FOSTER CITY, CALIF. -- Webvan Group here said last week that Supervalu, Minneapolis, and Fleming Cos., Oklahoma City, will serve as primary suppliers for the on-line grocery store's nationwide expansion.
The deals between the rapidly expanding Internet grocer and the two largest distributors in the United States will allow Webvan to obtain incentives akin to those given to large brick-and-mortar retailers, Webvan spokesman Bud Grebey told SN.
"We've said from the the beginning that we would beat gross margins of other grocery stores by 6 to 8 percentage points, but in order to do that we had to get efficiencies in the cost of goods sold," Grebey said. "These deals will allow us to establish the same type of relationships that brick-and-mortar retailers have with suppliers. But we'll be able to take out the cost of stores and labor."
Terms of the deals were not disclosed. Grebey declined to say which wholesaler would serve which markets, though he did say that one supplier or the other would supply each market.
Webvan, which currently operates only in the San Francisco Bay area, plans to expand to 26 markets over the next three years, beginning with Atlanta in May, followed later this year by Chicago and Seattle. Supervalu, which already has a distribution center in Atlanta, would be the likely candidate to supply Webvan there. Supervalu also has distribution centers closer to Chicago and Seattle than does Fleming, Rita Simmer, spokeswoman for Supervalu, told SN.
Webvan plans to build automated distribution centers in each of the markets it enters. The service allows customers to purchase groceries, drugs and home merchandise over the Internet for home delivery.
Webvan's Oakland, Calif., distribution center will continue to be supplied primarily by Unified Western Grocers, Los Angeles, Grebey said.
That facility currently carries 17,000 stockkeeping units, but the company will significantly increase that number in future buildings, Grebey said. Each Webvan center will serve the equivalent of 18 or 19 large supermarkets. "These will be multimillion-dollar per-market deals," Grebey said.
Analysts liked the move for Webvan, saying the emerging e-commerce grocery channel probably could attract better pricing from wholesalers than a brick-and-mortar retailer with a similar appetite for expansion.
"I don't think if a brick-and-mortar guy went to the wholesaler, he'd get the best price just because he had an ambitious plan," said Andrew Wolf, an analyst with Scott & Stringfellow/BB&T Capital Markets, Richmond, Va. "It also saves Webvan the cost of building their own buying organization, especially while they're just starting out. Maybe in three to five years, when these deals expire, they'll go that route."
"The need for a distributor is a given," added Barry Stouffer, senior analyst for J.C. Bradford & Co., Nashville, Tenn. "The middleman they're cutting isn't the distributor but the grocery store itself."
Shane Boyd, a spokesman for Fleming, said the deal expands Fleming's reach into the e-commerce sector. Fleming also provides groceries for NetGrocer, a North Brunswick, N.J.-based Internet food and general-merchandise retailer. "Any time we can add a new customer, it's good news for our company and our shareholders," said Boyd. "E-retailing is a growing field that we want to be a part of."