December 26, 2000, 9:55 AM

Big money fuels Webvan`s national expansion drive

Big money fuels Webvan’s national expansion drive

With $400 million already in its pockets and an initial public offering on the way, Webvan Group is out to accomplish what other online grocers have failed to do so far: go national.

Although there are plenty of established players, including Chicago-based Peapod Inc. and Boston-based NetGrocer Inc., most still only offer limited regional service. That’s because the biggest obstacles online grocers face are not having enough relationships with local chains or regional distribution centers to guarantee delivery of perishable items. Another problem is price. Many consumers remain turned off by the high delivery fees that most online grocers charge now, despite the convenience of having food delivered to their doorstep.

But Webvan is out to change all that. Armed with $400 million in venture capital from such blue-chip companies as Softbank Corp. of Japan, Yahoo! Inc., Knight-Ridder Inc. and CBS Corp.,Webvan aims to redesign online grocery fulfillment and delivery. By keeping its own costs down and building a series of regional warehouses, Webvan plans to offer lower prices than traditional supermarkets and charge reasonable delivery fees.

In July, the company signed a $1 billion deal with The Bechtel Group, a well-known San Francisco-based engineering and construction firm. Over the next two years, Bechtel will build 26 regional warehouses-all exact replicas of Webvan’s highly automated distribution center in Oakland.

To pay for some of the expansion, Webvan filed for an IPO in August, hoping to raise as much as $345 million in new working capital. Webvan executives, including CEO Louis Border, can’t talk about their national plans until the stock offering is complete.

But analysts are already split over the company’s chances for national success. Ken Cassar, who follows the online grocery market for New York City-based Jupiter Communications Inc., gives Webvan’s expansion plans a thumbs up, mainly because of its deep pockets and board of directors. (Already on the board are E*Trade Group CEO Christos Cotsaklos and Yahoo! Inc. CEO Tim Koogle).

Yet Willard Bishop, president of Barrington, Ill.-based Willard Bishop Consulting Group, says Webvan will likely encounter the same problem other online grocers are experiencing: waiting for the market to grow. Online grocery sales could top $10 billion by 2003. But that’s only a paltry 2% of the total market.

For online food shopping to really catch on, consumers must make a major change in their buying habits, says Bishop.

People still like to pick out their own food. “There’s a certain amount of pride and pleasure associated with selecting melons, apples or slices of beef,” points out Bishop.

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