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HomeGrocer bags large IPO
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March 10, 2000: 5:14 p.m. ET
Online grocer joins increasingly crowded Web shopping market
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NEW YORK (CNNfn) - HomeGrocer.com, one of the latest entrants in the increasingly crowded online grocery-shopping field, raised $264 million in an initial public offering, an unusually large sum for an Internet IPO.
In its first day of trading today, HomeGrocer's (HOMG: Research, Estimates) stock rose 2-1/8 to 14-1/8, which is considered a tepid gain for an Internet-based offering.
The Kirkland, Washington-based company sold 22 million shares at the original offering per-share price of $12 through lead underwriters Morgan Stanley Dean Witter and Donaldson, Lufkin & Jenrette. At its current stock price, the company has a market capitalization of $1.73 billion.
HomeGrocer delivers grocery items via its own distribution system the day after they are ordered online. The company now delivers to customers in
Seattle, Portland, Los Angeles and Orange County, Calif., and plans to expand into eight to ten more markets within a year.
HomeGrocer faces competition from brick-and-mortar grocery stores that have started to offer online shopping, such as Albertson's, as well as other exclusively online shopping services, such as Webvan Group (WEBV: Research, Estimates) and Priceline.com (PCLN: Research, Estimates). And, not all consumers take to online grocery shopping, many consumers don't want to wait a day to receive their food and some like to see and feel their vegetables before buying them.
On the other hand, Forrester Research estimates that online grocery shopping in the United States will grow from a $513 million market in 1999 to a $16.8 billion market by 2004, and that online sales of health and beauty products will grow from $509 million in 1999 to $10.3 billion in 2004.
However, the costs of building its distribution network and computer systems have resulted in HomeGrocer racking up $93.3 million in losses since it was founded. The company had revenue of $21.65 million in its fiscal year ended Jan. 1, 2000.
The online retailing giant Amazon.com (AMZN: Research, Estimates), HomeGrocer's largest shareholder, has agreed to promote Homegrocer's services. The online grocery company also entered into a five-year agreement with America Online (AOL: Research, Estimates), under which its services will be prominently featured on AOL's network. HomeGrocer has to pay AOL about $60 million over the next five years for that advertising campaign.
Competitor Priceline.com said earlier this month that it has sold 10 million grocery items in the first 120 days that it has offered its online grocery shopping service. The company's Priceline WebHouse Club allows members to name their own price for groceries on the Internet and then get those items at their local supermarket.
HomeGrocer is led by Chairman Mary Alice Taylor, who was previously executive vice president of Citigroup's global operations and technology. 
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HomeGrocer
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