Delivery Services Swarm Latin American Metro Areas

It’s not your imagination. There are more delivery people weaving in and out of traffic in Santiago and other major Latin American cities. It’s the result of a combination of factors, but two stand out: technology and access to it.

Delivery services have seen exponential growth in Latin America in the last two years. According to Fortune en Español, a report from Freight Waves shows that the demand for such services was already up 50% in the 18 months preceding May 2018; and, as Jonathan Moed more recently reported in Forbes, Latin American delivery apps have been raising nine-figure funding rounds, and global companies are fighting to get a piece of the action, because a combination of market conditions have “turned Latin America into the perfect market for on-demand delivery app domination from both a supply and demand perspective.”

Moed identified five conditions:

  1. “Income Inequality”: a small upper class and growing middle class that is served by a massive underclass.
  2. “Migration”: an influx of cash-hungry migrants, particularly from Venezuela, looking for any jobs that pay.
  3. “Metropolitan Population Density”: Latin America’s populations are concentrated in large cities, which allows delivery companies to focus on finite areas.
  4. “Transportation Infrastructure”: motorcycles and bicycles are keenly suited to congested traffic, both physically (they easily squeeze in and out of it) and financially (they are much cheaper to operate than cars).
  5. “Mobile Technology”: the apps provide visibility and traceability that build customer trust and encourage repeat business.

Arguably, though, the first four are not new or unique. Income inequality, for example, has always existed in Latin America. It’s a defining feature of the region’s economies. It also exists elsewhere.

#MapadelaVulnerabilidad shows the staggering inequality in Chile

Moed emphasized a figure from the World Economic Forum: “in 2014 the richest 10% of people in Latin America had amassed 71% of the region’s wealth.” A little over a year before Moed’s article, however, Forbes published an even starker figure for the United States: “The country’s three richest individuals, Bill Gates, Warren Buffett, and Jeff Bezos – collectively hold more wealth than the bottom 50% of the domestic population, ‘a total of 160 million people or 63 million American households.’ ” (Emphasis added.)

Cash-hungry migrants are likewise an economic factor for healthier economies worldwide, and the same goes for major metro-area population densities and transportation infrastructures.

The key factors in the rise of on-demand delivery services in Latin America, therefore, would appear to be the two things that are relatively new to Latin America: (1) the mobile technology that facilitates the services (newly-created by entrepreneurial engineers); and (2) the large populations that now have access to the technology (because they have and need smartphones, tablets, and computers to function in so many other aspects of their lives).

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Many are eager to fund these startups

The Colombian delivery startup Rappi is perhaps the most celebrated example of these delivery services. Three friends launched it in 2015; by 2018, it has reached “unicorn status” ($1 billion USD valuation); and, with a new round of $220 million USD in funding, it shows no signs of retreat.

Rappi has been described as a “combination of Uber Eats, TaskRabbit, and Instacart … one of the few services that truly delivers ‘everything.’ ” Rappi exploded in Bogotá and Mexico City and now serves more than one million customers across Mexico and South America with more than 30,000 delivery persons.

Another example, Cornershop, got its start in Chile and Mexico in 2015. Cornershop’s goal is to have a consumer buy something online through its app and then deliver it within 60 minutes. As one of Cornershop’s founders, Juan Pablo Cuevas, explained in an article published by La Tercera Pulso (“LTP”), these things were already happening in San Francisco, California, where Cornershop’s other two founders were living, and they saw these services were lacking in Latin America and tried to seize the opportunity.

And seize it they did. As reported in Business Insider, Walmart recently purchased Cornershop for $225 million USD to enhance its presence in both countries.

According to the UNCTAD, around 15% of the companies in the country sell online. On the global level, Chile takes the 50th place on the list. The Netherlands come first.

Posted by Chile Today on Friday, December 14, 2018

Cornershop’s recent sale to Walmart begs a question. Why didn’t Walmart just come up with its own Cornershop-like platform instead of paying nearly a quarter of a billion USD for it?

Cuevas and one of Cornershop’s other founders, Daniel Undurraga, have an answer. Simply put, they were offering a top-shelf product — specialized software from a brilliant team, “from the training of the shoppers,” to “the logistics,” to “how we are packaging the problems and … solving them, converting them into software processes that are executed automatically. That is not trivial, nor is it trivial to put together a team of these characteristics, so in the end if Walmart wanted to make a team like that from scratch it would cost a lot.”

Barcelona-based startup, Glovo, presents another example. It, too, was founded in 2015, and earlier this year it secured approximately $135 million USD through its latest round of funding, making it “one of the most ‘well funded’ startups” in Europe.” Glovo’s priority is to grow and consolidate its presence worldwide, focusing on Latin America, Europe, the Middle East, and Africa.

But not Chile’s VCs and other funding sources

Lead investors for the delivery services’ funding rounds have primarily come from the United States, Asia, and to a lesser extent Europe. Notably absent from the picture are Chilean venture capitalists and other funding sources, and this even though Cornershop was founded in Chile.

As Cuevas and Undurraga explain in the LTP article above, this lack of interest by Chilean funding sources is consistent with their demonstrated lack of interest in technology startups in general. Cuevas and Undurraga suggest that a major factor in this is an underlying risk aversion that has its roots in a fiscal conservatism and historical reliance on the extraction industries – forestry and mining, especially copper.

The fact that “Chile is known for its natural resources, not for technology” is something Cuevas says they “talk about all the time, how we make Chile not only live on copper.”

As to whether Chile might ever become “the Latin American Silicon Valley,” Undurraga sees a major limitation. Because of its small economy, Chile is never going to have an industry-shaping company on the scale of Google or Facebook.

On the other hand, Undurraga suggests, Chile might do very well to look at “similar countries,” for example, Israel, which has Waze, or Sweden, which has Spotify; and the way to get there will be through access to capital and better education that prepares people to work in these innovative industries, and a cultural shift: “to value people for what they are capable of doing and not for what they studied, for example.”

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Walmart and Amazon

Despite the huge sums being thrown at delivery service apps, there might be reason to be increasingly cautious about them these days. As noted above, Walmart has already scooped up Cornershop and looming on the horizon is Amazon.

As Nathan Lustig (a self-described serial entrepreneur and managing partner at Magma Partners, a seed stage investment fund with offices in San Francisco and Santiago) recently wrote for TNW, when Amazon, Walmart, and other commercial giants start going after Latin American online consumers, the smaller delivery services may need to shift strategies, develop new strategies, partner with one another, or any combination of the three in order to remain viable.

But even all this may not be enough for the smaller delivery services. According to Lustig, there are already “rumors that one of the large players in Latin America loses more than $1 USD per delivery, meaning that if they don’t become profitable, they run the big risk of failing.”


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