point
Menu
Magazines
Browse by year:
Prabhus Project Safeway.com
Venkat Ramana
Sunday, July 6, 2008
THE STOREFRONT WAS THE WEBSITE. THE STORE itself was a huge warehouse. Delivery was made by heavily decal-ed trucks. The model was so hot that one company, Webvan, went through a market-cap of $8 billion, before it crashed. Online grocery shopping was yet another dot-com infancy death. Or was it? A traditional brick-and-mortar supermarket chain is now attempting to bring online grocery shopping to realistic proportions. Vasant K. Prabhu, executive vice president and chief financial officer of Safeway (NYSE:SWY, market cap $35B), is also the president of Safeway.com, the chain’s newest effort in grabbing what others have dismissed as an impossible market. “Webvan needed very high numbers of customers, everyday. Repeat customers were necessary to keep the business profitable,” comments Prabhu.

No one spouts the “transformative” rhetoric of the dot-com era. The strategy of Webvan, for example, was breathtaking in its scope. Founded by bookstore mogul Louis Borders in 1996, the company went public in 1999 and tried at a breakneck pace to establish itself in 26 markets nationwide, building warehouses and a vast delivery network from scratch. All the while, the company—which briefly enjoyed a market capitalization of $8 billion—was indulging in the usual dot-com excesses, including lavish ad campaigns and bloated salaries.

Real Ambitions Vs Virtual Reality
Safeway has no such ambitions. Prabhu estimates that online shopping could bring in 3 percent of Safeway’s overall business over the next five years by serving a few carefully chosen additional cities, such as Chicago, Dallas and Houston. Even with those modest projections, that translates to a billion-dollar online business for a company with 1,800 stores and $35 billion in annual sales. Perhaps the biggest departure from the dot-com era is in the business model itself. While Webvan and other online grocers frittered their capital on new warehouses and delivery fleets, Albertsons and Safeway already have stores and trucks. Safeway has teamed with British supermarket chain Tesco—which operates a thriving online business in the U.K.—for technical support. When a customer places an order, it’s routed according to ZIP code to a nearby store. The order is effected from the store and a delivery charge—ranging from $6.95 to $9.95—applies to each order.

“The online grocery business in the U.S. has dramatically changed in a few short years,” says Prabhu. “We believe the successful online grocery models will be operated by an established brick-and-mortar grocery retailer such as Safeway, which has significant purchasing power, a well-established brand and distribution infrastructure, high-quality perishables and premium store brands.” The pure web-based retailer has to stock up on thousands of SKUs, on each product line. “The capacity to carry many brands for a single product tells heavily on the capital cost,” says the CFO. “If you look at a Safeway.com model, it is very easy for us to put our entire brick-and-mortar store online, overnight.”

People who place high value on their time will come, declares Prabhu. “This is a good product for the affluent woman, who has a large family, and would rather spend her time on more useful tasks, than on daily shopping,” says Prabhu. “While her trips to the supermarket would occur twice or thrice a week, her online visits are down to once a week. And in that one visit, she would spend as much or more than what she spends in her three weekly visits to the local store. And we have numbers to prove that.”

Prabhu, CFO
Vasant Prabhu plays many roles at Safeway, a not-so-common feature for a CFO. “I came to the U.S. with an engineering degree from IIT-Mumbai. And unlike the traditional engineering student from India at that time, I registered for an MBA at the University of Chicago,” recalls Prabhu. After a nine-year stint at Booz Allen Hamilton, he joined Pepsi. “Pepsi had many non-traditional roles for its employees. The CFO, for instance, was not looked upon as an accounting person. He was more of a business strategist, a right-hand man of the CEO, who helped in the strategy evolution process. I was a CFO for the first time at Pepsi.”

Prabhu worked in Pepsi’s international locations—Amsterdam, Mexico City, Dallas, and so on. Prabhu was involved in Pepsi’s snack foods, restaurants and cola businesses. From Pepsi, an FMCG company, Prabhu joined McGraw Hill, the publications and television media group. “My role was to establish the information systems, which added to my portfolio of skills,” says Prabhu.

In August 2000, Prabhu joined Safeway as the executive vice president and CFO, with additional roles of president of e-business initiatives. “I am also responsible for the IT organization and a new business that few have heard of—Safeway Marketing Services,” says Prabhu. “Unlike a traditional CFO, I came here to start a couple of new businesses, Safeway.com and Safeway Marketing Services.”

Safeway Marketing Services intends to capture store traffic data in new and innovative ways, that would help the supermarket generate effective customer relationship tools and strategies. “Without compromising on their privacy, of course,” assures Prabhu. “I think today’s CFO plays many roles other than just finance. While I would not be as keenly involved in the decision-making on a particular technology, I play a role in evaluating what the technology can do for the business, understanding the technology implications, and assessing the right processes to integrate the technology. Businesses today have stopped functioning on rigidly defined people-roles.”

Prabhu has also been instrumental in the IT outsourcing at Safeway. While reluctant to divulge details, he says that a respectable amount of dollars have been spent with some companies in India, and Safeway intends to spend more in the coming years. “The new BPO wave is also a move that we are watching keenly, and we may do some experiments in the near future,” he says.

“The biggest advantage of the Safeway.com model is that the delivery comes off the store nearest your home,” says Prabhu. “The warehouse models don’t work very well in fresh produce. Even in the cases of Amazon, Barnes & Noble, and Borders, the margins are not very high. Are their business models based on a lower-cost concept? Or are they still experimenting with cost versus profit models? I think we need to wait and watch.”

Prabhu is very proud of the proprietary system that is built into the Safeway.com architecture, and underlines the healthy ROI figures that are returned on this investment. Again, reluctant to talk about his IT budget, Prabhu says it is substantially high, given that Safeway is a $35 billion company. Clearly, the retailing and supermarkets business has been a good learning exercise for Prabhu.

With all the recent upheavals in corporate ethics, Prabhu feels that the CFO’s role is becoming more prominent, these days. “There is more pressure for the CFO to play roles in treasury, M&A, accounting, IT, and so on. This role will continue to evolve for a while,” predicts Prabhu.

As Prabhu builds Safeway.com into a niche business, he is confident that the value this business will deliver to his consumers will be another reason for them to give him more business. Will they?

Twitter
Share on LinkedIn
facebook