WEBVAN TO FOCUS ON PROFITS, NOT EXPANSION

JON SPRINGER

FOSTER CITY, Calif. -- Webvan Group here said it would delay the opening of three distribution centers in an attempt to reduce losses and focus on bringing its existing centers to profitability.

Also last week, Webvan said its founder and chairman of the board, Louis H. Borders, would step aside and that George T. Shaheen, Webvan's president, would assume Borders' role as chairman. Borders will remain on the board. Also, CFO Robert Swan was elevated to chief operating officer.

Webvan's New Jersey and Baltimore area warehouses, set to open in the fourth quarter, have been pushed back until the second half of 2001, the company said. Webvan also said its Kent, Wash., facility, scheduled to open in the first quarter of 2001, would be delayed until the second quarter. The announcement also is expected by industry observers to result in delayed openings of facilities in New York and Boston, which had been projected by the company to open in mid-2001.

The announcement marks the second time in as many months that a money-losing Internet grocer is trading expansion for a heightened effort at profitability. Streamline.com, Westwood, Mass., last month sold off two market areas and canceled its expansion plans in order to raise cash and nurse its existing operating regions to profitability.

Webvan, which a year ago said it would be delivering groceries in 26 markets by mid-2001, now figures to reach that date serving only 11 -- with most acquired in the recently completed HomeGrocer merger. George Dahlman, an analyst at U.S. Bancorp Piper Jaffray, Minneapolis, told SN he was not surprised.

"I don't think anybody at the time really believed they would be in 26 markets -- that was an extremely ambitious goal," Dahlman said. "They had a nice war chest to start with, and now they're doing the wise thing and trying conserve what they have, rather than squander it and come back to the market groveling."

Funding problems have already this year crippled Internet grocers Streamline, and Peapod, Chicago, each of which sold parts of their business at bargain prices to raise cash. Analysts said competition for cash was also a major factor in the merger of Webvan and HomeGrocer earlier this year. The latter was flush with capital from an initial public offering completed not long before April's dot-com stock crash.

Webvan and HomeGrocer combined to lose $107 million on sales of $46 million during the second quarter ended June 30. The combined companies had around $410 million in cash at that time.

Analysts are awaiting word on profitability at Webvan's Oakland, Calif., facility, which last week completed its fifth quarter of operation. Webvan expects its facilities to break even excluding sales and marketing costs at the end of five quarters, spokesman Bud Grebey told SN. Prior to the merger, HomeGrocer said its facilities could achieve profitability in 12 to 15 months, which suggest its facilities in Renton, Wash., could also soon report a profit.

"The investment community is clearly saying they want profitability over expansion, so this is in the best interest of our shareholders," Grebey said.

Grebey added that the delay in rolling out new facilities will allow Webvan to migrate HomeGrocer's business to Webvan's technology platform.

Borders' decision to step aside as chairman was part of a succession plan that went along with the naming of Shaheen as president a year ago, Grebey said. Observers saw little significance to the move.

"Louis Borders was great for starting up the business and attracting the team they have there now," Dahlman said. Borders, the former chairman of the bookstore chain bearing his name, started Webvan in 1996 and served as its chief executive until Shaheen took over.