HomeGrocer.com Cuts Workforce Again

Internet grocery service HomeGrocer.com has slashed roughly 100 jobs -- the second workforce reduction in recent months -- as it continues consolidating operations with Webvan Group, Inc. (Nasdaq: WBVN). Webvan purchased HomeGrocer for US$1.2 billion earlier this year.

The current round of layoffs account for nearly a quarter of HomeGrocer.com's workforce and will affect employees at the Kirkland, Washington headquarters. During the formal completion of the merger in September, HomeGrocer.com handed pink slips to 50 workers.

According to published reports, more cuts are expected at HomeGrocer.com as Webvan works to establish a single brand and further integrate the two technology platforms.

Costly Takeover

Although the acquisition of HomeGrocer.com gave Webvan an edge in the Internet grocery sector, the transition has not been seamless. In October, Webvan reported a wider-than-expected loss for the third quarter due in part to the takeover.

In addition, the Foster City, California-based company has been forced to delay its entry into the Baltimore-Washington, D.C. and northern New Jersey markets because it is working on the integration of HomeGrocer.com operations in existing service areas.

Previously slated to occur in the fourth quarter of 2000, the expansion will now take place in the second half of 2001, the company said.

Webvan currently serves markets in Atlanta, Georgia; Chicago, Illinois; Dallas/Fort Worth, Texas; Los Angeles and Orange County, California; Portland, Oregon; Sacramento, California; San Diego, California; San Francisco, California; and Seattle, Washington.

Last month Webvan began charging delivery fees to customers ordering less than $75 worth of goods.

Struggling Sector

Dot-com companies have struggled to gain a foothold in the grocery market.

In November, Web grocer Streamline.com -- which served the Boston, Massachusetts and northern New Jersey areas -- shuttered its operations after failing to secure an infusion of capital or find a buyer. The closure came just two months after the troubled company sold some of its assets and operations to rival Peapod.

For its part, Peapod was saved from bankruptcy earlier this year after European food giant Royal Ahold pumped $73 million into the company. Peapod, however, continues to report an earnings shortfall.

In yet another Web grocery shakeout, Priceline.com announced in October that it was going to discontinue the online grocery service that it had offered through licensee WebHouse Club.

Despite these woes, industry analysts say that a successful Web grocer model is possible. The analysts recommend that companies in the sector focus on high-end markets, limit their delivery schedules and strike partnerships with brick-and-mortar grocers.