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Amazon Continues Diversification With HomeGrocer Investment

Not content to rest on its e-tail laurels, Amazon.com announced Tuesday it is venturing into the food arena, taking a 35 percent stake in Internet grocer HomeGrocer.com worth $42.5 million.

The move is the latest effort by Amazon.com to capitalize on its customer retention and use that advantage to expand into other retail sectors. Earlier this year, the company announced it was taking a stake in online drug retailer Drugstore.com.

Amazon said its long-rumored investment will fuel HomeGrocer's nationwide expansion from its Seattle and Portland customer base. David Risher, Amazon.com's senior vice president for product development, has been tapped to serve on the HomeGrocer.com board of directors. In addition, former Netscape CEO Jim Barksdale, is slated to be the company's chairman.

Started in March of last year, Bellevue, Wash.-based HomeGrocer.com offers more than 11,000 grocery products, featuring name brands, fresh produce, meat, seafood, dairy products, and specialty foods, including ethnic, natural, and organic. The company stocks its own warehouses and delivers groceries to customer's homes via fleets of temperature-controlled trucks. HomeGrocer.com offers free deliveries for orders of more than $75. Skokie, Ill-based Internet grocer Peapod Inc. is the company's chief rival.

"The HomeGrocer.com team is literally changing the lives of customers by taking the drudgery out of grocery shopping," said Jeff Bezos, founder and CEO of Amazon.com. "They have a fanatical eye for the customer experience. Their shoppers pick out better produce than I could for myself. The delivery people refuse to be tipped. The company really has an unusual attention to detail."

"HomeGrocer.com is passionate about customer service, and the involvement of Amazon.com underscores our high standards," said Terry Drayton, co-founder and chief executive officer of HomeGrocer.com.

"Amazon.com is the most respected and customer-focused e-commerce company and has set new standards for customer service, privacy, and the integrity of the shopping experience. We are excited to gain valuable knowledge and insight from them," Dayton said.