El Salvador is often subjected to some pretty degrading stereotyping abroad. “Fellow students, while I was in the U.S., would even ask me if I was a marero,” Alejandro Argumedo told Rest of World, referring to how gang members of the infamous MS-13 and Barrio 18 are known. “I had to do something to help change the perception of my country.”
Argumedo, 32, is the CEO and co-founder of HugoApp, an aspiring super app founded in El Salvador’s capital, San Salvador, in the spring of 2017. The startup consolidates services ranging from food and cash delivery to ride-hailing and also serves as a marketplace for small businesses.
In the Central American tech space — so often overshadowed by larger Latin American markets — Hugo, as it’s commonly known, is a giant. The company also operates in Guatemala, Honduras, Nicaragua, Costa Rica, the Dominican Republic, and Jamaica and had reportedly been estimated to rake in $50 million in yearly revenue before its series A round in 2020. Hugo holds around 90% of the last-mile market share in many of the countries it has entered.
Investors are starting to take notice, including those who were early employees at Pipedrive, Taxify, and Skype. The startup’s initial funding up to its series A round was worth $13.6 million. Compare that to Latin America’s leading delivery app, Rappi, which raised $9 million for its series A in 2017. There are now 3,500 active hugos — as the app calls its delivery people — and almost 4,500 businesses registered on the app.
Building a super app in El Salvador comes with serious challenges. More than a quarter of Salvadoran youths are unemployed and out of school. “Central America just isn’t worth the hassle,” explained a local executive for a competing last-mile delivery app, on condition of anonymity. “[It’s] a small market with big corruption issues” — not to mention the political turmoil.
Hugo’s founders say that part of their inspiration is startup success stories in other neglected markets of the world. Argumedo says he was particularly interested in Tallinn-based Skype, which became the first Nordic billion-dollar startup and made Estonia the world leader in unicorns per capita. Hugo, he hopes, could do something similar for Central America. “If we become the first unicorn in the region,” Argumedo told Rest of World, “El Salvador could become a technological hub, which will bring investment and growth to all these countries.”
When Hugo launched in 2017, there were no last-mile or ride-hailing platforms in Central America, and Salvadorans relied heavily on cash; in early 2017, less than 12% of Salvadoran adults had a credit card, and only 29% had a bank account, a number that has increased only 1% in the four years since.
Argumedo, who grew up in San Salvador, had recently returned from living in New York, where he had worked alongside Uber co-founder Oscar Salazar. When he returned to El Salvador, he moved into his parents’ home. It took six months to launch Hugo. “My mom used to call her friends asking them to give me a job,” he laughed.
Argumedo soon recruited a fellow tennis player who had been dabbling in fintech, Ricardo Cuellar. The two raised the $115,000 they needed to launch the app from friends and family. “That first round was probably the easiest,” said Argumedo.
At the time, Hugo’s primary competition in the food delivery space was Gourmet Express, which had dominated the market in El Salvador for 15 years. “It was the typical service, where you would call and order your food from a pre-established menu,” said Argumedo. “It worked quite well, and no one thought we would be able to compete.”
When it came to last-mile delivery and ride-hailing services, Hugo was competing with Uber, which also started operating in the country in early 2017.
But within just three months of launching, HugoApp became the local delivery market leader, according to Ricardo Castaneda, a senior economist from the Central American Institute for Fiscal Studies.
Castaneda says that Hugo’s success was tied to its aggressive marketing and institutional relationships — El Salvador’s community of economic and political elite is small and well connected. “It was a hit first, hit harder situation. I am not sure Salvadorans know that [HugoApp] is a local company, but they have compelling publicity and great connections, which is quite exceptional.”
Marginally better prices also kept Hugo’s customers and workforce loyal. Rest of World spoke with drivers who worked either with Uber Eats or Hugo at Multiplaza, a mall that serves as a popular rest stop in San Salvador. Drivers acknowledged that rates are slightly better, both for drivers and users, on Hugo. That’s because Hugo’s flat rate payment of $2 per ride, which can increase, depending on the time and distance of the delivery. One ride can provide drivers with half the funds needed to keep them above the poverty line.
Castaneda says that, while these jobs do help many Salvadorans earn some extra cash, gig platforms like Hugo do not resolve — but rather perpetuate — job insecurity. “People are used to working informally. They appreciate any kind of job, no matter the conditions — with Hugo or any other app,” he said.
Hugo — like other gig platforms — does not offer benefits. Salvadorans still struggle to make ends meet or save on the app’s wages. Furthermore, its gig workers must cover their gas and bike repairs on fluctuating incomes, in tropical countries ravaged by a six-month rainy season.
New competition in the delivery space has emerged over the last few years: eLunch, which only works in El Salvador, offers six homemade dishes that change every day. Still, the tech startup scene in the region is sparse and lags behind Hugo in capital and innovation.
Critics claim that Hugo’s bootstrap narrative belies the fact that it’s become a dominant, and stifling, player in the local startup scene. Christian Navas, founder of eLunch, told a local paper in 2019 that it was very hard to compete with apps like Hugo or Uber. He claimed that they suffocate the market with their financial clout.
Meanwhile, outside institutions and venture capitalists argue that HugoApp seems to be blazing a trail for other startups in an untapped region.
HugoApp secured its foreign investment right as the Covid-19 pandemic hit. The Salvadoran government’s response was one of the strictest, and most militarized, in the region. The lockdown led to an explosion in demand for delivery services. Carmen Moran, a resident of San Salvador, told Rest of World that, when lockdown was instituted, the app became a lifeline.
When she first started using the app in June 2020, it would take Hugo over a day to deliver her groceries, but, by early September, it was less than 30 minutes. Increased reliability kicked off a virtuous cycle: customers like Moran started using Hugo’s services more often, “for mandaditos,” she said, referring to Hugo’s service where you can order anything that fits on a motorcycle. Increased demand and unemployment enabled the super app to further expand its services.
By the end of 2020, Hugo had grown 280% and was processing more than a million requests per month, according to the company’s own yearly report.
Exponential growth during the pandemic has accelerated the startup’s ambitions to become a true super app. Hugo is now entering the fintech space in partnership with Visa and Banco LAFISE to facilitate remittances. Soon, the app will process some of the $5.9 billion sent to El Salvador in 2020 by the 1.4 million Salvadorans living in the U.S. (around a fifth of the country’s population).
Hugo is tapping the migrant population in other ways too. Hugo has created a program to hire Salvadorans who either failed to reach the U.S., or left for other reasons, as drivers or at its customer service call centers.
The program is even supported by the International Organization for Migration. The U.N. agency has tapped Hugo to help run a program for coders funded by the Japanese government, both in El Salvador and Guatemala. IOM is now mapping tech businesses, like Hugo, that can then employ these people.
Argumedo also says he wants to contribute to Central America becoming more technologically savvy; he saw how many industries crumbled during the pandemic. “Very large companies were on their knees and could not move forward nor innovate during the pandemic because of their traditional models.”
He’s keen to turn Hugo into a unicorn by following in the footsteps of “the benevolent mafia,” as Skype calls itself, but it is a path that the startup will have to blaze alone in the Central American ecosystem.