Bogotá — When Rappi announced in July that they had received a new round of financing for US$500 million, the news did not go unnoticed. In addition to the significant amount of capital raised to continue with an expansion process that will take the company to a couple more Latin American countries (11 in total), the company has secured top-notch partners and reached a valuation of close to 5.25 billion dollars.
Thus continues the progress of a firm founded in 2015 by Simón Borrero, Sebastián Mejía and Felipe Villamarín, that was able to grow rapidly during the pandemic. Their notorious incursion into the financial sector confirms their increasingly broad portfolio of services which is part of an innovation process based on listening to the users. On this and other topics, Borrero spoke exclusively with Bloomberg Línea. The following are excerpts from the conversation.
What the pandemic meant for Rappi
It was a tough time for many. Rappi relies on an ecosystem of partners and we witnessed, unfortunately, several restaurants closing their doors. There was a moment at the beginning of the pandemic where there was a lot of chaos, but I think the company responded very well. We had the entire company working through weekends for over a month and a half, trying to scale the operation to better serve society. We met at the beginning of the pandemic and decided to make the best Rappi possible so that people could be relaxed during confinement. I would say that the rappitenderos were heroes recognized by society. It was a very hard few months of operation because it was impossible to predict the demand, which meant the service could not be at its best level, however, I think that little by little we improved and things were done well.
Changes in consumer habits
The pandemic has undoubtedly accelerated changes in consumption habits. Many people who used to go to the supermarket now know that they can purchase their groceries at the same price and have them delivered to their homes for a sum that is less than what they would spend if they went themselves. Thanks to these services, there has been an important growth.
Rappi’s future and reopening
Today, in Latin America, most supermarkets have reopened. We noticed, however, that consumption habits in Rappi were maintained since their shopping cart sizes have not been reduced. It is a strange time because we have an open economy, but people are not back at their offices. This means that in terms of restaurant purchases, things are still different. But in general, demand has been maintained and we are at the highest point we have ever been.
New products in the portfolio
The two that are growing the fastest are, on the one hand, financial services such as Rappicard. In Mexico we were the second entity that put into circulation more credit cards in the last month. In Colombia we are also starting to grow very well, obviously we provide a 100% digital product that has some facilities and a very different user experience compared to what is in the market today. On the other hand, the other service that is “exploding” is turbo. Beginning this year, we started to build micro warehouses that are very close to the users’ homes, at a maximum distance of 1.5 kilometers. Thanks to a real time inventory software we’re able to arrive in less than 10 minutes to the users’ homes. This is going to be a big revolution because now you can buy fresh, high quality products that are delivered in an average time of 8.3 minutes. The idea is that we become an extension of our users’ refrigerator. By the end of the year we will have more than 500 dark stores (micro warehouses) operating.
The travel segment
We are starting to see a reactivation. We don’t know if it is as fast as we perceive it, since we see it very much driven by the 5% cashback user’s get with our credit card, the Rappicard. Any ticket or hotel makes the purchase 5% cheaper. As it is not an offer but a permanent benefit, the demand has started to grow a lot.
The $500 million financing round
The main objective was to have investors who will be with us for the next 20 years, who think long term and who are aligned with us in terms of values and our mission. Our mission is to endorse Latin America’s progress through technology, which we do every day by saving people’s time and increasing the income of allied establishments and rappitenderos. But it goes much further, we would like to be a driving force like Samsung has been in South Korea and like Sony was in Japan, and along with Toyota, and demonstrated to the world that things of global quality could be done from there.
Becoming a benchmark
I believe that in Latin America we need to believe in ourselves, because we can make world-class companies. Thanks to ventures like Nubank and Mercadolibre, and now Rappi, people are believing in us, billions of dollars are coming to the region. We take it very seriously. We want to keep bringing investment, keep bringing this growth and these returns and these valuation increases for our investors and help many other entrepreneurs to follow the same footsteps. We want to show the rest of Latin America that through growth and progress we build welfare. It is not through politics. It is not through fighting. It is not by complaining. It is by working and building, innovating, becoming more competitive. Our talent is equal or better. Our resilience is equal or better. So we are happy to have investors so committed to regional progress, like Softbank that came back to invest, Baillie Gifford, Third Point, the Singapore sovereign wealth fund and others.
We are in nine countries and we will expand into two more soon. We have a very long-term vision and hopefully in the next 40 years, we will be able to continue bringing progress to every city in Latin America. It is like when you to build a road between two cities and the income per inhabitant grows. Here technology increases transactions and connections between people and that brings growth. There obviously exists countries where we would like to expand into, but whose conditions are not ready for our business model. We do believe that little by little, those countries will get there. We do not have the goal of reaching certain number of countries or of jumping to other latitudes beyond Latin America, at least not for the next eight years. Our mission is to create progress and invest the money here. So, we are going to be here.
There obviously exists countries where we would like to expand into, but whose conditions are not ready for our business model. We do believe that little by little, those countries will get there.
Controversy over Rappitenderos (delivery persons)
One must distinguish between models in different parts of the world. In Europe people are using it to be able to pay an hourly equivalent below the minimum wage and that is questionable. That is very different from the example Rappi is setting in Latin America where in each market, on average, Rappitenderos are earning the equivalent of more than two minimum wages. In a country like Colombia, 70 percent of the population earns less than the equivalent of two minimum wages. People are engaging in this culture of criticizing without knowing and not informing themselves by mediums other than memes. We feel tremendously proud at Rappi to give people opportunities to receive this kind of income. We would like it to be much more, but we can’t raise prices to consumers because it obviously impacts demand. We prefer to keep the levels at a point where it creates opportunities to achieve much better results and to be able to continue to grow, and in doing so, create even more opportunities for more people. And this is going to continue to grow as it should grow: through technology and through productivity and what we try to do at Rappi every day is to improve the productivity of the Rappi shopkeepers so that they can deliver more orders per hour, which means that they can earn more per hour, and that is our commitment.
That is very different from the example Rappi is setting in Latin America where in each market, on average, Rappitenderos are earning the equivalent of more than two minimum wages. In a country like Colombia, 70 percent of the population earns less than the equivalent of two minimum wages.
Expansion of the product offering
To be honest it’s not so clear because it’s never been very clear. What has worked is listening to the users and understanding how they are using Rappi to, above all, save time. And that’s ultimately the service we give people. If you talk to a very loyal user and ask them what Rappi is, they will answer that it is an application that they use to save time: to save the trip to the supermarket, but also to avoid going out to buy a cardboard for their child’s homework, getting medicine from the pharmacy, fresh vegetables in less than 10 minutes, not having to go to the bank, being able to transfer money free of charge, to be able to buy online and so on. We are driven by that sense of convenience that we are providing for our users which we know so well that they don’t need to re-enter their data to buy a ticket, organize travel, manage money or use financial products that are going to start coming out to invest smarter and manage life easier.
To be the founder of a company valued at $5.5 billion.
We don’t see much going backwards. We believe there are hundreds more things to create and do in the region and we feel we are just getting started. This is much bigger than the founding group. We are not doing this for the money because we have received many offers to sell Rappi, and we could easily go live at the beach for the rest of our lives. But that’s not what drives us. What drives us is to create a tool that makes an impact. And what we hope we can demonstrate is that this new generation of entrepreneurs does not measure its success as it was measured before, with an account balance and a patrimony. We measure our success by how many lives we are improving. This is not about getting rich. This is about generating value to give back to society, that is the formula we need for the growth our economy. We must show society that entrepreneurship is an engine of well-being. It is crazy to think that there are societies in the world that do not support entrepreneurship or do not support entrepreneurs. Entrepreneurs are the ones who really feed us all.
We are not doing this for the money because we have received many offers to sell Rappi, and we could easily go live at the beach for the rest of our lives.
Advice for new entrepreneurs
That they understand what they are getting themselves into because it is not easy. I imagine that there are people who look in from the outside and say that this company was lucky and grew. No. It is not easy to grow. Every week at Rappi, for the last six years, we have been reviewing project by project, initiative by initiative, questioning what we must do to generate growth, and that is not going to stop. So, it’s much harder than it seems, and it has to be done for the right reasons. Otherwise, it is not enough. I hope that those who start entrepreneurship do it because that is their vocation and not because they want to make a quick buck.
Risks in Latin America
China has made all the good decisions in the last decades and has lifted 800 million people out of poverty. What some are seeing is that they are starting to make decisions that are not as good, which is generating uncertainty. This means that there are billions of dollars in investments that were destined to China and now have nowhere to go. In Latin America, instead of combing our hair, making ourselves pretty, getting organized and demonstrating to the world that we believe in progress, we are fighting among ourselves while there are still barefoot children who need us as leaders. There exist silly political fights because objectively we cannot overcome poverty without playing by the market rules: to be competitive, to create industries, to bring investment, to give certainty to those investments. Politicians from the left or from the right should be fighting over to attract investments and give these children opportunities in the future. We should be discussing that. We must grow up. Society should elect rulers who create opportunities for us, period. It is clear which nations are on the right track and which are not. Hopefully we will move closer to the ones that are on a good path.
In Latin America, instead of combing our hair, making ourselves pretty, getting organized and demonstrating to the world that we believe in progress, we are fighting among ourselves while there are still barefoot children who need us as leaders.
The region’s opportunities
There are 650 million of us and that is our opportunity. As a region we must become competitive. A country is not so different from a company with a sense of growth. We have to listen to the market, just as Rappi has done. We have to wake up and guide our young people to what the world really needs: to learn to program (even if I’m biased about it). We must learn English not only to understand the rest of the world, but also what is happening with technology. In short, educate ourselves.