Browsing and buying food and other goods is a piece of cake on the Internet, but they still have to get to the shopper’s front door. The success of the transaction is hinged on this last step. The Internet’s last mile could become as bloody and emotional as the Green Mile of executioner’s row chronicled by horror writer Stephen King.

On Friday the 13th two wannabe Internet delivery services for London – and – both shut up shop. US$70m of USA venture capital foundered on what Bob Hitching of called “the apathy towards e-shopping.” Or more likely that it was a good idea before its time. Last year’s unbridled ambition and optimism have been replaced by consuming doubts. How much will it cost to get down this last inch of the virtual highway and set up true computer to larder delivery?

The answer is pretty clear-cut: a lot.

The jury is still out on whether those companies that have been happy to just watch and see could yet pick up the pieces and win through or whether by that time the big players such as or will have stolen too much of a march down the road. But other technological innovations may also transform the market place. The electronic fridge and the electronic house, which is fitted with sensors that can detect that the milk has run out and automatically re-orders are just around the corner and could bypass the Internet completely.

The landscape of the last mile is different in North America and Australia than it is in the UK or the rest of Europe. The common denominator is big cities like New York and naturally Los Angeles and San Francisco, though, judging by the London experience, how long it might take Rome or Lisbon to follow those retail models is another imponderable. Kozmo‘s US$150m marketing deal with Starbucks to provide hot coffee to offices via the Net and also provide drop off points for returning video rentals does not seem to have Paris or Milan written all over it.

But also questions must be asked if any big retail player will really be able to control this market in the face of specialist competition on a local level. In London the specialist sandwich bar chain Benugo is already gearing up for e-commerce to dedicated contracted offices and could yet put in place a superior business model, while the upmarket supermarket Waitrose has dodged the consumer issue by creating a successful Waitrose@work scheme aimed at companies with more than 300 terminals where employees order on line and pick up their groceries from the front desk at night. Like everyone else in the last mile, Waitrose is not saying it is in profit as yet, but with 45 supermarkets converted to supply it is pushing forward with a better chance of success than most.

The critical issues for winning the last mile are warehousing and time to deliver. Analysts have been predicting that US$25m is the minimum entry point to get into the last mile race. But that seems pretty small beer when that you consider that this amount of money might just buy a state of the art warehouse.

The showpiece warehousing has been developed by Webvan in California. Kevin Czinger, Webvan’s chief financial officer called it the “first backend re-engineering of an entire industry”. A substantial part of his first US$122m funding raise went on 330,000-square-foot distribution centre in Oakland, California, which services an area of 40 square miles in any direction.

The US$25m facility, which includes 4 1/2 miles of conveyor belts and temperature-sensitive rooms to store items such as wine, cigars, and ice cream, can serve as many customers as twenty supermarkets, which typically measure about 40,000 square feet. Webvan claims it can do all this with less than half the labour and nearly double the selection of available products.

Financially Webvan believes it can reduce the overhead cost to 1% from a traditional 6% and increase margins by 10%. Webvan claims to be able to assemble an average 25-item order in less than one hour. And earlier this year Webvan gobbled up its main potential rival This was a further indication that the last mile is going to need very deep pockets or at least thick-soled shoes.

Not that any of this will cut much ice with Tesco in the UK, which is currently claiming to be the world’s largest online grocery and has just spun off its Internet wing as a separate company. Having put up with the scorn from America in the early days, it has carried on picking from its conventional stores and developing its home delivery throughout the UK and is claiming more than 100,000 regular customers who spend an average of £95 a shop. Its rival Sainsbury has meanwhile held off until earlier this year when it opened its own dedicated warehouse on the Webvan model for London and is struggling to catch up.

Meanwhile in California PDQuick has taken on board US$35m to re-brand the well known local home delivery company so called because it delivers in pink Volkswagen Beetles and is hoping to consolidate on 1.2 million deliveries a year.

How long manufacturers and big brands will be content to sit back and watch the development of this market is an intriguing question. Retailers have become hostage to their brand suppliers over recent decades, but the Net could split this alliance. Earlier this year Kraft bought into to supply its oriental foods directly off the Net. Paula Sneed, President of Kraft’s E-Commerce Division, promised: “We will continue to explore joint strategic initiatives that offer synergies and growth potential for Kraft.” The fact that Ethnicgrocer is also powerfully enabled with technology for global procurement as well as sales must surely have been a part of the equation. Similarly Nestlé bought a 3% stake in A successful diet site, to develop its Sweet Success range of products into a focused marketplace.

The critical factor is delivery times. In built up urban areas with congested traffic as few as five or under deliveries an hour can be achieved. It is hoped that developments with new box systems will increase these to 15 an hour. A London company Zbox, backed by Express Dairies, which has spare capacity in its milk float division, has developed Homeport, which it is about to trial in 1000 homes around Reading. An electronic box is fitted outside the front door. The delivery operator swipes his smart card past the bar code and can then secure his box with a metal cable. Homeowners can then open the box with their smart card when they want and also place returns in it for the next delivery.

To date North American and Australian advances in this sector have focused on the urban sprawl and re-creating the mail order boom of the mid west from the middle of the last century where space is not at so much of a premium and the last mile might be re-christened the last dirt track. Zbox, Lantes and Brivo all have systems in progress while in Australia Eezeebox is looking to be the market leader. Z Box developer Mark Lunn identifies the real problem: “Delivery is the single biggest issue facing retailers and e-tailers at the moment because it relies on people being at home. This is unworkable because most people in today’s world are simply too busy to hang around waiting for the doorbell to ring.”

By Drew Smith

Drew is developing a restaurant and hotel portal

Relevant reports from the Knowledge Store

The Virtual Shop: eTail Strategies in FMCG

B2C eCommerce: Opportunities and Implications to 2005

The eBrand, Brand Strategies for the multi-channel environment