Rappinomics: Impact and Challenges of Delivery During a Pandemic

In under four years, Rappi's presence has been visible. Rappi is undoubtedly the most used home delivery application in Colombia.

With the influx of new home delivery services, it has become normal “to charge only 2,000 pesos for orders up to 4 to 5 kilometers.” (Archive)

This weekend, more than 1,000 delivery personnel from the delivery platform ‘Rappi’ in Colombia, organized a march in the city of Bogota. The so-called Rappi-tenderos (delivery people) protested against the shortcomings presented by the platform, the recent changes in the payment conditions, and the social security affiliation of their delivery people. Rappi is the biggest platform of home delivery in the country and hosts more than 50,000 delivery people.

In under four years, Rappi’s presence has been felt. Rappi is undoubtedly the most used home application in the country. About 61% of Colombians have used Rappi. Some 67% of the inhabitants of Bogotá have used it at least once, 61% in Cali, 55% in Barranquilla, and 48% in Medellín.

Rappi’s presence in the Colombian market of home delivery apps far exceeds its rivals Domicilios.com, Ifood, Uber Eats, and Merqueo. Except for Domicilios.com, none of them has reached more than 20% of the Colombian public.

Rappi’s success has not been limited to Colombia. It also operates in Brazil, Mexico, Argentina, Chile, Peru, Uruguay, and Costa Rica. Moreover, it played a leading role in the main transaction in the principal transaction in the first half of this year in Colombia: Softbank, one of the largest investment funds in the world, injected one billion dollars of fresh capital into the company.

82% of the users of this application use it to order food from home. Rappi, along with the other delivery apps, has created an economic phenomenon not seen before in the Colombian gastronomic sector: the hidden kitchens.

These closed kitchens, often single-person and with relatively low investments, between 12 to 20 million pesos, seek to save the costs of payment to waiters and setting up a shop. Many of these kitchens operate only through these delivery platforms, completely outsourcing the home delivery service, and focusing on food.

Emilio Ochoa, manager of Camaleón en Bicicleta S.A.S., comments that “although we are not a hidden kitchen since we started only as a delivery service even before joining Rappi, this app now accounts for up to 30% of our sales per month. It indeed charges 25% of the value of the product, but it is a home delivery that we do not have to manage on our own- a service that already gives us the address, order, and total to be charged,” he said.

Delivery applications become the best ally

The strict quarantine in Colombia coupled, with a rigid labor market, has led to millions of people losing their jobs. Further, the mandatory lockdown has also made applications such as Rappi or sectors such as delivery – where labor entry barriers are low – become a work option for thousands of people.

Since the COVID-19 quarantine started, the number of home delivery persons in Colombia has quadrupled. The number of users who make purchases through Rappi has grown by 70%. The demand for these apps has increased so much that many crashed on Mother’s Day as they saw a spike of up to 250% in the number of orders in one day. On average, Rappi has experienced a 40% increase in orders.

The contingency has also posed challenges for apps. For Rappi, in particular, we have heard complaints, several that came from before by the distributors about the operation of the application. Some errors are related to the incentive system that gives the algorithm. One Rappi delivery person said: “Rappi penalizes you if the order has a delay, but often it so happens that for orders that are delayed, such as a Sushi, restaurants assign a very short time because they want to gain visibility on the platform. When the delivery person arrives at the restaurant, the order is not ready, and one’s score is affected even if the other is responsible,” he said.

Other Complaints have primarily been about the points system and the charge per distance. With the influx of new delivery people, it has become normal to “charge only 2,000 pesos for orders at 4 to 5 kilometers.” This situation has led many delivery people, especially the newest ones, to remain inactive for hours, and to only make a few deliveries a day. Another delivery person commented that “with the current system of points, the older delivery people benefit, as do those who work full-time, because Rappi assigns coverage areas, such as Laureles or Poblado. If you don’t have a certain score, you can’t go and do deliveries there. You have to go to the collection center where Rappi guides you, and you arrive and see another 50 Rappis waiting, so there’s no way to get anything done,” he explained.

Given the increase in labor supply, Rappi has decided to implement a scoring system that seeks to reward the most consistent delivery persons using the application. The application rewards extra points to the delivery people who are active during peak hours and on weekends, have good customer ratings, and even use the application to make purchases. The delivery people who have a higher score are assigned areas that get a greater bulk of the orders. This system has caused discomfort among the newer delivery people. According to several Rappi delivery personnel, this new system has caused most orders to be concentrated in the hands of a few high-scoring delivery people.

Rappi has undoubtedly become an employment option for many people with basic education who don’t have many resources. According to a survey conducted by the Labor Observatory at the University of Rosario, 91.2% of Rappi delivery personnel do not have social security, but about 81.4% said they work only for Rappi. 45.6% live in the second stratum, 38.4% in the third stratum, and 9.1% in the first stratum. In terms of education, 53.1% have completed secondary education, 16.4% technical, 12.3% university, and 10.7% postgraduate.

Some delivery apps such as Domicilios.com already discount the ARL payment (contributions to the Administradora de Riesgos Laborales (ARL) of their delivery people; others such as Uber Eats and Merkero have designed an aid program based on the average income of their delivery people who cannot work in case they contract COVID-19.

However, Rappi’s current model would make it very expensive to support the current workforce of more than 50,000 if Rappi were to be obliged to cover the social security of all delivery personnel. Rappi has not yet made a profit. In an interview with La República, Matías Laks, Rappi’s director-general, said that “the company has decided to operate at a loss during April and May to invest in its partners and society, as well as to support the country’s growth with over 15 million USD in negative profits, instead of taking advantage of the increase in demand to generate more income.”

Rappi’s model, although interesting, is the victim of a problem: the Colombian labor code is not designed to be compatible with something that capitalizes on labor flexibility like this platform. The impossibility of charging by the hour or reaching payment agreements with delivery people, along with the challenges posed by the development of an increasingly complex PPP like Rappi, have made it the pioneer of delivery in Latin America.

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