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Colombian Startup Rappi Wants to Deliver 'Everything'

Colombian Startup Rappi Wants to Deliver 'Everything'

Posted by PanamericanWorld on November 21, 2016

“We actually can be profitable,” Rappi’s founders optimistically proclaimed to a roomful of investors and journalists in March.

It was a detail that needed underscoring considering the focus of their startup, an on-demand delivery service. The once hearty appetite for them among investors has vanished because of the sector’s thin margins, high labor costs, and tricky economics that have caused many similar companies to cut jobs or shut down.

But Rappi, a one-year-old startup based in Colombia, delivering meals, groceries, is betting that it can buck the odds and become a lucrative business. Latin America’s market is better suited for on-demand delivery services than the U.S., according to Simon Borrero, the company’s co-founder and CEO.

“The on-demand economy, we feel, is meant to be in emerging markets,” he told Fortune over coffee last month.

 

A growing middle and upper class is increasingly warming to the idea of having their meals and groceries delivered to them via motorcycles and bicycles. Additionally, there’s a real need for alternatives to postal services in the region because of their unreliability.

Rappi’s founders realized they had an opportunity to grow beyond delivering dinner and other basic shopping staples when customers started to use the service to have their income tax payments delivered to banks. Yes, customers trust Rappi with their tax documents and hundreds or even thousands of dollars they need to pay at the bank.

From the start, Rappi’s app featured a blank box in which customers could list whatever they wanted delivered. And customers inevitably entered the unexpected.

At least 100 times, customers have paid a courier to walk their dog, according to Borrero. Another unusual and increasingly popular delivery is cash withdrawals.

Customers who have credit cards pay for the amount they want via Rappi’s app, and the courier brings them the cash. Cash withdrawals now make up about 5% of the company’s gross merchandise volume, according to Borrero.

While there are plenty of ATMs in Colombia, where five of the cities Rappi currently serves are located, it’s not always safe to venture out to use them—especially late at night, he explains. So instead, customers request up to 400,000 Colombian pesos, or about $130 U.S., through Rappi’s couriers.

About 60% to 63% of orders are paid in cash, while the rest are paid via the app, using customers’ credit and debit cards, according to Borrero.

Of course, Rappi isn’t the first delivery company. In the U.S., Postmates is perhaps the best known. There’s also UberEats, the ride-hailing company’s food delivery service, as well as DoorDash, Favor, and Square-owned Caviar.

In general, profit margins in the industry are thin while managing hundreds of couriers is challenging. RocketSpoon, a U.S. service that cooked and delivered meals shut down earlier this year, as did European food delivery startup Take Eat Easy over the summer, to name a few that have struggled. Last month, Bloomberg reported that payments company Square unsuccessfully attempted to sell its food delivery business, Caviar.

From the start, Rappi has been helped by its second business of partnering with consumer packaged goods (CPG) companies to give them more prominent placement in its app in exchange for a fee. As it happens, prior to Rappi, Borrero and one of his co-founders create and sold online shopping software to large retailers like El Corte Ingles in Spain and Cencosud in Chile. Their company, Grability, also keeps part of the fees that CPG companies pay to have their products prominently featured on the websites and apps of retailers using Grability’s software.

Some U.S. delivery startups, like Instacart and Postmates, have recently begun to strike similar deals with consume packaged goods companies.

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