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When Amy Shapiro, owner of the Barking Zoo pet shop in Manhattan, signed up with Homedelivery.com three years ago, she didn't even have a computer. But she liked the fledgling e-venture's idea: linking local customers with shops via the Web. Now, she routinely gets several orders a day via fax machine listing a customer's credit-card number and a nearby address for delivery, all generated by Homedelivery's Web site. "I've gotten some really terrific new customers, and my old customers have liked the system, too," says Shapiro.
She's one of thousands of local merchants in Homedelivery's network, which now runs through Boston, Chicago, Washington, and San Francisco as well as the Big Apple, according to company founder and CEO Ari Friedman. "The Web is all about a local medium. All the merchants want to get with the program. You are going to be seeing a lot more like us," says Friedman.
Indeed, they're already here. New companies are rushing to span the so-called last mile -- the final distribution leg linking e-commerce to the customer's doorstep. Hip companies like Kozmo.com and Urban Fetch use fleets of bike messengers to deliver videos, convenience-store staples, and consumer electronics to urban Web surfers in an hour or less -- at retail prices with no delivery charge.
McMONEY INFUSION.
Now, Kozmo and Urban Fetch will face Food.com, a San Francisco Web vendor of takeout meals and other food items. It has lined up $80 million in financing from, among other big investors, Blockbuster and McDonald's -- marking the burger chain's first foray into the Internet business world. That infusion gave Food.com the means to buy Takeout Taxi, the largest national restaurant-delivery network, with franchises in San Francisco, Los Angeles, Atlanta, and dozens of other metropolitan areas. The purchase, announced on Mar. 15, gives Food.com a link between 16,000 restaurants around the country and masses of hungry Web surfers.
According to Food.com CEO Richard Frank, the company plans to soon offer film, dry-cleaning, and drug-delivery services in between busy mealtimes. Want to watch a movie after dinner? Food.com will bring Blockbuster videos to your doorstep. The strategy would also put Food.com in competition with e-grocers such as Webvan, which bundles supermarket wares and other goods.
How crowded is this field getting? Book merchant Barnes & Noble is experimenting with same-day delivery for Web customers in urban areas. And on Mar. 14, FedEx launched its own premium-delivery service, offering scheduled and evening deliveries to meet the residential-market boom fueled, in part, by Web purchases.
RAZOR-THIN MARGINS.
To be sure, e-commerce companies have long pondered how to change the behavior of shoppers. And profits have been hard to come by. Kozmo.com's average order is only $12, according to Jupiter Communications analyst Ken Cassar. Competitor Urban Fetch averages only $54 per order, a higher tab but one based largely on the razor-thin margins of delivering consumer electronics. Analysts say both need to get their average order value and delivery density higher, or they'll never turn the corner. Both Kozmo and Urban Fetch declined to comment for this story.
Takeout Taxi, on the other hand, is already profitable, says Frank. The site garners about 30% of a client restaurant's take on each order -- a healthy margin to hang the rest of the business on. "Kozmo and Urban Fetch don't do what we do. They deliver small goods for no money. I can't imagine what their business model is. Even if they charge more, how much can you charge for a pint of ice cream," asks Frank.
But even Food.com's model hasn't really been proven yet. No one has figured out how to smoothly blend a Web infrastructure with a fleet of instant-gratification merchants. And with big gun FedEx entering the fray, it might not be long before the Memphis (Tenn.) behemoth puts the squeeze on all the upstarts.
ANCIENT MODEL.
For now at least, investors certainly like what they see. Kozmo.com -- said to be filing for an initial public offering in the next few months -- is valued on paper at $300 million, despite a flood of red ink and minuscule gross sales. Most analysts have valued Food.com, at least on paper, at over $400 million.
The upshot of all this? The Amazon model of e-tailing -- where the customer pays for shipping and waits for days to get the order -- just doesn't cut it anymore. "Look at Kozmo. Look at Webvan. It's all converging on the last mile," says Yankee Group e-commerce analyst Rebecca Nidositko. And retailers, from food merchants to booksellers, face a stark choice: Conquer the last mile, bundle up, speed up -- or get out.
By Alex Salkever in New York EDITED BY DOUGLAS HARBRECHT
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