Helpful alliance Through its relationship with Safeway, GroceryWorks is in vastly better shape to find a viable business model than when it was a pure Internet retailer, Mr. Fernandes said. The alliance was originally intended to bring Safeway an entry into the world of online shopping and offer GroceryWorks better product selection and purchasing power. It turns out the relationship may also help GroceryWorks revamp its distribution model. The deal gives GroceryWorks the flexibility for a current pilot project in which the company delivers groceries to consumers' homes from a neighborhood Tom Thumb store instead of from the warehouse, reducing driving time. GroceryWorks has also learned that it doesn't make sense to have single orders with small volume.
Groceries are already a notoriously low-margin business, so survival itself is at stake.
Auditors for Webvan, based in Foster City, Calif., have raised questions about the company's ability to continue as a viable business, the company disclosed this week. Minority shareholders in closely held GroceryWorks recently filed a lawsuit in Dallas district court against Safeway, alleging it conspired to steal its knowledge about the online grocery business while failing to honor agreements to promote the company. The lawsuit also says GroceryWorks is in danger of running out of cash, perhaps as soon as next month. Mr. Fernandes said the lawsuit is without merit. Strengthening ties Indeed, Safeway and GroceryWorks appear to be tightening their bonds.