down operational costs in some of its East Coast markets because it is fulfilling orders from chain stores owned by Royal Ahold.


One of the most ardent supporters of the Peapod strategy is Robert Rubin, analyst at Forrester Research, Boston. He issued a multiple-page report -- called "Webvan's Way Out" -- on March 1 that advised the grocer to follow Peapod's lead.


Rubin said last week that the television and radio ads make little sense considering Webvan's situation.


"I totally disagree with the ad strategy that they have taken -- given their financial [situation] and their opportunity to turn a corner," he said.


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