The 25 million share offering had priced at $15 late Thursday, at the top of its $13 to $15 range, and was trading at 25 1/2 at midday Friday.

"I expect it to go up 50 percent or so on the first day of trading," said Richard Peterson, an IPO analyst with Securities Data, based in New York. "They have a leg up on the competition. I’d be surprised if the stock performed sloppily."

In early October, lead underwriter Goldman Sachs announced the postponement of Webvan’s IPO, due to possible violations of the SEC "quiet period" regulations. The regulations prevent companies from making "forward looking statements" about performance or providing other information to selected investors that isn’t found in public SEC filings.

Nevertheless, analysts say Webvan has quickly emerged as the 800-pound gorilla in a potentially huge market.

"Out of all the pure-play online groceries, Webvan is the one most likely to succeed," says Blaine Mathieu, senior analyst at Dataquest, based in San Jose, Calif. "They understand all the potential inhibitors and have a plan to drive down costs. It’s the only way an online player could be successful."

The key to Webvan’s strategy is the deal, inked in July, with San Francisco-based Bechtel Group to build highly automated distribution facilities in 26 major markets across the country at a cost of about $1 billion. The facilities, equipped with machinery that automates the process of picking and packing grocery items, will be 10 to 20 times the size of the largest supermarket.

"They are making a bet on very advanced warehouse technology," says Ben Tanen, an analyst at Giga Information Group, based in Norwalk, Conn. "If it works and expands nationwide, the company will be able to deliver on its promise."

While most online companies try to trump more conventional rivals by eliminating bricks and mortar, Webvan aims to get the job done by using smarter bricks and mortar located on less-expensive real estate.

"All bricks and mortar are not created equal," Mathieu says. "Most supermarkets are located in high-cost residential areas and are not optimized to pick and pack and deliver direct to consumers. Webvan will have more-efficient operations on much less-expensive real estate. When you’re dealing with already-thin grocery margins, that makes a big difference."

In projections that leaked out of Webvan’s pre-IPO road show meetings with investors, which caused the IPO postponement, the company is reported to have said it expects gross margins of 12 percent on groceries vs. about 4 percent for a traditional store. What’s more, the company reportedly expects to generate as much as $300 million annually from each automated distribution center, at staffing levels far lower than those found in conventional supermarkets.

Webvan, which is test marketing the service in the San Francisco Bay Area, is said to be making about 1,500 deliveries a day at an average value of $80 each, totaling nearly $3 million a month. The company offers same-day delivery, letting customers pick the 30-minute time window in which they want their products delivered.

Analysts say there’s no reason the company’s delivery vans can’t be used to bring consumers an ever-growing list of products in the future.

"They’re solving the last-mile-to-the-customer problem," Mathieu says. "Same-day delivery is the nirvana of e-commerce. If they can help solve that problem, the company will have many other opportunities."

Estimates vary on the potential size of the online-grocery market. A recent report from Jupiter Communications, based in New York, puts the 2002 number at $3.5 billion, up from $350 million in 1999. Zona Research Inc., based in Redwood City, Calif., is decidedly more bullish, estimating total demand for online groceries could hit $50 billion, or 10 percent of all grocery sales, within the next five years.

About 80 million Americans have access to computers linked to the Internet, making them potential online grocery shoppers. About half have already browsed online, while about half that number, or about 20 million, have actually made purchases, according to Zona Research.

Although some consumers may prefer to buy perishable items, such as fruits, vegetables, and meat, in person, analysts say they expect there will be less resistance to purchasing commodity items, such as canned goods or toiletries, online.

"The new currency is time," says Jack Staff, director and chief economist at Zona Research. "That’s why online shopping is beginning to break all kinds of records. The busier we get, the more demand there will be for online groceries. You deliver my toilet paper to me at home for the same price and save me a trip to the mall, and that’s a good value."

There are currently more than 35 companies selling groceries online. Besides Webvan, the leading players are Chicago-based Peapod Inc. {PPOD}; privately held HomeGrocer, based in Seattle; and Netgrocer, based in New York, which canceled plans for an IPO last fall, citing the more familiar "market conditions." In May, Amazon.com Inc. {AMZN} bought a 35 percent stake in HomeGrocer for $42.5 million.

The fact that Netgrocer is a regional player, makes it less-strong than some of its competitors, observers say. The company didn’t return phone calls seeking comment as to whether it plans to reschedule its IPO.

Recently, Peapod’s stock has been languishing well under its original June 1997 IPO price of $16 a share. Rather than deliver groceries nationwide using its own trucks, Peapod has a deal with UPS to ship groceries anywhere in the U.S.

Peapod Inc. {PPOD}
PPOD Two-Year Stock Performance Chart	Detailed Quote Financial Statement Recent Events Company Snapshot Quarterly Earnings Key Statistics
	Tom Thumb's Peapod Program

Analysts attribute Peapod’s stock’s poor performance to several factors. For starters, the company’s original business model had employees shopping in regular supermarkets to fill customer orders, a laborious and time-consuming process that cut into thin margins. More recently, Peapod has recruited new executives and moved toward a Webvan-style business model, opening up centralized order-fulfillment centers in Long Island, N.Y.; Chicago; and San Francisco. Late last month, though, Peapod was hit with a class-action lawsuit from consumers in Boston who claim the prices on Peapod’s Web site didn’t match the prices on their bills.

The really big factors affecting Peapod’s share price, however, are flat sales earlier this year and the recent ascendance of Webvan and its more ambitious, coast-to-coast business model.

"Webvan is trying to do something no other company has ever done," Staff says. "It’s a matter of how many steroids you’re taking. Some companies are pumped up, and some companies are really pumped up." Staff says Webvan’s strong financial backing and immediate plans for nationwide expansion put it in the latter category.

However, Staff says consolidation pressures could eventually revive Peapod’s sagging stock, as well. If Webvan succeeds, he says, sooner or later it will dawn on smaller competitors such as Peapod, HomeGrocer, and others that consolidation is the best way to fight back.

"Overnight, you’d have a national online grocery that would be competitive," Staff says. "Somebody from one of those smaller players will have to be thinking large. But that could pose a significant threat to Webvan down the line."

Analysts also say existing supermarket chains will also look for ways to offer similar services if large numbers of consumers begin flocking to online-grocery retailers.