The last mile is seeing disruption from new business models that address customer demand for ever-faster delivery. This megatrend is more recently influencing startups in cities from emerging economies were there’s a real need for alternatives to the unreliable postal services in the region. Additionally emerging economies have a growing middle and upper class wanting to have their meals and groceries delivered to them as fast and cheap as possible.
In Colombia the startup Rappi has set its mission to become the everything store of Latin America. Rappi, unlike Amazon, focuses on instant deliveries. Like Amazon they want to have a wide variety of products and services. Currently they will deliver groceries, food, alcohol, pharmacy products and, more recently, apparel and electronics. They also offer a courier services which will run your errands, pay bills and deliver cash.
Rappi is one of the many delivery companies worldwide with the aspiration to become a delivery king. In the U.S., Postmates, Instacart and UberEats are perhaps the best known. This industry has very low profit margins due to its high operational costs and small revenues per order. In addition, the complexity of managing hundreds of couriers, high labor costs, and tricky economics have caused many similar companies to cut jobs or shut down.
To overcome the thin profit margins in this industry Rappi has been implementing multiple strategies in the hopes of becoming profitable in the longer term.
- Rappi’s couriers are self-employed and earn money through delivery fees and tips. This allows Rappi to avoid all employee related expenses like vacation days, pensions and health insurance. 
- Rappi has built a secondary revenue stream by creating partnerships with CPG companies. Rappi will charge CPG companies marketing fees to guide consumers to their products within the app and to display adds. Some U.S. delivery startups, like Instacart and Postmates, have recently begun to strike similar deals with consume packaged goods companies.
- To increase the utilization of its couriers in low demand hours Rappi offers CPGs the opportunity to deliver sample products. By levering Rappi’s consumer data CPGs can choose specific customer profiles to send the sample product. Companies like Coca-Cola have sent as many as 100,000 bottles of gift products in one month.
- Additionally, the company has grown to cover more than 10 cities in 3 countries while leveraging their central administrative force in Bogota.
- Rappi is constantly adding new categories to the platform to achieve higher ticket transactions. They recently signed a deal with Sony to be the exclusive seller in Colombia of its PlayStation products like video games and other items.
- They have invested a great deal in technology to provide a faster service by creating better routing services for their couriers and integrating with restaurants and grocery stores to receive orders instantly.
Moving forward the company must focus on its growth and profitability
Sources of growth
Capitalizing on their data: Although Rappi has just begun to capitalize on their user data by sending product samples for CPGs other companies in the industry are now charging for access to this customer data. This data is extremely valuable because it is unavailable in a traditional grocery model. For example, Instacart’s data indicate consumer preferences for replacement items when existing items are out of stock.
Growth into new regions: Latin America has a very low penetration of digital delivery services and most countries have the right economics to support a profitable business (e.g. low wages, no competition, heavy traffic). Rappi should continue leveraging its lean management structure while expanding internationally.
Sources of profitability
Data analytics: Rappi should use data analytics to minimize costs. Instacart is currently using its Data & Analytics team to optimize staffing plans and to optimize fulfilment at the store and on the road.
Invest in people: This industry has a very high turnover rate. By investing in choosing better couriers and providing the correct training Rappi can easily avoid cancelations, fraud, and delays.
Growth into new categories: Rappi might want to explore growth into adjacent industries with a higher profitability. Asian player Go-Jek has built a diverse suit of services for its customers including payments solution, an e-commerce solution, and a transportation solution. Over fifty percent of Go-Jek user base started using Go-Pay within ten months since it went live.
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1 Martin Joerss, Jürgen Schröder, Florian Neuhaus and eds, “Parcel delivery The future of last mile,” McKinsey & Company
2 Kia Kokalitcheva, “Colombian Startup Rappi Wants to Deliver ‘Everything’” Fortune, November 8, 2016, [http://fortune.com/2016/11/08/rappi-delivery-latin-american/], accessed November 2017.
3 Rappi App
4 Luke Tugby, “Rappi app lets users shop for groceries by swiping smartphone screens – and delivers goods ‘in minutes’,” Reatailweek, February 12, 2016, [https://www.retail-week.com/topics/technology/rappi-app-lets-users-shop-for-groceries-by-swiping-smartphone-screens/7004793.article], accessed November 2017.
5 “Rappi consolida su posición mediante alianzas con grandes marcas,” September 19, 2017, El Espectador, https://www.elespectador.com/tecnologia/rappi-consolida-su-posicion-mediante-alianzas-con-grandes-marcas-articulo-713931, accessed November 2017.
6 Felipe Gomez Herrera, “Rappi: Colombia’s Version of Amazon.com,”Open Knowledge Block, Harvard Business School, November 18, 2017, [URL], accessed November 2017.
7 Jeremy Stanley, “Data Science at Instacart,” Medium Blog, February 17, 2016, [https://tech.instacart.com/data-science-at-instacart-dabbd2d3f279], accessed November 2017.
8 Pearl Lee, “Being profitable is hard. Being profitable through same-day delivery is harder,” Tech in Asia, February 1, 2017, [https://www.techinasia.com/same-day-delivery-profitable], accessed November 2017.
9 Antonia Timmerman, “Go-Jek’s food delivery beats all Indian food startups combined: Piotr Jakubowski,” Deal Street Asia, April 10, 2017, [https://www.dealstreetasia.com/stories/after-foodpanda-go-jeks-food-delivery-beats-all-indian-food-startups-combined-piotr-jakubowski-cmo-69821/], accessed November 2017.