June 3, 1999
For New Online Grocer, High-Tech Warehouse
is Key
By MATT RICHTEL
AKLAND, Calif. -- A massive high-tech distribution center that
opened here Wednesday is the centerpiece of an ambitious effort by
Louis Borders, former chairman of the Borders bookselling chain, to
perfect the art of selling groceries online.
Borders's new company, WebVan
Group Inc., runs an
Internet-based grocery store that
promises same-day delivery of
food, including produce, meat and
frozen goods. It enters a field of
fledgling virtual grocers,
including Peapod, NetGrocer and
Homegrocer.com, all fighting
consumers' apparent reluctance to
order food online.
But the soft-spoken Borders, 51,
insisted that the grocery business,
with $450 billion in annual sales,
is ripe for the picking.
"Shopping will never be the same," said Borders, flanked by Jerry Brown,
Oakland's mayor, before an audience of about a hundred listeners, mostly
employees.
Borders might as well have said that selling will never be the same, thanks to
Webvan's sophisticated distribution center. Food's perishability makes the
online grocery business more complex than, say, selling books, so WebVan
processes orders on a same-day basis in its highly automated $20 million
warehouse. Industry analysts say the system is filled with promise but is also
unproven and vulnerable to technological glitches.
Inside the 330,000-square-foot warehouse, a maze of four miles of conveyor
belts carries yellow, blue and green bins filled with dry goods, frozen food
and chilled goods respectively. When a customer places an order over the
Web, a computer launches a new batch of bins that will be filled by
employees in different sections of the warehouse, including a deli, a produce
area and a butcher where meat is cut to order.
The idea is to cut time and labor costs to a
minimum, as demonstrated in the area where
employees pack the yellow bins with dry goods
from cereal to soap. Rather than have the
employees fill each order by pulling products
from shelves, the shelves come to the employees.
Fifteen-foot-high rotating racks bearing hundreds
of crates packed with various goods stretch from
one end of the warehouse to the other. Employees
standing at one end pick products from the racks
and place them in customer bins. A network of
computers and scanners coordinate the movements of the racks of food and
the conveyor belts.
Employees know which products to take, whether pasta sauce, peanut butter
or vinegar, because electronic displays point to the proper rack and tell them
to add an item to a particular customer bin. Industry analysts call the system
"automated pick and pack."
"No one has figured out how to deliver (grocery) products cost-effectively,"
said Evie Black Dykema, an analyst with the market research firm Forrester
Research in Cambridge, Mass. "Webvan's delivery model could be the
solution and the means of cracking that nut."
But along with some other analysts, Dykema, who calls online grocery
shopping a "laggard" among e-commerce businesses, remains cautious.
Forrester, for example, projects that by the year 2003, Web-based groceries
will have $10.8 billion in annual sales, just 2 percent of sales at traditional
grocers. She said consumers have been wary of grocery services, partly
because they do not want to set aside a two-hour window of time during
which their groceries may be delivered.
Webvan promises to deliver groceries
within five hours of an order
placement and within a 30-minute
window. Dykema said she wonders
whether they will be able to keep those
promises, given the technological and
human elements at work.
"They have a great story," she said.
"Now we'll see whether or not they can
do it."
Borders himself concedes that there are
a lot of challenges involved in getting
every order right, noting that the
single biggest hurdle is that the
business "has a million moving parts."
He said that months of tests have gone
smoothly. More generally, he said he
thinks the business will work because
studies have consistently shown that a
majority of people "don't like to shop
for groceries."
Borders said Webvan will offer prices that match or are up to 5 percent
lower than typical grocery chain stores, and that ultimately it will have twice
the selection.
He has already convinced one key audience: investors. Borders and his
venture-capital backers have anted up $120 million in seed capital already, a
substantial investment for a company that had yet to open its doors for
business.
For now, Webvan's service is available only in the San Francisco Bay area.
By the end of next year, the company hopes to expand its fleet of delivery
vans -- refrigerated trucks painted tan and bearing the Webvan logo -- from
70 to 220. Deliveries cost $4.95, but orders totaling more than $50 are
delivered free.
The company has said it is building a similar distribution center in Atlanta,
and says it will be up and running in 10 major markets by the end of next
year. The company chose San Francisco as its first market because of the
high concentration of Internet users, said Mark Zaleski, the company's chief
operating officer. |
