Online grocery service Webvan has an impressive pedigree. Its founder, Louis Borders, also started Borders Books, and chief executive George Shaheen spent 32 years at Andersen Consulting, most recently as managing partner and CEO. After a November 1999 IPO that raised $375 million, the company also has the cash to muscle its way into Americans' refrigerators, medicine cabinets, and, of course, wallets. Currently only available in the San Francisco Bay area, Webvan plans to open 26 more distribution centers nationwide in the next few years. The first new "marketplaces" - each of which costs $35 million - will open in Atlanta, Chicago, and Seattle in 2000. Each marketplace will offer a full line of Webvan products, ranging from canned soup to cough medicine to home-cooked meals, delivered straight to consumers within a 40-mile radius.

Options aplenty

After registering on Webvan's site, customers can choose products from more than 10 categories, including deli meats & cheeses, health & beauty, and chef-prepared meals. Selections, from top brands like Kellogg's, Sara Lee, Gillette, and Braun, go into a shopping cart that can be saved if the user wants to purchase items at a later date. Webvan, which doesn't accept advertising, maintains that its prices are competitive with brick-and-mortar grocery stores; profits are anticipated through high volume and the reduced costs associated with centralized distribution. Analysts are bullish about the company, saying that its aggressive expansion plans bode well for the future.

IPO headaches

When Shaheen announced he was stepping down as CEO of Andersen in September 1999 to take over the helm of a little-known Internet startup, shockwaves rippled through the consulting industry. But the Internet industry saw the seasoned exec as just another in a growing line of corporate leaders taking the gamble in new media. Shaheen brought experience to the table, of course, but perhaps more importantly, also brought the company some crucial publicity just before it was to go public. Unfortunately, the SEC wasn't happy with the publicity generated during the quiet period before Webvan's planned October IPO, and forced the company to postpone until November.

The fight to sell Wonder bread

Despite its ambitious business plan, Webvan still has stiff localized competition to contend with, as online grocers expand into new markets. Industry veteran Peapod, established in Chicago in 1990, now delivers to eight other cities; Boston-based Shoplink is expanding into Connecticut and New York; and Streamline.com, which started delivering groceries in the Boston area in 1993, plans new operations in Washington, DC. Webvan hopes to stay ahead in the grocery game thanks to its ability to raise cash (investors include CBS Corp., Knight-Ridder Co., Benchmark Capital, and SOFTBANK Corp.), its blue-chip management team, and its ambitious - and decidedly risky - plan to build 25 new facilities within the next three years.

Mixed results

Although Webvan's rapid expansion and increased advertising have resulted in escalating losses, prospects for the company are not all negative. Results from the first quarter of 2000 revealed that in just three months, the Webvan customer base had increased by more than 85 percent, while its revenues had risen by 79 percent in the same period. Webvan has expanded its product line to include electronics, magazines, office supplies, kitchen appliances, and other non-food, "specialty" products. The company has also formed multiple alliances with companies such as SUPERVALU, Fleming, Kellogg, Nestle, Pillsbury, AT&T@Home, and Quaker Oats. Webvan has made significant steps toward success, but like most of its e-commerce brethren, profits still appear to be years away.