Anything in 10 Minutes: $5 Billion Delivery App Sweeps Latin America
(Bloomberg) -- From an unmarked warehouse in northern Bogotá, one of Latin America’s most valuable startups is embarking on a race.
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There, Rappi Inc. receives more than 200 orders every hour from 5 p.m. to 9 p.m., for anything from white wine to toilet paper. It’s the equivalent of the US’s UberEats or Europe’s Delivery Hero, except Rappi’s “Turbo” offering promises to deliver in less than 10 minutes.
That leaves the so-called pickers — dozens of young workers in white polos, hair nets and rubber shoes — 90 seconds to quickly select the items from the deftly categorized and sub-categorized aisles of the 10,000-square-foot depot.
“Toothpaste?” a worker asks from one end of the store.
“I got it. Arepas?” another asks, as he is handed a package of corn patties that is a staple of Colombian breakfasts. The most-ordered items — soda, beer and ripe avocados — are placed by the entrance for easy access.
The pickers then hand off the items to the queue of 110 delivery drivers, who get the orders to their destinations no more than eight minutes later. Restaurants, too, have set themselves up to participate in the Turbo program — something Rappi says is a rarity.
“We’re not just the only ones in Latin America doing this,” CEO and co-founder Simón Borrero said from the company’s Bogotá headquarters. “We’re the only ones in the world.”
That convenience has helped propel Rappi into a $5.25 billion enterprise ubiquitous from Mexico to Argentina. Executives are now riding the wave of public offerings seen among US tech companies like Walmart-backed Ibotta Inc. and social media platform Reddit Inc., and could be ready to IPO next year — most “likely” in New York, Borrero said.
The offering would come at a challenging time for the quick-commerce segment, with players like Gopuff in the US and Getir in Europe slashing jobs after a pandemic-fueled boom. But Rappi is betting that Latin America is just an easier place to make it happen.
“Gorillas, Gopuff, Getir didn’t make it work because the economics weren’t there,” said Paulo Rebolledo, Rappi’s senior vice president of retail and Turbo. “But Latin America is a great market for us, if you think about just Turbo alone, the costs here are better, from our supply chain, stores, technology — especially real estate.”
In developing markets, the low cost of labor is another advantage. But should India offer any lessons, cash burn still poses a challenge. The speed needed for startups there to deliver in the same tight window as Rappi necessitates significant upfront investment to build a dense network of so-called dark stores. Promotions to lure users have proven unsustainable, as people jump from app to app chasing better deals. The growing popularity of such companies means ever-increasing pressure on delivery drivers, too.
“There is still the expectation from some investors and internally that these food-delivery companies should be growth companies, so they can't resist to go into new territories to drive sales, which means profit becomes a more distant goal,” said Milan-based Tatiana Lisitsina, who follows Delivery Hero and Just Eat Takeaway for Bloomberg Intelligence. “For Rappi, the key question is if it can be dominant in its markets and not share the same markets with three or more players.”
Location, Location
When Borrero, Sebastián Mejía and Felipe Villamarín launched Rappi in 2015, it was primarily a grocery and prepared foods delivery app in Colombia. The then eight-person team got people to download the app by handing out doughnuts and found unexpected demand in including a blank box in the app for unlisted items.
Customers started ordering what they really wanted, including dishes from restaurants that didn’t deliver, as well as cash from ATMs that’s then charged to them through the app.
It received a $1 billion cash injection from Japanese conglomerate SoftBank Group Corp. by 2019, along with other investments from Sequoia Capital and T. Rowe Price. SoftBank previously said Rappi could have been ready to go public as early as late 2023.
Rappi operated at a loss to win market share, acquired Brazilian competitors, Box Delivery and Avocado, Mexican payment platform Payit, and now offers everything from travel packages to credit cards. It had to cut staff during the pandemic, and reached break-even for the first time in late 2023. It plans to expand to Central America, and its Turbo offering is now in seven countries, including Mexico, Brazil and Chile.
The demand is obviously there: At the Bogotá warehouse, where 3,000 items via Turbo are on offer, a banana doesn’t sit on the shelf for longer than four hours. The company hopes to offer at least 4,000 products by the end of the year, and 8,000 in 2025.
Latin America was the fastest-growing area for e-commerce last year, representing about $272 billion in revenue in 2023, according to Medellín-based AMI analyst Valentina Meneses. Food retail and delivery platforms fueled growth in small markets of the region, with 70% of all sales taking place through mobile.
Rappi’s ability to expand into different verticals “has achieved new levels of convenience, cost and coverage that are now deepening with Turbo,” which will be key to long-term success, Meneses said.
Location is one of the keys to making Turbo work.
Rappi has to identify warehouses situated where its customers live and work. Restocking products several times a day allows the company to select properties with smaller footprints — something easier to achieve in urban spaces. It now owns these spaces across 30 Latin American cities.
Mastering Logistics
Turbo presents a different set of challenge for restaurants.
Take health-conscious restaurant chain Bacu in Bogotá, which was the second restaurant after McDonald’s to offer a menu on Turbo in late 2022. Co-founder Stephanie Gómez said she wanted to challenge the idea that speed could only be applied to burgers and fries.
“We wanted to deliver on Turbo from day one, so we tested multiple dishes that could be prepared in under five minutes,” said Gómez, who estimates 40% of her sales come just from deliveries.
Gómez, 32, says her 10 restaurants deliver approximately 10,000 orders a week in the Colombian capital, nearly 90% of them through Turbo. The key for preparing meals such as Greek meatballs or Thai chicken at top speed requires dishes to have no more than four steps, she said.
For restaurants like Bacu, “this represents a gigantic operational challenge, and that is how you prioritize orders that come in through Turbo” said Santiago Franco, global head of Turbo’s restaurant initiative.
There’s tremendous upside for the eateries that get it right. In Barranquilla, 28-year-old David Ricardo said Rappi reached out to his burger chain because of its fast delivery times and asked if they wanted to start offering menu items via Turbo. The switch allowed him to increase deliveries from his five restaurants by about 30%, Ricardo said.
Every restaurant on the Turbo vertical receives metrics from Rappi on which items are complying with the required delivery windows. The commission that Rappi charges each establishment varies depending on anything from sales volumes, exclusivity and other agreements, Franco said.
Nearly 70% of Turbo users are part of Rappi Pro, he said, a monthly membership program that charges users around 23,500 pesos ($5.60), allowing for discounts in products and deliveries.
Under Pressure
Rappi’s reach is inescapable in Bogotá, where couriers are seen hauling the company’s bright orange backpacks on almost every block. They’re the final piece to making Turbo work — and that’s a lot of pressure.
“There’s so much traffic here, and rush hour gets really complicated,” 31-year-old driver Angel Pulgar said from a pit-stop set up by Rappi near Bogotá’s frequented Parque de la 93. “If a restaurants takes two or three more minutes to prepare the food, then it’s up to me to make up for the rest.”
Rappi says that to mitigate those challenges, Turbo orders are only delivered within a 3-kilometer (1.9-miles) radius, and factor in issues like stoplights, intersection and traffic, so not to encourage speeding.
Rappi has about 70,000 active delivery drivers in Colombia, who make an average of 11,000 pesos ($2.65) an hour, said, Matías Laks, Rappi’s Colombia head. Like Pulgar, around 40% of them are migrants, with a large percentage hailing from neighboring Venezuela, which has seen nearly three million settle in Colombia after escaping economic crisis.
Pulgar, who hails from Venezuela’s Zulia state, has been a Rappi driver for seven years now. He says he can make as much as 500,000 pesos ($119) a week working 10-hour shifts for five or six days on a motorized bike.
Pickers at Bogotá’s Turbo store in Chicó, a high-end neighborhood with the highest density of Rappi users in the capital, earn an average of 1.7 million pesos a month.
That’s slightly more than the minimum wage in Colombia, though like most of Latin America, nearly half of the labor market is made up by informal workers who can earn even less.
Far Reach
The effects of Rappi’s explosive growth can be felt across sectors beyond grocers and restaurants, and includes anything from food packaging to motorcycle sales.
Every month, Juan Carlos Díaz Tarud’s factory in the outskirts Barranquilla makes nearly a million paper bags for Rappi Turbo. While his company manufactures bags for a wide variety of retailers, from Crocs to Target, he said Rappi’s exponential growth has also boosted his business.
“It really pushed us to keep our machines running at full speed,” Díaz Tarud said from Ditar’s vast warehouses, where large paper rolls continuously feed machines that print, sew and fold bags.
In its quest for growth, Rappi has made significant inroads in the financial sector, starting as a digital wallet in 2019 to receiving regulatory approval as a financial entity in 2022. It has since delivered more than 215,000 credit cards across Colombia and accumulated 300,000 savings account customers, to whom it offers a 14% interest rate, the highest in the country.
“We started delivering carrots, lettuce and burgers, and now in Colombia people are depositing their salaries in our accounts, which speaks to the trust users have,” co-founder Borrero said. “The idea is that we want to be the place users go to solve all of their day’s needs.”
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