Online grocer HomeRuns.com announced today that The Cypress Group, a private equity firm, has purchased a $100 million (US$) majority stake in the Somerville, Massachusetts-based company.
The company claims that the transaction, which is expected to close in February, is the largest private investment ever made in the increasingly competitive online grocery market. Competitor Webvan raised $325 million in an IPO last November.
Robert Tarr, the former head of publisher Harcourt General and retail chain Neiman Marcus, is slated to become HomeRuns’ next chairman and CEO. Tarr will also make a “significant investment” in HomeRuns, the companies said.
HomeRuns is currently a wholly-owned subsidiary of the Scarborough, Maine-based Hannaford Bros. grocery chain. The company has 152 stores in New England and the Carolinas and had 1998 sales of $3.3 billion.
In August, Hannaford Bros. agreed to a merger with Food Lion, a 1,258-outlet grocery chain across the Mid-Atlantic and Southeast. Food Lion, which booked sales of $10.2 billion in 1998, is owned by a Belgian corporate parent.
The majority investment stake by The Cypress Group could well signal a reluctance by the Belgian company to take on an Internet grocer in a competitive field with little margin for error.
Planning on Expansion
HomeRuns expects to use the money to develop 20 new markets over the next three years. The company currently makes deliveries to 40,000 customers in the greater Boston, Massachusetts area, which is considered a highly-competitive online grocery market.
By expanding nationally, HomeRuns will be taking on Peapod, HomeGrocer.com, Webvan and a whole host of other online grocers. All are currently losing money as they invest in expansion and infrastructure support.
The Skokie, Illinois-based Peapod announced third quarter losses of $9.4 million and said recently that it might not have enough cash and marketable securities to fund operations this year.
San Francisco, California-based Webvan intends to spend $1 billion to build 26 warehouses nationwide over the next two years.
Bellevue, Washington-based Homegrocer.com lost nearly $40 million in the first 40 weeks of the year. The company filed for an IPO last month.
Despite razor-thin margins and high expansion costs, online grocers will fight for a share of the market — which is estimated by Jupiter Communications to be as much as $3.5 billion by 2003.