Grocery shopping is such a routine part of life that, for decades, nothing about it changed, says Rodolfo González, a partner at Foundation Capital. “If you look at photographs from the previous century, it’s all the same: people with their shopping carts walking around aisles.” The past few years have put an end to that as grocery delivery apps now launch every day, and every country has its own local versions. The new challenge is making a service stand out.
This is why the success of Jüsto, a Mexico City–based delivery app, is all the more striking. Despite facing a crowded field of competitors, Jüsto has received more than $92 million in funding since its launch in 2019. According to the company’s own reports, as of February 2021, Jüsto had raised the largest series A round in Latin America in the past decade. And it’s not just investors who are enthusiastic; shoppers are too — Jüsto says its sales grew sixteenfold in 2020.
Curiously, Jüsto hasn’t succeeded on the basis of innovation. Its same-day grocery delivery services are no different than those of local competitors Walmart, Chedraui, and Soriana. Jüsto boasts a growing list of products at “competitive prices” in its virtual catalog — but so does every other e-commerce platform. Nor has it teamed up with big and established last-mile delivery companies, like Rappi and Uber, as other supermarkets have done. What is unique is that, in Mexico City and Querétaro, the two cities where it operates, the company relies on micro-distribution centers — often referred to as “dark stores” — which only Jüsto staff can access.
This is a solution to a structural problem. Supermarket chains have notoriously tenuous margins. It is costly to manage stores and warehouses filled with bulky boxes and perishable goods anywhere, but the numbers are particularly tight in major cities. In Mexico City, which is known for its eye-watering real estate prices and poor incomes, supermarkets face an especially challenging balancing act: they must set up shop in high-cost areas while knowing that, if they overcharge customers too much, they’ll end up driving them away to informal street markets. Through its dark stores, however, Jüsto figured out a workaround. It only needed to maximize warehouse efficiency and to have stores in enough places to optimize quick deliveries.
Another reason why Jüsto became an investor darling was timing. The company launched in the second half of 2019, early enough to establish itself in a market practically devoid of online grocery shopping. Just four years before, a study by Nielsen showed that only 13% of Latin Americans were ordering groceries online, but 65% of respondents were willing to use such a service. Now, online shopping is the norm across Latin America, and more startups are making plays into the $325 billion grocery market. Colombia has Merqueo, El Salvador has Hugo, Uruguay has PedidosYa, and so on. In 2020, Amazon and Rappi, the Colombian unicorn, were among the most-used platforms in Mexico for stocking up on groceries.
The definitive moment for online grocery shopping in Mexico, however, took place in September 2018, when Walmart sought to acquire Cornershop, a Chilean-Mexican last-mile grocery delivery startup. Up until then, Mexico’s traditional supermarkets had largely avoided the sector, assuming that there wasn’t enough demand. (Only a few traditional retailers, such as the supermarket chain La Comer, began investing in online sales operations before the pandemic.) The country’s antitrust authorities got in the way of the Walmart purchase, though, and the acquisition fell through. But two years later, in December 2020, Uber was granted permission to buy Cornershop. While this may have seemed like an unimportant distinction at the time, it ended up shifting control of Mexico’s grocery sector from traditional actors to tech companies. Then, Covid-19 happened.
As lockdown measures were implemented in Mexico City and traditional supermarket chains scrambled to get their online services in order, Jüsto seized the opportunity to showcase its abilities. “Online grocery penetration rates in Mexico quadrupled since the start of the pandemic,” says Manolo Fernández, head of Growth and Planning at Jüsto. This period enabled the company to refine its data crunching and to better pair customer convenience (often an afterthought for physical stores) with efficient logistics (a must-have in the supermarket industry). “Technology allows us to better understand our users,” Fernández explained.
Jüsto did admit that the surge in demand presented challenges. It wasn’t always easy to forge partnerships with vendors while also keeping warehouses stocked. But such issues weren’t exclusive to Jüsto: virtually every e-commerce and online grocer was dealing with them too. Oskar Hjertonsson, a co-founder of Cornershop, has confessed that his startup was struggling with “being under-resourced.”
The online e-grocery bonanza brought on by the pandemic won’t last forever. Eventually, growth rates will slow, and the winners will be the companies that managed to keep their customers happy. “We’ve been confined for over 12 months,” says Fernández. “Consumer habits have changed. We all like to receive what we buy at home. So, if we stay focused and offer the best experience for buying groceries, consumers will continue shopping online.”
Yet old habits die hard, says González, the Jüsto investor. “Many traditional players will return to what’s comfortable,” he told Rest of World. “They’ll return to investing in the places they have for more than five decades and will try to get people to return to supermarkets in person.” But perhaps some IRL retail chains have learned their lesson. Both Walmart and Soriana plan to continue investing in online omnichannel strategies. Chedraui has announced that it will reduce its number of physical stores from 30 to just eight. Only time will tell if these strategies will get customers back into grocery stores or if they’ll stick with newcomers like Jüsto. Investors are betting on the latter.