The contract calls for Bechtel to construct large distribution centers in 26 U.S. cities during the next two years to support Webvan's moves into those markets. It's by far the largest physical construction project ever initiated by a Web company. Webvan also plans to expand beyond grocery deliveries into online sales of drugstore items, gifts, and office supplies.

"Our model is certainly scalable beyond groceries," says Chris Mannella, Webvan's VP of marketing, who adds that groceries are the most difficult goods to deliver because dedicated delivery vans and drivers are needed. "If you can do groceries, other products are easy," he says.

Although Amazon.com has large distribution centers, Webvan is the first Web-only startup to plan huge fleets of delivery vans in a distribution network similar to that of a large retail chain. "They may be the first to leverage the tiered distribution system in E-commerce," says Vernon Keenan, an analyst at Web research firm KeenanVision. "That means 18-wheelers to deliver to warehouses, and small vans to deliver to consumers."

Leveraging Technology
Webvan launched its online grocery business in the San Francisco area last month and will debut in Atlanta by year's end. Its highly automated distribution center in Oakland, Calif., will serve as the model for other centers. The Oakland facility handles 20 times the volume of a typical supermarket chain warehouse, Mannella says. Customer orders are transmitted from the Web to Webvan's proprietary fulfillment applications, then routed to machines that pick goods from the shelves without human intervention. "Our goal is to leverage technology to fill as much of the order as possible," he says.

Automating the back-end fulfillment process as much as the Web automates front-end ordering could have big ramifications for traditional companies moving online, Keenan says. "Maybe existing infrastructures can't be retrofitted for E-commerce," he says. "If that's true, it could be bad news for the Rite Aids and Walgreens of the world."

It could also raise the bar for the financial requirements of E-commerce startups, which to date have invested most of their capital in Web technology and marketing. Webvan has a strong list of investors, including Benchmark Capital, Knight Ridder, and Softbank.