Founder of Borders Bookstores, Webvan returns with a dream of beating Amazon at food delivery
Louis Borders is sure he can do it this time. He just needs time, money and customers. And more robots.
Borders has raised $30 million from investors funding its ambitious dreams of beating Amazon, Walmart and others in the suddenly critical business of delivering groceries to American homes.
“I’ve always been drawn to really big problems, and that’s been a really big problem for a long time,” says Borders, whose eight-year-old company Home Delivery Service finally came out of stealth mode on Tuesday. “And here it is again today, not really resolved.”
The 71-year-old entrepreneur has already tried this once. After founding the Borders bookstore chain with his brother, Tom, in 1971, he jumped into the dotcom frenzy of the mid-1990s with a new concept: to use the growing reach of the Internet to create a digital grocery store that would allow consumers across the United States to store shopping lists online, order through their computers, and receive their food at their doorstep. He called it Webvan, and like many supercharged startups at the time, it grew into an $8 billion nationwide operation in just three years.
Borders took the companies public in 1999, four months before the dot.com bubble burst. His story quickly became a cautionary tale, a poster child fire in an age of epic fires. The harvard business review sifted through its rubble in a case study, noting that its capital-intensive business model made it difficult to respond profitably to the scale of the Internet in the physical world. He also noted a series of execution missteps that contributed to the fall.
Borders, which never gave up on the idea, is back and aims to offer free same-day grocery delivery: Webvan 2.0, with a twist. This time, he says he can take advantage of advances in artificial intelligence and robotics to operate highly automated warehouses, which will allow him to beat corporate giants including Amazon and Walmart.
Borders first emerged from obscurity about 50 years ago, when he and his brother took a single bookstore in his college town of Ann Arbor, Michigan, and expanded it into a chain of 21 pitches. They leveraged proprietary inventory management software that allowed them to better track what sold and what didn’t and used the data to better order in the future. It’s commonplace now, but for years it gave Borders an edge over competitors, including Barnes & Noble, the nation’s largest bookseller. They sold the whole thing to Kmart for around $125 million in 1991, but the chain, which had 1,200 locations at its peak, went bankrupt in 2011.
He turned to the internet in 1996, creating Webvan two years after Jeff Bezos founded his online bookstore. It was the hectic days of the dotcom boom and Borders forged ahead, commissioning 26 distribution centers across the country at a cost of $1 billion to build and $125 million to operate per year. trimester. The problem? The Americans wanted nothing to do with the idea. The supermarket was very good.
Two decades after Webvan’s bankruptcy, little had changed. Last year, only 3% of the approximately $700 billion spent by Americans on groceries was purchased online, according to Bain & Company. Then came the pandemic. According to Adobe Analytics, online sales doubled in the first two weeks of March.
But the country is just emerging from lockdown and still fearful of grocery gift risk, helping to boost a delivery business that has long been held back by high costs, according to a recent report from Forrester. Stores sometimes charge higher prices for products they sell online, Forrester says, in addition to shipping costs. An order through Dutch grocery giant Ahold Delhaize (Food Lion, Stop & Shop) costs $1.99, while Kroger, the largest supermarket chain in the United States, charges $11.95.
Borders, as convinced as it was in 1996 that online grocery shopping is the future, says it can offer free delivery (no tipping allowed) and competitive pricing because of savings from online shopping. automation, as well as removing the grocery middleman and collecting the sales margin itself.
“The sky is the limit in terms of the percentage of grocery sales that will go online,” he insists.
Maintaining interest after the pandemic subsides has yet to be tested, as has its business strategy, which closely resembles the original version. The door-to-door delivery service will bear the costs of owning and operating the warehouses, just like Webvan. It will rely on robots rather than workers to check off items on someone’s shopping list and move products directly from their warehouses to consumers, much like Webvan.
He says his advantage this time around is a higher level of automation, which should allow him to fulfill online orders at half the expense of his competitors. The plan includes a network of at least one hundred 150,000 square foot fulfillment centers (Amazon’s range is 400,000 to 1 million square feet) that will allow products to be received, stored, picked, packed, transported and delivered without ever being handled. by a human worker. The robots will sort incoming inventory into trays and transport it to storage, where it will be picked up by self-driving vehicles and delivered to another group of robots with handles designed for specific product types and hoisted into grocery bags. reusable.
“The first time it gets hit is when you take it out of the tote bag at home,” Borders claims. A team of 60 people in each warehouse to oversee machines with visual inspections and quality control is a third of what a similarly sized warehouse might otherwise require, he says.
Doing it cost-effectively, which Webvan failed to do, remains to be tested. Even Instacart, which has delivered for grocery stores for eight years without the high costs of running its own warehouses, has been would have lost money until last monthwhen he reportedly made a profit of $10 million.
Borders has attracted at least two investors – Toyota Motors and Ingram Micro – who have provided the initial $30 million in funding, although Borders has yet to open a single warehouse. He says investors are interested in deploying the technology in their own factories. A Toyota representative declined to comment, while Ingram Micro did not respond to a request for comment.
It is now looking to raise $25 million through a Series A, which would help it build its first facility in San Francisco and start taking orders by 2021. It plans to build a nationwide network within five next few years and is looking to add other types of merchandise, such as clothing and toys.
Sound familiar? It should. The Amazon online bookstore went public in 1997, a year after Borders founded Webvan. It gradually expanded into CDs and DVDs, toys, home improvement electronics and other products and today, with a global footprint and dominance across a wide range of categories, is rated at 1 .2 trillion, the second most valuable company in the world behind Apple.
Yet Amazon and other players have faced their share of challenges in the sale of fresh produce, a particularly delicate proposition which requires that the goods be kept at the right temperature, handled with care to avoid damage and delivered quickly.
“Amazon is definitely the best and first in the business, but their basic model is putting things in a cardboard box and handing them over to a third party,” Borders says. “It’s just a different model.”
Borders notes that the size of the market has tripled in just two months and he sees supply constraints expanding for some time. As it does — and when it’s up and running — he thinks it’ll have a few perks, including robots that can quickly assemble orders and a fleet of delivery vans ready to take them away, manned by full-time employees and divided into three different compartments depending on the temperature.
“There are plenty of online grocery stores delivering, but service levels are low and fees are high,” he says. “The industry is kind of up for grabs right now.”