FOOD INDUSTRY LEADERSHIP CONFERENCE 2000-11-06 (2)

ELLIOT ZWIEBACH

PORTLAND, Ore. -- The introduction of broadband technology could be the catalyst that puts on-line grocery shopping, and Webvan itself, on the road to profitability, an executive with Webvan Group, Foster City, Calif., told the sixth annual Food Industry Leadership Conference here.

"After only 16 months of operation -- and with 525,000 customers and an average basket size of $110 -- we think we are very close," Jesse Edelman, director of national accounts and strategic alliances, said. "We think we have the right formula and the right people to get us to where we need to be.

"Right now we're trying to recreate the ritual of shopping by offering empowered customer service and more personal marketing, and the Generation X'ers will put us over the top.

"With the advent of broadband, we think a greater share-of-wallet will move to the Internet, with consumers spending more on-line within the next two or three years."

In response to an audience question, Edelman said Webvan's future "is not predicated on the growth of broadband, but it will certainly help us. Broadband will explode the e-tailing base for all companies because it will take costs down."

Although the total retail pie in the United States is not growing, Edelman said migration to on-line shopping is expanding, with 12.3% of all retail transactions, or $184.5 billion, being done over the Internet. He predicted that, by 2002, on-line grocery sales could exceed $3.5 billion.

Price is still the litmus test that determines where people choose to shop, Edelman said, noting that Webvan's prices run up to 5% less than typical supermarket prices. Convenience is another key element that draws people to on-line shopping, he added. When Webvan offered a line of Old Navy shirts in July at the same price as retail stores, "10% of all orders over that four-week period included shirts along with groceries," Edelman said.

Asked if Webvan contemplates introducing a private-label line under its own name, Edelman said, "There are core categories, like sugar or frozen vegetables, where you need a price-based offering. But to develop a Webvan brand would be a huge undertaking."

Another problem, he added, is that items are listed alphabetically within categories on Webvan's Web site, "so the Webvan brand would show up last."

He said the company is testing Fleming's Best Yet line in northern California and Atlanta, "and since it starts with a B, it shows up first on our list and is selling well. But we have to see how private-label lines evolve."

In response to another question, Edelman said Webvan plans to manage the integration of HomeGrocer.com, which it purchased earlier this year, "in the best interests of our customers. Ultimately, we will replace the peach logo, but there's a tremendous amount of loyalty to the peach, so we're going to do it slowly.

"Both companies have strong cultures, so we're taking the best practices of each, and our final model will look better than what either individual company had."

In other comments at the same conference session:

Jim Taylor, director of strategies and alliances for Agribuys, a Torrance, Calif.-based business-to-business exchange, said he expects consolidation among B2B companies to accelerate over the next few years, with the number of food and agriculture exchanges eventually reduced to about 15 companies that operate either as independent companies, consortia, private marketplaces (such as Wal-Mart's) and hybrids.

"The functionality of these companies will soar as they move away from simple transactions to become integrated supply chains, with each one picking a marketplace portfolio in which to participate, whether it be supplies or packaging or something else," Taylor explained. "And these marketplaces will emerge as global entities."

According to Taylor, the food industry today consists of retailers, food processors and grower/shippers. "But those companies need to look at supply-chain processes, recognize the inefficiencies they contain and begin to figure out how e-commerce can help eliminate those inefficiencies," he said.

"Those companies should begin testing with one of the B2B exchanges. They should pick a smart B2B exchange that will be around for several years -- a partner who understands their business and will be there for the long haul."

Asked how Agribuys makes money, Taylor said the seller pays his company 0.5% of the value of each transaction, up to $999.

He said Agribuys intends to broaden its scope. "Right now we're only in the grocery category, though our food service customers are looking for a broader number of items, and we may partner with companies that provide those kinds of items," Taylor said.

Michael T. Osborn, vice president, sales and technology, for eVineyard, a locally based business-to-consumer company that sells bottled wines, said on-line sales to consumers could account for $108 billion by 2003, including about $1.8 billion for wine -- a volume that could increase to $5.8 billion by 2005, he added..

Asked why some on-line wine sellers are not succeeding, Osborn said, "Those are usually companies that don't take full responsibility from the point of order to the final delivery. It's part of our obligation to make sure the product is delivered, but those who rely on third parties, without ensuring what occurs on the delivery end, account for the lion's share of the failures."