#26. Stay local
The localized approach of Rappi, why you can't copy Pinduoduo in the US, and a source on African fintech.
Welcome! Have you ever wondered:
How Rappi’s localized approach works city by city? 🛵🌆🇨🇴
Why do American copycats of Pinduoduo fail? 🍏📴🇨🇳
Where to learn more about African fintech? 💸👩💻🌍
If you wonder what Emerging Markets explorer 🧭 is, start here.
The localized approach of Rappi
Rappi is an on-demand delivery app and one of the top startups in Latin America. Founded in 2015, they aced Demo Day at YCombinator, fostered the startup scene in Colombia, Softbank invested $1BN of the $2BN valuation, and serve 200 cities in 9 countries.
In an interview with Patrick O’Shaughnessy, the co-founder of Rappi, Sebastián Mejía, discussed Rappi’s localized approach: they treat each city and neighborhood as different zones and try to understand them one by one.
They have an option for the end-user to choose what they want and select the merchant to pick the goods from, using their section for “Antojos” (cravings). That’s how they expand the offering, and it is the origin of Rappi delivering cash. It also helps them partner with the merchants generating the most demand, creating a virtuous circle based on customer feedback.
Culture plays in favor of Rappi: before its creation, there already was a culture of delivery in Latin America. People would call their favorite restaurants and have the food delivered. Rappi didn’t need to educate the customers, they just increased the convenience of something already happening.
On top of growth, on the delivery market with very narrow margins, unit economics matter. Sebastián Mejía mentioned the high density of population in Latin America as an advantage, making fast delivery easier than in other regions. Regarding the cost, the local low minimum wages allow the service to remain cheap and deliver low-value items while making a profit, something not possible in the US or Europe.
One area that tends to suffer in search of unit economics is customer service. Rest of world reported that in 2019, amidst more automation of Rappi’s operations, service in Colombia got significantly worst. This allowed the appearance of new competitors for Rappi, such as iFood, who aims at becoming the market leader in Colombian delivery this year, by providing a better service. Rappi remains the cheapest of both, but time will tell what customers prefer.
Failure story: why American copycats of Pinduoduo fail
So when they combine forces it gets even better. I was happy last week reading their deep-dive on Pinduoduo (PDD), the social commerce giant in China.
One of the points mentioned is how companies are trying to replicate Pinduoduo in the US and failing. Packy spoke to a VC investor that highlighted that in 2017-2018 there were 50 PDD copycats, all of which failed.
The main pain point was that in the US you cannot replicate PDD’s checkout. PDD is based on low prices, social buying (discounts when your friends buy too on WeChat), and a mobile experience. Chinese mobile checkout conversions are 80-90%, and people are used to buying online together. These two factors contributed to PDD’s product virality.
This is not the case for mobile checkout in the US: the conversion rates are 20-30%. If you add to the equation that there is no culture of group online shopping, you kill virality before it appears in the product.
On top of this factor, there is a lot to be built to replicate PDD: a consumer to manufacturer network, a product selection including perishables, feed over search, advertising, the targetting of third-tier cities, and more.
They later provide examples of companies successfully copying PDD features. The advice says stay local: don't copy blindly, take those things of PDD that will add value to your clients.
Source recommendation: Decode Fintech
I really enjoy online media, and take a lot of advantage of it. However, seeing the industry from a business perspective the future looks tough: either use subscriptions (we are not used to paying for content on the Internet), use ads (get the views first, use clickbaity options), or do it pro bono. I am simplifying the picture but you get the point.
In this article from David Adeleke I ran into Decode Fintech and made me hopeful for another media model: Decode Fintech is a curated newsletter and podcast by Paystack in Nigeria. They produce and distribute the content, and use it to create a brand presence of Paystack. It stops being a means to make money and becomes a means for brand awareness, giving it a new spin.
I honestly like it. I subscribed to the newsletter and really enjoy the curated insights: I read the news, discover new sources, and read the editor’s note. Yes, there are ads about Paystack, but I don’t find them to be invasive. They also record a podcast in which they interview people in fintech in Africa.
You can check the site here: https://decodefintech.com/