Webvan Group Commits $1 Billion To Online Grocery Expansion

Privately held online grocer Webvan Group is looking to go national in a major way. On Friday, Webvan announced a deal with construction firm Bechtel that greatly ups the ante for online sales of groceries. The deal, which is expected to exceed $1 billion (US$), will result in Webvan distribution centers being built by Bechtel in 26 new markets over the next 24 months.

Bechtel will manage the design and construction of the new facilities in the various cities and deliver completed distribution centers to Webvan on a turnkey basis.

New Kind of Distribution

This move will mean Webvan, founded in 1998 by Louis Borders of Borders bookstore fame, will be competing directly with brick-and-mortar grocery stories in many major markets. The company, which only began selling groceries online last month, currently has a distribution center for the San Francisco Bay Area, where it is headquartered. Webvan plans to begin operations in its second market, Atlanta, early next year.

“Our partnership with Bechtel is a major step forward for our company in two distinct ways,: said Borders, CEO of Webvan. “It accelerates our distribution capabilities by placing the design and construction in the hands of the world’s preeminent engineering and construction company, and it enables us to focus fully on our core competency, which is delivering a superior product directly to a customer’s home or office at an unparalleled price.”

Webvan’s Bay Area market is serviced by a massive 330,000-square-foot distribution center in Oakland. Webvan opened its Bay Area service on June 2. The service allows customers to place orders at any hour of any day and select a 30-minute delivery window at the most convenient time. Orders can be hand-delivered that same day or up to five days later. Deliveries in the Bay Area are free for orders greater than $50. Otherwise, customers are charged $4.95.

Big Names Behind Webvan

Webvan has attracted a strong group of high-profile investors. The company’s backers include leading Japanese investment firm Softbank, which also has stakes in a variety of Internet powerhouses like Yahoo! and E*Trade. Other investors include CBS, Knight-Ridder, Benchmark Capital and Sequoia Capital.

The competition, however, could be formidable. Webvan is going head-to-head with companies including company Peapod, recently public Streamline (Nasdaq: SLNE), and HomeGrocer.com, which has former Netscape CEO Jim Barksdale as an investor.

The news from Webvan didn’t scare investors away from Peapod and Streamline on Friday. Shares of Peapod climbed 5/16 to 8-7/8, while shares of Streamline soared 1-3/4 to 11-7/8.

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