October 9, 2000

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Priceline.com Dumps Grocery And Gas Shopping

Revenue warning and customer complaints contributed to closure of WebHouse Club

By Cheryl Rosen

More on Priceline.com:

TechWeb Finance: Priceline Shares Dive On Earnings Warning (9/27/00) VARBusiness: Putting the Pinch on Priceline.com (9/4/00)

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here will be no more naming your own price for groceries and gas at WebHouse Club, as the Priceline.com Inc. licensee said last week it will close in 90 days, one year after it opened. Priceline.com's sister company has taken its last orders for groceries and will issue refunds to customers who haven't picked up their products.

Priceline.com will continue to focus on a global expansion of its six core products: airline tickets, hotel rooms, car rentals, new cars, home mortgages, and long-distance telephone calling, a spokesman says.

Priceline.com's business model seems to work for travel--its 7 million customers buy 15,000 airline tickets a day. But that model is more cumbersome for hard goods. WebHouse customers receive a bar-coded receipt they must take to a participating supermarket or gas station, where the goods aren't always available. About 100 consumer complaints in Priceline.com's home state of Connecticut this month spurred an investigation by the state attorney general, Richard Blumenthal, into possible fraudulent practices.

Despite a customer base of 2 million, WebHouse simply couldn't raise enough cash to become profitable. Priceline.com founder Jay Walker said in a statement last week that he and other investors established WebHouse as a separate company to insulate Priceline.com investors. Walker recently sold $240 million of Priceline.com stock and pumped $125 million into WebHouse.

But that wasn't enough to save the company. WebHouse's closure and the subsequent loss of licensing fees (totaling $4.3 million in the second quarter) drove Priceline share prices down to $6 last week--a far cry from the $100 it commanded in March. Priceline.com warned Wall Street last month that it expects third-quarter revenue of $340 million to $345 million, rather than the $360 million to $380 million analysts had expected.

"They went out on an exploratory limb, and at a time when earnings are under pressure, they did the right thing," says Andrew Bartels, a Giga Information Group senior analyst. "The Priceline model works for products where the key variable is lowest possible price, but you need groceries and gas when you need them, and people aren't that price-sensitive over a box of Cheerios."

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