WEBVAN BECOMES HOME-ENTERTAINMENT PLAYER

MARY ANN FARLEY

FOSTER CITY, Calif. -- On-line grocery-delivery service Webvan Group here announced last week that it's expanding its product lines to include video games, electronics, videotapes and DVDs as part of what the company is calling its "last-mile strategy" to get products to consumers.

The announcement is the latest of the company's new product offerings. Recently, Webvan announced it was adding magazines, and expanding its existing bookstore and hosiery boutique categories. All this comes on the heels of an earlier announcement that the company plans to invest up to $1 billion to build a network of 26 warehouses around the country.

As to whether consumers will care much if they can have a video or DVD delivered along with their groceries, Bob Tollini, senior vice president of marketing at distributor Major Video Concepts, Indianapolis, says it isn't likely.

"The marketshare for delivery of video is so small that it can't be measured," he said. "There was a lot of publicity about Kozmo [a Manhattan-based video-delivery service], and now it's about Webvan. Video has been around for 20 years, and video-delivery's market share is not one-tenth of 1%. It's much ado about nothing until it's proven that there's something to it."

Tollini said he believes grocers who deliver video might be able to attract attention in highly populated areas, "but outside of someplace like Manhattan, people go shopping," he said. "That's what people do. It's part of their lifestyle -- part fun, part whatever."

"People like to browse [in video sections]," said Tom Bendry, video buyer at Angeli's, Iron River, Mich. "I can't see [video delivery] ever being a threat."

Greg Durkin, research director at Alexander & Associates in New York, agrees that video delivery is appealing mainly in urban areas, where consumers more readily use delivery services of all sorts.

"In populated areas, like on a school campus, delivery services are more feasible," he said. Currently, Webvan serves the San Francisco Bay Area; Sacramento, Calif.; and Atlanta. It soon plans to expand into Chicago.

"Sacramento is an extremely competitive environment for video," Durkin said, "and San Francisco is a very difficult city to navigate. Even if they had hundreds of bike messengers, it would be tough to deliver cost-effectively."

Webvan offers customers same-day or next-day delivery; customers choose a 30-minute window to have their products shipped, which analysts say may help capture impulse buys. They also said they believe Webvan is trying to one-up Amazon and others with its delivery service. The company does not charge shipping and handling for orders over $50.

Durkin said he believes Webvan will do well in urban areas, based upon the success of delivery services like Netflix, which delivers video via the mail, Urban Fetch and Kozmo. He notes that Netflix already has 5% of the DVD rental market.

"These companies are very competitive," he said. "A few months ago, Kozmo's server crashed, and the influx of calls to Urban Fetch caused their server to crash as well. They couldn't meet the demand, which shows how much interest there is [in video delivery] in urban areas."

Kozmo also delivers takeout food, candy and ice cream, along with video. "Home video is a good piggy-back item for on-line grocery-delivery services," he said.