AMAZON.COM TAKES STAKE IN HOMEGROCER

KIM ANN ZIMMERMANN

BELLEVUE, Wash. -- Amazon.com took a 35% stake in HomeGrocer.com last week, raising the ante in the increasingly competitive on-line home-shopping game.

The move provides the Internet grocery-shopping and home-delivery service with the capital for an expansion into California this summer. In addition to the expanded coverage area, the on-line grocer will revamp its site, www.homegrocer.com, in June to provide on-line selling suggestions based on buying history and preferences, much as Amazon.com does with interactive book recommendations.

"The $42.5 million investment by Amazon.com provides significant funding for this first leg of our expansion," HomeGrocer.com chief executive officer and co-founder Terry Drayton told SN in an interview. HomeGrocer.com, which had been serving only the Seattle area for the past year, expanded into Portland, Ore., earlier this month and "our next stop is California on a nationwide rollout," Drayton said. He declined to provide specifics about which area of California was slated for the summer rollout.

"In terms of quality, customer service and knowledge of their consumer, Amazon.com is certainly one of the companies we have tried to emulate. At their site, the more you shop, the more they become familiar with the types of books you are interested in. They've done an incredible job at getting to know the customer. In the next release of our site, we look to use the knowledge we gain about our customers to make their shopping experience easier," Drayton said.

HomeGrocer.com, which has been in existence for about a year, faces heavy competition in the on-line and home-shopping arena. Borders Books & Music co-founder Louis Borders recently launched an Internet grocery service, Webvan, Foster City, Calif., www.webvan.com (see Page 17). In addition, HomeGrocer.com will go up against established on-line grocery merchants Peapod, Skokie, Ill., www.peapod.com, and NetGrocer.com, North Brunswick, N.J., www.netgrocer.com. Individual retailers, such as Safeway, Pleasanton, Calif., are also reportedly looking to offer on-line shopping services.

One way HomeGrocer.com hopes to differentiate itself, Drayton said, will be through the use of on-line purchase suggestions, which will appear as customers complete their orders.

This will be done using what Drayton calls "predictive modeling." For example, of 100 consumers ordering salmon, 83 order barbecue sauce as well. "We'll suggest to those 17 people who ordered the salmon but didn't order the sauce that it is something they may want to consider. The idea is to look at the kinds of items people are buying and make smart recommendations about the kinds of things that they might need."

Drayton said every effort would be made to home in on the customers' needs in order to make logical recommendations based on the customers' preferences. "We're not going to send a message about baby diapers to seniors, or meat suggestions to people who are vegetarians," he said. In addition, he said, customers would not receive more than three suggestions in a session. "We don't believe in spamming customers," he said.

While the revamped site will use statistical models to make suggestions of complementary items to those being ordered, the reworked site will also take into account the customer's buying habits to make replenishment suggestions, Drayton said. "If a customer is ordering shampoo once every three weeks, we won't send a suggestion to order shampoo the week following their order, but we'll send one when they are due to run out. The idea is to send them a reminder based on their buying patterns," he said.

Drayton said he feels HomeGrocer.com can distinguish itself from other on-line grocers with high-quality fish and produce, with special attention paid to delivering perishables. The site offers about 11,000 items, including meat, seafood, dairy, organic and ethnic food. "We're known for our fabulous fish and produce. We've got 60 customized vans with freezer, refrigerated and room-temperature compartments so we can deliver everything fresh to your kitchen. We're positioning ourselves as the milkman of the millennium."

HomeGrocer.com operates a 75,000-square-foot warehouse in Bellevue, Wash., providing the on-line retailer with more control over the items offered. "If we rely on supermarket partners, we don't have nearly as much control over quality, which is something that sets us apart," Drayton said. Competitor Peapod is moving away from using local retailers to fulfill orders and is opening dedicated warehouses.