The online grocery business lost a second vendor this week when HomeRuns.com, which has been in business since 1996, closed its doors yesterday.
The shutdown comes just four days after Webvan Group Inc. announced that it was closing its online grocery operations across the nation.
In a statement, officials for Burlington, Mass.-based HomeRuns.com said the company was closing because it was unable to secure additional capital to stay in business. The company had operations in Boston and Washington.
In a message posted on its Web site, the company notified customers of the shutdown and said all orders after July 12 would be canceled without charge.
"We want to express our sincere gratitude to our customers and employees for their unfailing loyalty and support over the years," the statement said.
A company spokesman couldn't be reached to learn how many employees and customers would be affected by the closing.
Monday's closing of Foster City, Calif.-based Webvan was also blamed on continuing losses and lack of new investment. Webvan laid off 2,000 workers and is preparing to file for Chapter 11 bankruptcy protection to sell off its assets and pay creditors. Webvan was founded in 1997 and operated most recently in Chicago; Los Angeles; Orange County, Calif.; Portland, Ore.; San Diego; San Francisco; and Seattle.
Other online grocers have also had troubles recently.
Rival Peapod Inc. in Skokie, Ill., had to turn to Netherlands-based majority owner Royal Ahold NV for a $50 million credit line earlier this year and then quickly closed its San Francisco operations.
Last month, Pleasanton, Calif.-based grocery store chain Safeway Inc. announced that sales through its GroceryWorks.com online shopping affiliate were being temporarily suspended while it sought Web site design help and new funding from British counterpart Tesco PLC. Safeway will reorganize GroceryWorks.com to follow Tesco's model of working directly with brick-and-mortar stores for deliveries and avoiding costly warehouses.
But despite all of the recent gloom in the online grocery industry, Lisa Kent, CEO and president of North Brunswick, N.J.-based Netgrocer.com, remains upbeat about the segment's prospects.
"I don't think that these closures are indicative that the online grocery business doesn't have a good future," Kent said. The problem for the failed HomeRuns.com and Webvan was that their business models were built around expensive warehouses in many locations, along with costly fleets of delivery personnel and equipment, she said.
Instead, Netgrocer.com has only one warehouse, a 120,000-square-foot facility in North Brunswick, and offers customers only non-perishable foods and other items for delivery via Federal Express.
"All of the capital infrastructure was very costly" for HomeRuns and Webvan, Kent said, and those costs couldn't be recovered until their customer bases grew much larger. "I think they were still building that level of density. They were seeking a major behavior change" in the way that consumers buy their groceries.
Netgrocer, which went online in 1996 and is privately held, offers convenience for customers by helping them avoid long lines in stores and the hassles of carrying their heavy groceries home, she said. The company also has special arrangements with many food manufacturers to provide customers with hard-to-find products, shipped directly to their homes.
Netgrocer's focus, she said, is to complement brick-and-mortar grocery stores, not replace them.
One of Netgrocer's major investors, Parmalat USA, contributed US$30 million to the company in May last year. Parmalat's president and CEO, Aldo Uva, said in a statement that the closure of Webvan earlier this week "further reinforces our commitment and investment in Netgrocer's pantry replenishment and outsourced delivery model."
"We chose to invest in Netgrocer because of its position as an extension and complement to the brick-and-mortar world, as opposed to other online grocery businesses, " Uva said.