The online grocery wars are heating up in Orange County.
Following last year’s entries of HomeGrocer.com and Pink Dot into the area, Foster City-based Webvan Group Inc. is negotiating a build-to-suit deal on 15.5 acres in Foothill Ranch for a planned OC operation.
While refusing to discuss any pending lease arrangements, Webvan officials did say they have targeted Orange County as one of 26 markets to enter across the country. Not clear is whether Webvan’s operations in Lake Forest will extend to the LA area.
“We are not prepared to disclose our plans publicly yet,” said Bud Grebey, a spokesman for Webvan, which recently raised $375 million through an IPO.
The new owner of the property, the Irvine-based Sares-Regis Group, wants to develop a distribution center for the company. With at least $20 million of tenant improvements planned by Webvan, the 300,000-square-foot plus facility would cost more than $40 million to complete, according to sources close to the deal.
In Oakland, Webvan has spent heavily to create a giant humidor area for cigars and even space for large wine cellars. The company has also included expensive climate control systems and integrated automated order entry equipment in its only existing distribution center.
“The square footage of our new distribution centers will vary somewhat from market to market,” said Grebey. “But the way each distribution center is set up and operated will follow what we’re doing in the Bay Area.”
While refusing to discuss specifics relating to any possible OC operation, Grebey added that a typical distribution network would include smaller “transfer stations” to help deliver goods to local homes.
Initially, Grebey said, a payroll of about 300 would be expected in any area opening a new distribution center. The addition of satellite offices could eventually swell that to 900 new jobs, he said.
Such an operation would be significantly larger than HomeGrocer.com’s local presence, which totals about 200,000 square feet of space and 400 people in two facilities in Fullerton and Irvine.
“We do all out service from standalone warehouses,” said HomeGrocer.com spokeswoman Stacy Drake. “They (Webvan) have more of a spoke-and-hub operation.”
According to Grebey, Webvan operates “a highly automated operation designed to take orders online and get them to our customers within 30 minutes.”
The speedy service is viewed as essential by Webvan to help differentiate it from a growing list of competitors. In Orange County, the company will compete directly against HomeGrocer.com, which began delivering groceries locally in September, and Pink Dot, an LA-based online grocer that has been expanding its operations into OC.
“They’ll (Webvan) probably pour a lot of dollars into advertising their products and services,” said Drake.
An OC facility would be the seventh new location for Webvan. Besides its Northern California operation, it has announced lease deals to open distribution centers in Atlanta, Chicago, Washington, D.C., Detroit and Dallas.
Nationally, online-grocery industry revenues totaled $233 million in 1999, but that is projected by Jupiter Communications to grow to $7.5 billion by 2003. The Wall Street Journal has estimated HomeGrocer.com’s 1999 annual revenue at $40 million and Webvan’s at $35 million.
Webvan is planning to separate itself by not only providing faster service but also building a larger product lineup. Besides groceries, Webvan is also delivering non-prescription drug products and specially prepared meals. The company’s inventory includes more than 50,000 items.
During the Christmas holiday season in the San Francisco area, Webvan also tested delivery of cosmetic products.
“Groceries right now are the best entr & #233;e we have into the marketplace,” said Grebey. “But having a large automated distribution system also gives us the ability to expand into other categories quite cost effectively.”
In the future, Webvan customers could have an opportunity to purchase everything from clothing to books and CDs as well as small appliances. The company also reportedly is exploring offering a dry-cleaning service.
“There is plenty of room in the market for more online grocers as well as more traditional brick-and-mortar stores,” said HomeGrocer.com’s Drake. “Online grocery shopping is such a new service that any new company coming in will just help attract more attention to this industry. We definitely see it as a benefit to have another company in Orange County offering online groceries.”
So does Rob Guthrie, a local developer whose family routinely shops through HomeGrocer.com.
“My wife, Debra, uses it all the time now,” he said. “She would be very happy if she never had to set foot in another grocery store for the rest of her life.”
The family has found HomeGrocer.com’s prices for meat somewhat higher than at traditional stores. But produce is cheaper, according to Guthrie. “So overall, it’s still a plus shopping online,” he said. “It’s just such a convenience.”
(Oddly enough, saving money in cyberspace has come with a related cost to Guthrie. As a partner in Santa Ana-based Burke Real Estate Group, he was hoping to land the property Sares-Regis wound up purchasing from ProLogis Trust. See accompanying story.)
Webvan’s Grebey is confident that online shopping is set to take off in markets like Orange County.
“The simple economics is that we’re taking the need for stores right out of the equation,” he said. “By operating online, we reduce our real estate and labor costs, as well as our operational overhead. Suppliers also have lower cost because they don’t have to continually come into supermarkets to replenish products. So it makes sense for everyone concerned.” n
