Internet groceries coming to region

Web retailer plans to change habits and challenge stores

April 06, 2000|By Scott Calvert | Scott Calvert,SUN STAFF

A San Francisco company hopes to bring the supermarket into homes across the greater Baltimore area early next year by adding groceries to the myriad items available for purchase and delivery over the World Wide Web.

Webvan Group Inc. plans to launch the area's first major Internet-based grocery operation from a 350,000- square-foot distribution center in a Pasadena industrial park, creating 900 jobs and becoming Anne Arundel County's 14th-largest employer.

Customers will be able to buy everything from toilet paper to prepared gourmet meals at webvan.com and wait for a courier to show up the next day -- without paying a delivery charge for big orders. Office supplies and some electronics will also be among the 50,000 items for sale.

"We're talking about a complete shopping experience so people will never have to go to a store again if they don't want to," said Webvan spokesman Bud Grebey.

Area supermarkets profess not to be concerned. "We don't talk about competitors, if you want to call it that at this point," said Giant Food spokesman Barry Scher.

Still, the Landover-based chain with about 100 Maryland stores can hear the mouse clicks in the fiber-optic distance. Giant, whose customers already can hunt for bargains on Priceline.com before visiting its stores, recently formed an "e-commerce team" to explore online possibilities.

But will Webvan and its competitors succeed?

Wall Street has shown doubts about the concept's viability, evidenced in part by a slide in Webvan's stock price from $34 a share to just over $7 in recent months. And no one knows if people will warm to having a stranger choose their salmon fillet or bananas.

"A lot of people like to squeeze the tomatoes themselves," said Jeff Siegel, an e-commerce analyst at Ormes Capital Markets in New York.

Webvan's approach is at once traditionalist and futuristic. It harkens to the bygone era of the milkman, but it also represents a challenge to the bricks-and-mortar supermarkets that have become a familiar part of the landscape.

Grebey said Webvan's tallest hurdle is not getting groceries from Pasadena to doorsteps in places like Towson and Ellicott City. Rather, he said, it's getting customers to break the habit of treking to the supermarket once a week.

"It's the biggest challenge we face, behavioral change," he said.

Webvan's prime audience, Grebey said, will be parents run ragged by demanding jobs and children. But the company also plans to target single professionals, the elderly, people with disabilities and urban residents tired of fighting for parking at the neighborhood market.

Another possible selling point: fewer hands on the produce. In a typical supermarket, Grebey said, 14 customers touch a piece of fruit or vegetable before someone plops it in their shopping cart.

Webvan was born last summer, when it began making deliveries to online customers in the San Francisco Bay area. It will open for business next month in Atlanta, with Chicago and Seattle scheduled this year.

Then it's on to Baltimore and Washington in early 2001. The Pasadena warehouse will support deliveries to the Baltimore area and points south to the Capital Beltway. A center in Springfield, Va., will cover Northern Virginia and the District of Columbia.

Orders can be placed up to a week in advance, but no later than the night before. Customers can pinpoint the time of delivery to within 30 minutes. The company claims its prices are competitive with supermarkets -- thanks, Grebey said, to lower labor costs and cheaper real estate.

Webvan may seem out of place in the Marley Neck Industrial Park, whose neighbors include two Baltimore Gas and Electric Co. power plants, a W.R. Grace chemical plant and a medical waste incinerator. But Anne Arundel County Councilwoman Shirley Murphy, a Pasadena Democrat who has wooed Webvan, said one of its virtues is that it's a "clean" business with no belching smokestacks.

The jobs pay well, too, starting at $11 an hour. Drivers will make $14 an hour plus benefits that Grebey said will boost total compensation to $41,000 a year. Perks include 500 stock options and tuition reimbursement. The distribution centers -- Webvan eschews the word "warehouse" -- are high-tech operations. More than four miles of conveyor belts move customers' plastic "totes" along, and spinning carousels help clerks avoid having to roam aisles. Eighteen supermarkets could fit under the roof.

Grocery orders are divided into three categories according to whether they must be kept frozen, refrigerated or at room temperature. Meat, seafood and produce items are all prepared or gathered just before a shipment goes out. Trucks have different compartments so that ice cream, say, doesn't thaw and eggs don't freeze.

By the time orders reach doorsteps, they are in small vans. Orders of less than $50 will carry a $4.95 delivery fee, but whatever size the order, couriers will carry groceries into the kitchen.

"I don't think we'll ever put the brick-and-mortars out of business," said Stacy Drake of HomeGrocer Inc., a Seattle-based Web grocer eyeing the Washington market.

"That's not our intention. There is so much room for a couple different ways to do it."

But high fixed costs -- Webvan is sinking about $35 million into each distribution center -- raise questions about the fledgling industry's long-term prospects, said Siegel, the analyst.

"It hasn't been working out quite as well as a lot of companies thought," he said. "It's been really rocky."

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