Anatomy of Failure - HomeGrocer

The Founding of HomeGrocer

The two men that founded HomeGrocer, an online grocery store, were Terry Drayton and Mike MacDonald. They started it in 1994. Drayton’s wife suggested that he could deliver groceries instead of water, which gave rise to the idea for HomeGrocer and caused him to sell his Crystal Springs water company.

Investment and Growth

Family and friends provided the initial investment capital, which helped Drayton raise $4 million in a Series A funding round and $9 million in a Series B funding round. The company was founded at a time when the grocery sector was established, fiercely competitive, and greatly fragmented. The market of online groceries had a high growth rate where from 1999 to 2004 an estimated 55% growth was forecasted.

Expansion to New Locations

The first launch of the company was in Seattle where a distribution center was established for the first 12-15 months other new facilities had been set up in other cities every three months. No later than a year, in May 1999, the company had established another distribution site in Portland, Oregon and by September 1999, in Orange County California.

The HomeGrocer.com Platform

The online grocer platform was developed as HomeGrocer.com where both perishable and non-perishable items were offered. It was beneficial to consumers since they accessed commodities at a convenient time with quality services with middle to upper-class families being of target customers. The operation and delivery involved the use of own distribution centers with use of refrigerated trucks that they bought.

Challenges and Merger with Webvan

With the Climate of internet IPOS seeming strong HomeGrocer went public on March 10, 2000. On April 2000, internet bubble burst the NASDAQ index declined to make home grocer to lack capital required to obtain effective operational cash flows from the distribution centers. In the bid to weather the financial crisis HomeGrocer merged with Webvan which had a large capital base. The managers in Webvan transformed all distribution centers into Webvan technology, although they lost money leading to the clash of the company.

Work Cited

Greg, Fisher & Suresh, Kotha. “HomeGrocer: Anatomy of a Failure.” ScienceDirect, 2013, pp. 1-12.