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Cornershop aims for slice of grocery shopping in Chile and Mexico

Those who live in Europe or the US are of course familiar with buying online and a large number are even familiar with buying groceries online. But this not the case in Latin America where the internet is not as fast or as ubiquitous, where not everyone has a credit card, and where there are not many delivery companies.

Regarding the delivery infrastructure problem, consider that 500-year-old cities like Mexico City and Santiago de Chile do not have as many multi-lane freeways as, say, Los Angeles, that let vehicles fly over neighborhoods. So delivery companies there have to wade into the cities and often get stuck in traffic and stop lights.

So it is with Cornershop, a startup grocery delivery business operating in Mexico City and Santiago. CTO Daniel Undurraga says that home delivery of groceries in traffic-choked Santiago works better than even-worse-traffic-choked Mexico City where he says, “Every week there is a riot.”

Cornershop is the brainchild of two Chileans, Daniel Undurraga and Juan Pablo Cuevas, and one Swede, Oskar Hjertonsson. Working out of San Francisco, these three friends have raised $7.5 million for their seven-month-old startup business.  This is their second startup: their first one, Clandescuento is a coupon firm that they sold to Groupon.

Daniel and his family are now getting ready to uproot from sunny California and move to sunny, albeit air polluted, Mexico City, which is where he says he needs to be to run his business. Cornershop delivers groceries to people who buy them from their website and it operates in three major cities in Mexico and Santiago, Chile.

In a phone interview, Daniel calls his employees who pick and delivery groceries “shoppers”. I told him that in English shoppers would mean the people who are doing the online shopping and that people who work in logistics would call the people who pick and pack groceries “pickers”. And I asked him about the name Cornershop because that’s not Spanish.

Daniel knows all this of course because he has been in San Francisco for four and a half years, so his English is fluent and without any trace of an accent. He says he’s keeping the name in case they want to expand to non-Spanish speaking countries. The other thing, which we will explain in a moment, is that his clientele are the upper-income consumers who are more likely that the average person to know what a “corner shop” is.

(Here we need to mention something about the Latin America online shopping market. Mexico City and Santiago are not San Francisco.  The internet here is still under the thumb of monopolies who have slow 3G cellular connections and do not offer unlimited capacity tariffs, although 4G is coming, slowly.)

“It’s a lot more primitive,” Daniel says. “Internet penetration is slower. Smartphone is lower. Everything works a little bit worse. “

But on the other hand, being first to market with any idea is how the largest online shopping site of all, Amazon, got where it is today. So Daniel says he is tapping into that pent-up demand in a fledgling market. Who knows? Maybe his fledgling business could end up like MercadoLibre, the online shopping giant spread across Latin America that has been acquired in part by eBay.

OK, so what about logistics?  How does Cornershop operate?

Cornershop works like Domino’s Pizza, which, for those of you old enough to remember, was one of the first delivery companies to use the clever idea to have employees use their own vehicles. Domino’s came under some criticism for that because such uneducated people might not have realized how much they were spending on oil, gas, maintenance, and insurance. But Daniel says, “We pay them a variable fee for every kilometer driven, which I think is fair. And some people will appreciate more than others being offered a job in which they can use their own car. We try to find those people.” 

So, the shoppers, let’s call them “customers”, phone in their orders and the pickers go to the store and select that. In Mexico City, Cornershop has made agreements with two grocery chains, HEB and Chedraui, which provide Cornershop with a discount. That means Cornershop can sell their groceries at the same price as in the store. Elsewhere they charge a markup. In either event, Cornershop charges a delivery fee. All of that is necessary to make a profit in part because the grocery business is a low-margin business with margins of often five per cent or less. Daniel points out that grocers even lose money on lots of different products.

It is worth noting here that Cornershop does not have a partnership with Wal-Mart, at least yet. This American mega giant has 20 per cent of the grocery business in Chile and an incredible 220,000 employees in Mexico. Yet Cornershop pickers shop in the Wal-Mart stores, which in Chile operate under several brand names, including Lider.

Cornershop pickers in Chile also shop at Tottus and Jumbo. These are the kind of places where you can buy imported foods, such as wealthier people would be familiar with, instead of bland Mexican and Chilean cheese. Cornershop says it does not target the wealthier demographic per se. That’s just who comes to their site.

This is fortunate for their payment systems. The middle- and lower-classes in Mexico and Chile do not have bank credit cards or checking accounts.  (They have retail store credit cards, with up to 50% interest rates, which is one reason so many are in debt.) Instead they have debit cards. Or they purchase items online and then go pay for them in cash at a location close to where they live, or via a payment service.

To give an example of the problems this poses, Netflix operates in all of Latin America. Its payment system does not accept debit cards in Chile, but they do in Brazil and Mexico; this cuts off many potential customers for Netflix. One wonders why they do not extend their payment system to work with debit cards there.   

Daniel says that in Chile, “I hate the fact that we have this monopoly called Transbank. They are super-closed. They do not integrated with international networks. Chile debit cards are useless outside of Chile.”  

I asked Daniel whether his business received any startup funds from the government since in Chile, Mexico, and Colombia there are incubator programs.  He said no. It was not necessary as they were profitable almost from day one and did not have a lot of R&D expense. He also said it can take up to a year to obtain funding that way and those programs only give you about $50,000. But with $7.5m raised, Cornershop has a shot at changing grocery shopping in Chile and Mexico.

 

Related reading:

E-payments promise safe transfer in Latin America
Venezuela: The rise of digital bartering

MercadoLibre: Argentina’s eBay

A land grab for LatAm tech

Yellow Pepper heats up LatAm m-payments

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Walker Rowe

Walker Rowe is a US citizen living and working in Santiago, Chile. There he edits the online magazine SouthernPacificReview.com and writes the blog "The Avocado Republic" about life in rural Chile.

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