A Bag Half-Full

The HomeGrocer.com IPO will no doubt be successful -- but will it have legs, or has the moment passed?
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Webvan

(WBVN)

hasn't been public for two months, and already arch-foe online supermarket

HomeGrocer.com

has narrowed the gap. That may be of small solace to HomeGrocer, however, when it floats its shares next year. With Wall Street turning relatively sour on consumer-oriented Internet businesses, the dueling grocers may find that in 2000 just coming to the party at about the same time simply isn't good enough.

It took fumbling

Barnes & Noble

(BKS) - Get Report

more than two years to take public its

barnesandnoble.com

(BNBN)

unit after

Amazon.com

(AMZN) - Get Report

showed the world in 1997 how an IPO can be the ultimate publicity event. Not so HomeGrocer, which last week filed to go public the month after Webvan began trading.

SiliconStreet: Join the discussion on

TSC

message boards.

Go to the

IPO board.

Considering that Foster City, Calif.-based Webvan is the clear winner in the early hype competition, it will come as a surprise to potential investors that Kirkland, Wash.-based HomeGrocer actually is a bit ahead of its competitor in things that matter, like number of customers, revenue, experience and cost-controls.

Make no mistake, however. The time to wow investors with the "newness" of electronic commerce is long past. Investors will suspend any semblance of sane judgement so long as the topic is Linux, the open-source software (

Red Hat

(RHAT)

,

VA Linux Systems

(LNUX)

), or business-to-business venture funds (

Internet Capital Group

(ICGE)

). But a grocery is a grocery is a grocery. Webvan's plodding progress so far as a public company -- its stock is stuck around 20, from a November offering price of 15 -- suggests that investors may get an initial pop from HomeGrocer, but not Internet-style appreciation.

To be sure, there are crucial differences between these me-too, venture-backed start-ups. But they have more in common than not. And their simultaneous births and infancies -- as viewed through the prism of their respective securities filings -- provide a nice window on a Sand Hill Road-funded fad in progress.

What's the Difference?

For starters, although it has raised far less pre-IPO money ($169 million vs. $396 million for Webvan) and was slower to pop an IPO, HomeGrocer has done far more business -- and far more efficiently. Operating since mid-1998 in Seattle and much more recently in Portland, Ore., and Orange County, Calif., HomeGrocer had sales for the 39 weeks ended Oct. 2 of $10.9 million. Webvan, making deliveries only in the San Francisco Bay area since June, has had sales of $4.2 million. HomeGrocer has visited 50,000 households compared with 21,000 for Webvan.

HomeGrocer, moreover, has had gross margins of 18% so far, compared with 8% for Webvan. And with an average order size of $99, HomeGrocer is besting Webvan's $71. Webvan disclosed that its target average order size is $103, so HomeGrocer is getting close to a goal Webvan doesn't yet have in sight.

Another difference in HomeGrocer's favor is that it is spending less. Total sales, general and administrative expenses for the recently ended 39-week period were $28 million for HomeGrocer, compared with $74.4 million for Webvan in the first nine months of the year. Webvan also spent $10.6 million on software development, a line-item HomeGrocer doesn't disclose.

Numbers for both companies show only how each is doing in its early days. But before it filed to go public HomeGrocer was trumpeting the fact that it would operate a less costly system than Webvan. It brags in its federal filing that "by opening three new facilities in three months during the fall of 1999, we have proven our ability to expand quickly and to operate in multiple locations." HomeGrocer says it will add eight to ten additional distribution facilities within a year. Webvan, despite its ballyhooed relationship with master contractor

Bechtel Group

, plans to open in three more cities -- including Seattle, which should be amusing -- in 2000 and seven more in 2001.

Follow the Keiretsu's Money

The HomeGrocer-Webvan matchup is a classic example of how the powerful forces in the Menlo Park-to-Seattle axis operate.

In HomeGrocer.com's corner, we have powers allied with

Kleiner Perkins Caufield & Byers

, Amazon.com (HomeGrocer's largest shareholder), the

Barksdale Group

(staffed by refugees of

Netscape

) and lead investment banker

Morgan Stanley

. Each entity is heavily involved with the other from Kleiner's initial stake in Amazon to Morgan's being the preferred bank for this camp's IPOs.

In the other corner -- Webvan's -- is the

Benchmark Capital

,

Sequoia Capital

,

Softbank

,

Yahoo!

(YHOO)

,

E*Trade

(EGRP)

contingent anchored by its investment banker of choice,

Goldman Sachs

.

These relationships matter. HomeGrocer says in its filings that Amazon will promote its services. Plugs for Webvan on Yahoo and in E*Trade brokerage statements can't be far behind.

The companies have also lined up their chief executives.

Veteran financial services industry executive Mary Alice Taylor (think ex-

Citigroup

-- the smart set calls her "MAT," to rhyme with "cat") signed on as CEO of HomeGrocer in September for a salary of $200,000. She also was able to exercise 4.5 million options at 45 cents a piece (the company can buy them back over a vesting period) and to buy 1.5 million shares at the same price. The combined stake gives her a 6% piece of the HomeGrocer pie.

Ex-consultant George Shaheen got considerably more out of Webvan: $500,000 in salary, a target bonus of $250,000 and 15 million options at $8 each, 3 million of which vested immediately. Shaheen's share is worth 5% of Webvan, assuming all options and warrants eventually become shares.

What Else?

Just as Webvan is threatening to deliver far more than groceries, so too is HomeGrocer prepping to be the milkman on steroids. "We also offer health and beauty products, wine and beer, fresh flowers, pet products, home office supplies, postage stamps, seasonal items and top-selling books, video games and movies," says its filing.

Let's see. Soon we'll be able to trade online with Webvan shareholder E*Trade, order any kind of hard goods through the mail from HomeGrocer backer Amazon and take delivery of any perishables imaginable from both.

Never mind that none of these exemplars of the new economy make money. Who will have any reason to leave home again?

Adam Lashinsky's column appears Tuesdays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.

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