HomeGrocer Pays $60M for AOL Promotion

Internet grocer HomeGrocer.com announced today that it will pay $60 million (US$) over five years to America Online (NYSE: AOL) for positioning across the online giant’s vast network.

As part of the arrangement, the Kirkland, Washington-based HomeGrocer will be featured on AOL.com, Netscape Netcenter, Digital City, AOL MovieFone and Oxygen.com.

Backed by Amazon.com (Nasdaq: AMZN) and a host of venture capital firms, HomeGrocer considers its alliance with AOL to be crucial to increasing both its visibility and its revenues as it prepares for an upcoming initial public offering. HomeGrocer filed registration papers with the Securities and Exchange Commission (SEC) in December.

Preparing for Expansion

HomeGrocer was launched in 1998 in its home market of Seattle, Washington and has since expanded its delivery service to Portland, Oregon, Orange County, California and the Los Angeles area. It recently completed a 114,000-square-foot facility in Southern California to facilitate its expanded service in the Los Angeles metropolitan area.

The company is preparing to expand across the United States in the next year, targeting metropolitan areas like New York City, the Bay Area in Northern California, Dallas, Texas, San Diego, Washington, D.C. and Atlanta, Georgia.

HomeGrocer customers can order from a wide range of goods as late as 11 p.m. for next day delivery. It offers free delivery for the first order or for orders of $75 and above.

Like competitors Webvan, Peapod, HomeRuns and others, the company is fighting increased competition and the reluctance of many online shoppers to have someone else select their food.

Billion Dollar Potential

Still, many analysts say that the industry has the potential to generate billions of dollars in revenues down the road. HomeGrocer.com also has an advantage of being backed by Amazon.com as it gears up for a costly fight for online grocery supremacy.

Last May, Amazon invested $42.5 million for a 35 percent stake in the company.

The AOL position will help drive up HomeGrocer’s numbers. AOL has a captive audience of some 25 million users and is widely recognized as being one of the cornerstones of Internet commerce.