March 21, 2001 3:05 PM PST

Kozmo may be eyeing regional grocer

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February 23, 2001
Online convenience store Kozmo is in talks to acquire Web grocer PDQuick, according to sources close to the talks.

Kozmo executives, including Chief Executive Gerry Burdo, spent Wednesday at the Camarillo, Calif., headquarters of PDQuick trying to work out a deal, said sources at one of the companies.

An employee at PDQuick, which delivers groceries to customers in more than 30 communities in the Los Angeles and nearby Orange County areas, confirmed that Kozmo representatives were at PDQuick's headquarters Wednesday.

Representatives at both companies refused to comment.

Kozmo recently announced a cost-cutting campaign, which includes layoffs and the closing of operations in Houston and San Diego. Kozmo has operated in Los Angeles for more than a year.

PDQuick was launched as Pink Dot before changing its name last year. Known for delivering groceries in Volkswagen bugs, Pink Dot promised to have orders at customers' doors within 30 minutes. Last March, Pink Dot announced that it planned to expand its operations nationally but has yet to venture out of Southern California.

The company, which began as a traditional grocery business, has 11 brick-and-mortar stores, which could be attractive to Kozmo.

In a recent interview, Burdo said Kozmo could one day branch out into brick-and-mortar stores. "You know, it's something we're thinking about. It could happen," he said.

Barrett Ladd, a senior retail analyst with Web research firm Gomez, was skeptical about a deal given that Kozmo has been in talks before that ultimately fizzled. Last year, Kozmo and its main rival in New York, Urbanfetch.com, engaged in acquisition talks for weeks, but an agreement never materialized.

"It's too soon to be yelling fire yet," Ladd said.

Kozmo is "struggling to put together a business plan that will help it survive in the long haul," she said. By considering an acquisition of PDQuick, Kozmo could be looking to consolidate its coverage area in some of Los Angeles' most wired and affluent communities where PDQuick has considerable clientele.

The key to making home delivery profitable is servicing small areas with a high concentration of online shoppers--particularly in cities such as Los Angeles with urban sprawl, analysts say. Delivering to customers located near one another saves time and fuel charges.

"With the home delivery model, you need to have consumers centralized in one area in order to maximize operations there," Ladd said. "That's why we've seen Webvan close down operations in Dallas. They want to focus on areas where there is a lot of people and maximize their productivity in each city."

 

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