Just two years ago, Home Runs.com Inc. looked like an also-rannext to glitzy online grocers that offered customers the world - drycleaning, video rentals, shoe repairs, and much more.
But now that the Burlington-based online grocer has outlastedseveral rivals and appears to be holding its own in key markets,industry observers are starting to wonder whether the ho-hum dot-comwill win the race.
Not so fast.
Even Robert J. Tarr Jr., 57, the chief executive of HomeRuns,isn't about to claim victory in a young industry struggling to proveits viability. HomeRuns.com and rivals Webvan Group Inc. and PeapodInc. are still hemorrhaging cash in a business known for razor-thinmargins. Instead of jumping into new markets, they are slashing costsand raising delivery charges.
In a rare interview, Tarr said HomeRuns.com will need to raise $20million to $30 million in a climate he concedes is less thanfavorable.The backlash already has claimed two local victims:Streamline.com and Shoplink.com.
"If there was one mistake I made, it was not seeing the deflationof the capital markets as quick as it happened," Tarr said last week."The markets are terrible."
A big reason for the staying power of HomeRuns.com is the stunning$100 million it received last year from the New York investment firmCypress Group.
Another is Hannaford Bros. Co., a Maine supermarket chain thatlaunched HomeRuns.com five years ago as a delivery service cateringto busy Bostonians.
Hannaford's early investment gave HomeRuns.com valuable experiencethat helped it grow quickly once it began taking orders online inBoston and Washington.
Although the profit-minded chain sold its majority stake inHomeRuns.com to Cypress (and briefly considered liquidating theonline grocer), it remains a crucial partner. Today, HomeRuns.comgets the bulk of its groceries from Hannaford at wholesale price."They treat us like one of their stores," Tarr said.
Peapod receives similar pampering from Stop & Shop owner RoyalAhold NV, a Dutch grocery conglomerate that paid $73 million lastApril for a controlling stake in the ailing online grocer. Thesepartnerships with supermarket giants will be critical to the successof Internet grocers, executives and analysts said.
Eventually, all online grocers are going to partner withtraditional companies in the supermarket industry, Tarr said.
HomeRuns.com is still playing catch-up with its rivals, who haveaggressively expanded into new markets across the United States.
Webvan, based in Foster City, Calif., is by far the nationalleader in both sales and losses. The online grocer reported a proforma loss of $413.2 million on $259.7 million in sales in fiscal2000. Webvan faces possible delisting by the Nasdaq because itsshares have been trading below $1.
Next in size is Peapod, an online grocer based in Skokie, Ill.,with $93 million in annual revenue. Peapod's shares also trade in thedanger zone, closing yesterday at 88 cents. (Home Runs.com does nottrade publicly.)
In its two markets, Home Runs.com competes primarily with Peapod.Both are relative newcomers to the Washington area, where they battlefor shoppers. In Boston, however, Home Runs.com executives said theirfirm now dominates the market.
HomeRuns.com in the last six months has served more than 5 percentof the 660,000 households in its Boston delivery area, executivessaid. The company also had about $30 million in sales in 2000 andanticipates revenue of $75 million in 2001. The vast majority of lastyear's sales came from Boston, HomeRuns' first market.
In a telephone interview this week, Peapod chief executive Marcvan Gelder said his company had more than $30 million in sales in theBoston and Washington markets. He declined to offer comparablecustomer counts or directly refute HomeRuns.com's claim of marketdominance in Boston.
"I'm not going to give you a [market] breakdown," he said.
Van Gelder said Ahold's ownership stake and commitments to Peapodgive the online grocer an edge over HomeRuns. Ahold's size and cloutalso provide Peapod with long-term benefits, he said.
"Ahold is a much bigger company than Hannaford," van Gelder said."If you look at purchasing power, we have major advantages."
Tarr led Harcourt General Inc. and Neiman Marcus Group Inc. beforehe replaced Tom Furber, a former Hannaford manager who foundedHomeRuns.com, as the online grocer's chief executive in February2000.
In his 14 months with Home Runs.com, Tarr has distinguishedhimself as a rare dot-com CEO making a concerted effort to stay outof the spotlight. That attention, he said, he can do without.
"We're private and we enjoy being private," Tarr said. "I've spentmany years with public companies, and I can't tell you what a luxuryit is to be private. You can get in a situation where the publicstarts to drive your business."
Under Tarr's direction, HomeRuns.com is scaling back and trying tostretch its dollars in a bid to push the company's Boston andWashington markets to operating profitability by early 2002.
HomeRuns.com will need to enter at least two more markets beforeit can emerge from a pool of red ink. Plans to enter Long Island,N.Y., and Baltimore, however, have been put on hold.
Last month, the company trimmed 35 jobs from its Burlingtonheadquarters and raised its Monday-to-Saturday delivery charges to$5.95 from $2.50.
Executives also eliminated bottle and can collections, citing thetime and expense of handling recyclables. The few shoppers who didnot rinse out their soda cans and bottles - as required byHomeRuns.com and other retailers - helped hasten the dot-com'sdecision to pull the service.
Ironically, some HomeRuns customers who were upset by theelimination of the recycling service said they understood thecompany's need to increase service charges.
"I'm afraid if they don't do things to become profitable, I'lllose them," said Penny Cherubino, a writer who lives in Back Bay."But I hope that they will reconsider [recycling] bottles."
As HomeRuns.com cuts some services, it is expanding otherofferings. Its online grocery shelves now include over 10,000products, more than competitor Peapod's 8,000 items offered in theBoston area. If its delivery employees arrive after the promiseddelivery window, HomeRuns.com promises to waive service charges.
Janet Suleski, an analyst with AMR Research in Boston, said thechanges indicate that HomeRuns is now comfortable with itstechnology, inventory management, and delivery skills.
Indeed, some customers say HomeRuns.com's Web site is faster andbetter organized than it was before. Workers at the Somervillewarehouse know how to handle glitches like van breakdowns, trafficproblems, and returned merchandise. And drivers who carry temperature-controlled plastic totes into homes know their routes and customers.
"They've gotten past that first stage," Suleski said.
What HomeRuns.com refuses to eliminate is its service to inner-city neighborhoods. The online retailer serves residents in Roxburyand Beacon Hill, inner-city Washington and the suburbs.
The company's practice has been praised in urban areas used tobeing ignored by banks, retail chains, and food delivery services.
"One of the dreams we have is that we give back to the community,"Tarr said. "I know it sounds like motherhood and apple pie, but webelieve it. You can't do that by not going to these markets."
Stephanie Stoughton can be reached by e-mail atstoughton@globe.com.
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