Webvan Tempts Fate, Goes National



San Francisco Bay area Internet grocer Webvan Group Inc. is going national. The news comes as one competitor, Peapod Inc., wrestles with major financial and leadership headaches.

Webvan is building state-of-the-art distribution centers nationwide to support its expansion to 14 more cities, which kicks off this month with service in Atlanta. It's incorporating warehouse-management software from Optum Software in the new centers.

Last month Peapod lost both CEO Bill Malloy, who resigned due medical problems, and then a $120 million equity investment, which was going to pay for new distribution centers. Since then, Peapod's stock tumbled to $3 a share, a fraction of its initial value, casting uncertainty on the entire market and bringing Webvan's stock down from a high of $14 in March to a low of $8.

Webvan is says it will avoid Peapod's fate. Whereas Peapod's distribution model was based on sending employees to neighborhood grocery stores to gather grocery items and deliver them, Webvan invested in a highly automated distribution centers designed for fulfilling thousands of orders a day. "You must have the right combination of technology and business processes," says Peter Relan, senior VP of technology for Webvan. "The more you throw a lot of people and labor at it, the less profitable you become."

Some analysts say, given the required capital investments, only a few of the 20 or so home-delivery companies will survive. Those that are well-funded, offer services nationally, and expand beyond groceries to offer books, videos, and such will make it. "Logistics technology is vital," says AMR Research analyst Chris Newton. "These companies are not in the grocery business--their business is delivery."

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