Rappi's app-based delivery service is changing the retail experience

Rappi's app-based delivery service is changing the retail experience

Corporate & Sovereign Strategy Economy & Policy IPO M&A People Argentina Brazil Colombia Mexico Chile Peru Uruguay Features

Traffic in Latin America's biggest cities, from Mexico City to Buenos Aires, is often cited as one of the region’s most serious problems. It ranks right behind crime in most countries, wasting huge amounts of time and costing billions of dollars in lost productivity.

The traffic gridlock is worst in Bogotá, Colombia and São Paulo, Brazil. The 2017 Global Traffic Scorecard by Inrix found that residents of Bogotá spent an average of 79.8 hours a year in gridlock, while residents in São Paulo, South America’s largest city, are stuck in traffic 77.2 hours a year.

The economic cost is already high and it’s still climbing. The economic research unit of Peru’s main daily paper, El Comercio, compiled data from public and private sources and found that gridlock in Lima, the capital city, translated into losses of around $1.6 billion annually, just shy of 2% of GDP.

But while drivers fume and economists wince, Sebastián Mejía sees opportunity. He is one of three co-founders of Rappi, one of the region’s most successful tech startups that continues to expand by offering consumers the possibility of getting what they need without battling traffic and other annoyances.

“Convenience is not a luxury in Latin America, but a basic need because of how dysfunctional our cities are,” says Mejía, who doubles as Rappi’s corporate strategic officer. “We started Rappi with a clear vision of changing the lives of consumers, giving them a better quality of life by allowing them to have anything they need at their doorstep.”

Rappi’s quick expansion reflects the changing demographics in Latin America, where an expanding middle class has more disposable income and retailers are positioning themselves to take advantage. What’s more, the company appeals to an increasingly tech-savvy population which has grown accustomed to smart phones.

“Rappi has been an active part of transforming the ecosystem in the region. Latin America is an opportunity for growth. We are very optimistic about the region and the possibility for investment,” says Mejía.

Rappi was founded in 2015 in Colombia by Simón Borrero and Felipe Villamarín, along with Mejía. It’s a descendent of an initial tech start-up, Grability. The Grability app, created by the three partners, provided retailers, including some of biggest names in the region, the possibility of creating their own virtual storefront to let consumers shop from their phone.

Mejía says the experience with Grability showed that consumers are eager for options to make the shopping experience easier. One of the biggest needs is overcoming the obstacle of the last mile so they can make purchases online and receive prompt delivery. Drawing on their experience, he and his colleagues looked at ways to help consumers and retailers, not just the giants but also mom-and-pop stores.

They also studied ways to staff the enterprise and discovered they could create jobs with livable wages by making sure delivery people earned above the average minimum wage. Wages vary by country, but Rappi says couriers in Mexico can earn $40 a day by making about 10 deliveries. By comparison, the Mexican government recently announced it was raising the minimum wage to $5 a day.

What sets Rappi apart from other delivery services, such as UberEATS, is its broad range of products and services. Consumers can buy whatever they want and have it delivered when and where they want. The service is available around the clock, seven days a week.

Consumers can order food from their favorite restaurants, get groceries, have medicines delivered, buy clothes and electronics. They can even get cash, one of newer innovations. RappiCash allows consumers to click on an ATM section on the app, select the amount and sit back and wait for cash to arrive whether they are at home or out on the town.

Cosmetics maker Avon Products just announced a partnership with Rappi in January. Under a pilot program, Avon will offer 100 beauty and personal care products to customers in São Paulo, Brazil and Bogotá and Medellin in Colombia. Consumers can order online and expect delivery within a couple of hours from Rappi. The program is expected to expand during the first half of this year to other destinations in Brazil, as well as to cities in Argentina, Chile and Mexico.

Rappi relies on an army of motorcycle and bicycle couriers—some 50,000 strong across seven countries--who receive orders and race the merchandise through urban traffic congestion to waiting consumers. Mejía hopes that using Rappi becomes second nature for consumers in the region who have tired of hassling with traffic, store lines — even grumpy salespeople.

“Rappi is a response to how our cities work. You can buy anything and have it delivered to your door,” he says.

Rappi is currently available in Argentina, Brazil, Chile, Colombia, Mexico, Peru and Uruguay. In Peru, its newest market, Rappi partnered with a local company, Diloo, which gave it immediate access to 100,000 clients.

An aggressive expansion plan is underway. But rather than branch out to other countries, Mejía says Rappi will concentrate on consolidating the markets in the cities where they began and where they see a lot of potential. They operate in the densely-packed capital cities of the countries where they operate, except for Brazil. The plan is to branch out to other cities in the seven countries.

“Right now, we are focused on growing in the markets where we operate and reaching more customers. When you talk about cities like Lima, there is still a lot of room to expand,” he says.

Rappi is the latest startup in the region to reach “unicorn” status. Rappi hit the billion-dollar valuation after attracting the interest of global investors, including huge investments from big U.S. venture capitalists, such as a16z, also known as Andreessen Horowitz, headquartered in Menlo Park, California.

Rappi raised an additional $358 million in two rounds of funding in to 2018, which could end up being the most successful fund-raising year for startups in the region. In just the first half of 2018, the Association for Private Capital Investment in Latin America (LACA) counted 145 deals that raised $780 million in the first half of 2018.

Though Mejía says it would be foolish to rule out anything, he says Rappi has no immediate plans for an initial public offering and will remain an independent, private company. “Going public is always an option, but it is not on the horizon,” he says. “There is a long way to go