Race is on for high-speed
e-commerce delivery
BY JON FORTT AND JOELLE TESSLER
Mercury News Staff Writers
An older generation remembers the friendly milk man, who like
clowkwork at 6 a.m. deposited bottles on the back stoop. Those
simpler days are long gone. But in the age of the Internet, someone
might ride a bicycle to your home home to deliver milk -- within an
hour after you clicked your mouse.
As online retailers fight for market share, some are taking control of
more than what shoppers see on their computer screens. They're
convinced that whoever owns the ``last mile' from the warehouse to
the doorstep will control a big chunk of the future of Internet
shopping.
``If someone can build that infrastructure, you have not only a captive
audience, you've also hit a nerve with the consumers,' said Joseph
Park, CEO of Kozmo.com, a retailer and delivery service that
promises to get videos, milk and other products to your door within
an hour in San Francisco and several other cities. ``You can easily
leverage that relationship to sell more and more products to them on a
regular basis.'
That's the goal, but these retailers aren't making any money yet, and
some logistics experts wonder whether they ever will.
Still, that never stopped an Internet company. The last-mile idea is
catching on, and it is expanding beyond the grocery market, where it
started in part because the U.S. Postal Service, Federal Express and
other traditional delivery services can't handle food that can spoil or
melt.
This holiday season, Barnesandnoble.com made same-day deliveries
in New York City. And last week, an investor in New York-based
Kozmo.com confirmed reports that Amazon.com bought a 23
percent stake in the privately held company. Amazon.com, which has
rapidly expanded beyond selling books and also has a stake in online
grocer HomeGrocer.com, would not confirm the investment.
Massachusetts-based Streamline.com delivers video rentals, dry
cleaning and film developing as well as groceries.
What's more, some of the companies that have taken control of the
last-mile say they want to do more deliveries for other companies --
even for competitors.
Foster City-based Webvan Group has its own health and beauty
section, but this holiday season it delivered gift baskets for San
Francisco-based Eve.com, an online beauty shop. Kozmo.com also
hopes to begin delivering merchandise for other retailers.
``Our strategy is to own that last mile, if not the last 10 blocks, of
e-commerce,' Park said.
Analysts say that if the companies can get others to use their service,
it could help them along to profitability. Online grocers need to
average about $100 per order before they can make money.
(Kozmo.com says its average order price can be lower because it
makes many deliveries by bicycle or on foot, avoiding the cost of a
fleet of trucks like those Webvan uses.)
Kozmo.com plans to be in 20 markets next year, and Webvan says
its Eve.com partnership is just the beginning. The company, which
operates solely in the Bay Area, plans to offer service in 26 cities by
2004, vastly expanding its potential as a national delivery option.
Getting costs down
Matt Stamski, an analyst for the Gomez Advisors research firm in
Boston, is skeptical.
``Webvan likes to claim they're going to fill their vans to the brim with
anything that anybody could need from dry cleaning to shoe repair,'
Stamski said. ``So far they haven't done that.'
But despite the high costs of setting up a fleet of trucks and drivers,
these companies say it is more efficient for them to handle their own
deliveries.
Streamline.com thinks it costs the company less to handle its own
deliveries than to hand them off to traditional package delivery
companies. Streamline.com has one delivery person and one vehicle
for every 250 homes it delivers to, and it serves about 8,500 homes in
Boston, Washington, D.C., and Chicago. Tim DeMello,
Streamline.com's chairman and chief executive, says Streamline.com
can get the cost of delivery down to about $3 an order.
Though profits have proven elusive for the new delivery companies,
there are a number of advantages for online retailers that handle their
own deliveries. For one, they have more control over when their
products arrive. Webvan, for example, promises it will deliver within a
30-minute window.
Kozmo.com, too, is betting that people don't want to wait. The
company figures the reason catalog sales represent only about 15
percent of retail is that people don't like waiting a few days for things.
Customer tastes may not be very accommodating, however. A recent
Jupiter Communications study found that many of the items people
want delivered quickly are difficult to stock in a warehouse, such as
prescription drugs, ready-to-eat meals and flowers.
Because companies like Streamline.com, Webvan and Peapod.com,
an online grocer engaged in a battle with Webvan in the Bay Area,
send their own employees to their customers' homes, they are also
able to establish a personal connection in a business that to many
seems very impersonal.
Personal touch
According to Forrester Research, just one of every 50 visitors to an
e-commerce Web site buys something. Companies like Webvan do
better, turning more than twice as many visitors into customers, in part
because they focus so much on customer service.
Amy Nobile, Webvan's manager of public relations, said many
Webvan customers come to know their couriers since the same group
of drivers regularly delivers to the same neighborhoods. ``It helps to
give a personal touch because we are the only face of the company
that they see because it's all over the Internet,' said Bryan Stafford, a
driver based in the company's Mountain View hub.
Webvan has about 160 couriers, plus 15 alternate couriers and 20
managers who oversee them. The company's Mountain View hub --
one of 12 around the region plus the company's 330,000-square-foot
distribution facility in Oakland -- makes well more than 100 deliveries
a day in cities like Sunnyvale, Los Altos, Palo Alto and Menlo Park.
Webvan sees the courier's image as a key part of their mission. The
company is asking customers to change one of their most basic
routines, so it's very important to make them feel comfortable
throughout the process, said Stewart Wadsworth, manager of the
company's Mountain View hub.
Webvan customer Lisa Bhatt lives with her husband and newborn in a
walk-up apartment in the Cow Hollow section of San Francisco.
After she had the baby, grocery shopping became a chore, especially
since she lives on the second floor, so she took her first tentative
clicks into online grocery shopping.
Now she orders all of her groceries that way, sometimes twice a
week, at more than $40 per order. She's precisely the type of
customer last-mile companies want.
``I guess it does put a personal touch to the service,' Bhatt said.
``The last few times I've had the same person, and he's great. He's
very professional, very prompt. It's not like waiting for your cable to
get repaired.' |
