Webvan Founder Is Back Just as Online Grocery Orders Take Off

(Bloomberg) -- Louis Borders, whose company Webvan Group Inc. epitomized dot-com era flameouts, is back with a new online grocery startup.

Called Home Delivery Service, it plans to open a 150,000-square-foot refrigerated warehouse in South San Francisco next year. Borders said the company will be able to process $200 million worth of groceries and other merchandise a year for same-day delivery in the Bay Area. If the plan succeeds, it will expand to big metro areas around the country.

Borders was ahead of his time with Webvan, which ran out of money in 2001 after expanding too quickly. But Home Delivery Service could be arriving at the perfect moment. With Americans hunkered down amid the pandemic and avoiding supermarkets, online grocery sales have spiked. Borders, who also co-founded the Borders bookstore chain, is betting he can grab a piece of the $840 billion U.S. grocery market and take on Walmart Inc. and Amazon.com Inc.

“Demand for [the online grocery] business is 10 times what it was just two months ago,” Borders said in a phone interview. “There’s plenty of demand.”

He said better automation and increased demand for home delivery will help the new company succeed where Webvan failed. Only 60 employees will be required to staff the warehouse, he said, compared with 200 in a similar facility operated by Webvan.

With Amazon struggling to keep up with demand for groceries, Borders and others believe venture capital firms will be willing to invest in savvy startups looking to fill the vacuum. Borders has already raised $30 million from Toyota Motor Corp. and electronics wholesaler Ingram Micro Inc. Some expect the increasing demand for online deliveries to outlast the pandemic and to finally transform an industry that still generates most of its sales in physical stores.

“The one huge category that has been late to shift online has been grocery, so it has the most runway for growth,” said Jeremie Capron, director of research at ROBO Global, which researches and invests in robotics and artificial intelligence companies. “It’s also where the use-case hasn’t been so obvious until the Covid-19 outbreak.”

Webvan will forever be known as one of the biggest money losers of the dot-com bust, burning through $800 million in three years before closing down. Some of its executives, including Doug Herrington, landed at Amazon to work on the e-commerce giant’s Amazon Fresh grocery push. Herrington is now a senior vice president at Amazon.

Borders is taking the opposite approach to e-commerce as Amazon Chief Executive officer Jeff Bezos. Bezos began with books, a durable product easily shipped long distances. Then he gradually built his fulfillment network closer to shoppers and began adding perishable products in big cities. When the challenge of selling fresh food online became clear, Amazon bought Whole Foods Market, an admission that it needed a bricks-and-mortar presence.

Borders wants to begin by delivering groceries people order once or twice a week and then let them add general merchandise to their carts. Unlike Amazon, which charges $120 for an annual Prime subscription, Home Delivery Service won’t charge a membership fee. Its first warehouses will be in cities, space Amazon is also leasing to accommodate its one-day delivery push launched before the outbreak.

©2020 Bloomberg L.P.