|
Prabhu's Project: Safeway.com
Venkat Ramana
Copyright © 2003 Silicon India Inc. All Rights Reserved.
Excerpts from article ...
full text available from Silicon India on the newsstand.
http://www.siliconindia.com/magazine/fullstory.asp?aid=GEY418559098
January 2003
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 (BTech '81 EE), executive vice
president and chief financial officer of Safeway 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.
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.
...
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."
...
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?
|
|