Case Study - Kozmo, the online convenience store to shutdown
Read out the case study given below and answer thequestions that follow.
New York-based Kozmo, the 3-year-old company announced that itwould stop delivery service in all nine cities it operates. NewYork-based Kozmo, which dispatched legions of orange-claddeliverymen to cart goods to customers' doors, is the latestdot.com dream to evaporate in the market downturn. Amazon com,venture capital firm Flatiron Partners and coffee giant Starbuckswere among the investors in Kozmo.
Kozmo said in December that investors promised a total of $30million in private funding. But last month the company learned thatan investor had backed out of a $6 million commitment. Kozmoexecutives had been working on a merger deal with Los Angeles-basedPDQuick, another online grocer, sources said. The deal collapsedwhen funding that was promised to PDQuick did not materialize.Sources said Kozmo still has money but decided to close now andliquidate to ensure that employees could receive a severancepackage.
Just last month, Kozmo Chief Executive Gerry Burdo was upbeatabout Kozmo's future, saying he was looking to steer Kozmo awayfrom its Internet-only business model and toward a "clicks andbricks" approach. But some analysts say Kozmo's business model onlymade sense in the context of a densely packed city such as NewYork. Vern Keenan, a financial analyst with Keenan Vision, said theservice had a chance to work in only a few other cities around theworld, such as London, Stockholm or Paris. "This seemed like a dumbidea from the beginning," Keenan said. "This grew out of a New YorkCity frame of mind and it simply didn't translate."
Kozmo was started by a pair of twenty-something former collegeroommates. They got the idea for the company on a night when theycraved videos and snacks and wished a business existed that woulddeliver it to them. Kozmo offered free delivery and chargedcompetitive prices when it launched in New York. Though customersloved the service, the costs of delivery were high.
After co-founder and former Chief Executive Joseph Park steppeddown, Burdo slashed Kozmo's overhead, instituted a delivery fee andoversaw several rounds of layoffs. The company also closedoperations in San Diego and Houston. Burdo said last month thatprofitability was not far away. The company had reached a milestonelast December when it reported profits at one of its operations forthe first time. Kozmo later saw two more operations reachprofitability as a result of brisk holiday business.
Online delivery companies have been among the most ravaged bythe Internet shakeout. Kozmo's rival in New York, Urban fetch,shuttered its consumer operations last fall. Online grocers such asWebvan and Peapod have also struggled, and smaller operations suchas Streamline.com and ShopLink.com have dosed down. Peapod was daysaway from closing last year when Dutch grocer Royal Ahold agreed totake a majority stake.
From the very beginning, supply chain management was to be acore competency of Kozmo. The promising dot.com would deliver yourorder everything from the latest video to electronics equipment inless than an hour. The technology was superior, the employees wereenthusiastic, the customers were satisfied. But eventually, Kozmoran out of time and money.
Questions:
2. Based on your reasoning, List the factors and reasonsfor Kozmo’s failure
