One of the original delivery services of the internet age is being revived this week as a grocery e-commerce website offering bulk product at low prices in the Los Angeles market.
Kozmo, which was founded as a messenger-based delivery service in New York City in 1998 and was folded in 2001 after expanding to 18 markets, has often been cited as an example of the casualties of the dot-come bubble.
The site was acquired several years ago by Yummy.com, the same-day grocery delivery service and brick-and-mortar retailer in Los Angeles, which is now re-launching it as a next-day grocery service that seeks to serve consumers’ needs for stock-up grocery trips.
Barnaby Montgomery, co-founder and CEO of Yummy.com, said the company hopes to eventually offer delivery within two hours, and to expand to additional markets.
“Our strategy is to offer online solutions that are better in some way than a trip to the store,” he said in an interview with Supermarket News. “Yummy.com is faster and more convenient than a trip to the store, and so we are utilizing that strategy in a new market segment at Kozmo, which is to offer groceries for less than a trip to the store.”
Kozmo will use the existing warehouse and delivery infrastructure of Yummy.com, but in order to to offer lower prices will only make available a limited number of SKUs of each product and will require customers to purchase a minimum number of each item.
For example, customers must purchase at least three half gallons of organic milk, or at least two 12-packs of beer or at least 10 bananas. Products offered will include fresh produce, meat and packaged groceries, health and beauty products, beer, wine and liquor.
Montgomery said he expects that Kozmo could also eventually serve as a delivery mechanism for other retailers as well. The company is currently in discussions with two retailers outside of the Los Angeles market that might be interested in supplying product through Kozmo.
“It is an opportunity for other supermarkets to use Kozmo as an avatar to package their products, sell them online for less and acquire a new customer who may not be predisposed to buy from that banner offline,” Montgomery said.
He said the site will aim to be priced on par with the lowest price grocery options in the market.
Yummy.com operates six small stores around the Los Angeles area and offers 30-minute delivery for a $6.99 fee with a minimum order of $14.99. Delivery is free for orders of $125 or more.
At Kozmo, the company will offer delivery at a rate of $5.99, with a minimum order of $35.
“We see a major opportunity to deliver products for less, and to target the stock-up shopper who may be going to an offline warehouse club or supermarket for their major stock-up trip,” Montgomery said.
The processes and systems the company has developed for delivery through Yummy.com will help the company keep costs down.
Yummy.com currently makes about 30,000 deliveries per month. Montgomery declined to project potential volumes at Kozmo, but he said he was hopeful that customers would visit about once per month. In addition, he said business customers — which the company also hopes to attract — could order weekly.
He said Kozmo would seek to serve existing Yummy.com customers and acquire new customers. Rather than cannibalizing existing Yummy.com sales, Montgomery said he sees the launch of Kozmo as a way to deepen the company’s relationship with its customers.
“We have, like all retailers, a fork in the road,” said Montgomery. “Do you expand geographically, or do you dig a mine deep into your mountain? Our strategy at Yummy.com and Kozmo is to go deep.”
Currently the customers of Yummy.com conduct stock-up trips at other online and offline retailers, he said, and the goal of Kozmo is to capture more of those trips and a larger percentage of its customers’ grocery spending.
“Ultimately you can’t be afraid to service the needs of the customer, or someone else will do it for you,” Montgomery said.