It was the height of the pandemic last year in May when Paulo Camacho, a 46-year-old psychiatrist, decided to take Mother’s Day off. Camacho isolated at his home in Bogotá, an urban jungle of around 11.2 million people, confined in what would become one of the world’s longest shelter-in-place mandates. His mom had kept him company over the months of lockdown, so he wanted to make this Mother’s Day count.
The obvious solution was to order their meal from Rappi, Colombia’s last-mile delivery unicorn. It is an app that allows users to virtually order food from restaurants, as well as shop for groceries, take cash out from ATMs, pay delivery workers to do favors, and buy everything from sex toys to plasma screen TVs. But the self-proclaimed Latin American super app’s performance was not up to its bluster.
“It wouldn’t take the order,” said Camacho. “Prices were not accurate, and I tried and tried until Rappi [finally] placed the order.” The meal never arrived.
Thousands of users in Bogotá, Medellín, and Cali overwhelmed the app that day and then found themselves unable to get any answers from the company. When a Rappi representative finally did get in touch with Camacho, they offered to send him the food the next day. “The next day was a work day,” he said. “It was no longer Mother’s Day. It was no good.”
Since its launch in 2015, Rappi has embedded itself in the day-to-day lives of Colombians. Yet its growth has brought with it an emerging sense of dissatisfaction. On Mother’s Day 2020, that discontent seemed to come to a head, but Rappi has only grown since then.
“Some of the most amazing tech achievements we enjoy today were born from failure,” Rappi’s upbeat global head of corporate communications, Juliana Pulecio Velásquez, told Rest of World. But Rappi’s early 2020 failures did something more than provide “improvement opportunities,” as Pulecio called them. They signaled to competitors that the super app could stumble, perhaps even be challenged, in its home fortress of Colombia. Today, Rappi finds itself battling on two fronts — attacked by other massive last-mile delivery companies, while smaller startups undermine the unicorn with the promise of personalized products and customer service.
Customers who use, and experts who follow, Rappi say the company’s service has worsened even as it continues to grow its business. Carolina Quiroga, a 33-year-old woman from the well-to-do neighborhood of Chapinero Alto, has ordered food three times a week on the app for the last six years. She said she’s noticed a decline in quality this past year. Last month, she complained after watching her pizza order cross the city before getting to her, despite the restaurant being 10 blocks away. Users say this is standard practice for the app’s overworked delivery riders, but customer support told her they never make drivers deliver two orders at once.
These issues may seem small, even petty on the individual level, but Angelica Palacios, a lawyer at Colombia’s Labor Information Agency, said the hiccups become consequential when the customers who use the app do so out of need — especially during a pandemic that continues to run rampant throughout Latin America. Palacios believes Rappi is taking advantage of that heightened dependence.
|Delivery riders in Latam:||85,000|
|Delivery riders in Colombia:||40,000|
|Key investors:||T. Rowe Price, Baillie Gifford, Third Point, Octahedron, GIC, SoftBank|
|Total investment raised:||$2 billion|
|Current valuation:||$5.25 billion|
As far back as 2018, the Superintendence of Industry and Commerce (SIC), Colombia’s consumer protection watchdog, revealed that Rappi had received more than 631,449 complaints and refund claims over the course of seven months. This amounted to around 2% of all orders made during that period.
In October 2020, SIC released a 242-page report detailing how the company misrepresented itself in advertisements and promotions. It concluded that Rappi had violated its customers’ right to receive refunds instead of just app credits and that it was failing to provide quality services and information to its customers.
The regulator also said that the app’s fine print included “abusive” clauses, allowing Rappi to “unilaterally” price up goods and keep the profit, despite already charging customers delivery and other fees. SIC ultimately slapped the maximum fine possible on Rappi: around half a million dollars — the equivalent of three days’ 2019 revenue.
“Rappi provides very important services,” Palacios said, “but now there’s a distrust that people are beginning to feel.”
Iván Daniel Jaramillo Jassir, a researcher at University of Rosario’s Labor Observatory in Bogotá, attributes part of the service deterioration to the sheer increase in demand during the pandemic. But Palacios noted that the drop in quality of service coincided with the end of a period of rapid expansion before the pandemic — leading to a shift mandated from above.
Palacios said Rappi has been facing pressure from investors to create “the basic conditions for the generation of greater profits.” The company has raised over $2 billion in venture capital funding to date, including most notably a 2019 injection of $1 billion from SoftBank, the Japanese investor known for throwing large amounts of cash around and of being unafraid to back rival companies. In recent years, SoftBank has poured roughly $20 billion into three competing platforms present in Latin America — a “circular firing squad” of delivery and ride-hailing apps — Uber, Didi, and Rappi.
It contradicts the common belief — one echoed by Colombia’s former agriculture minister, Andrés Valencia Pinzón — that Rappi simply needs more competition to set its service straight.
Though Rappi had a little respite in October last year when one of its top competitors, Uber Eats, announced it was dropping out of Colombia and Argentina, other contenders have stepped up to the plate. The biggest has come in the form of a merger between Delivery Hero–owned Domicilios.com and Brazilian delivery giant iFood. Rappi faces “brutal competition from iFood,” said Palacios.
It wasn’t that bad customer service could be solved by competition, it was actually more likely that competitors had detected this deterioration and pounced.
“What we’re looking to do is lead the Colombian market,” said Dario Rodríguez, director of operations and logistics for iFood. He claimed iFood’s services gave customers the “best service” and believes the company will surpass Rappi as market leader by the end of the year.
Faced with pressure to increase profits from investors and shrinking margins from other giant last-mile competitors, Rappi started taking drastic measures. As early as January 2020, it laid off 6% of its employees, saying in a statement, “We are investing heavily in our tech team, automating some roles, re-balancing areas, and embracing high performers.”
Jaramillo Jassir said that this “extreme robotization” is a prime contributor to the fall in the app’s customer service quality. It may even have led to the Mother’s Day debacle, as the app’s tech failed to measure up to the task and there were not enough human hands on deck to contain the fallout.
Rappi says it has now fixed these issues, pointing to there having been no similar collapses for over a year. Yet, some problems have not been resolved, even though the company claims it has improved its tech within the app. The pandemic forced Rappi to pick up recruitment as demand exploded. Rappi’s Pulecio said the exponential growth challenged the app’s tech team to come up with innovative solutions overnight, though she didn’t disclose the specifics.
“This year we had a very successful Mother’s Day, with a twofold increase in sales compared to 2019,” Pulecio told Rest of World.
However, the damage has already been done. Even the moves made by Rappi in apparent solidarity, like when the company announced it would provide coronavirus vaccines to 5% of its delivery riders, turned sour when it added a caveat that the jabs would only go to those “who make the most orders [and] who are the most connected.”
“This element of presenciality is gone,” said Jaramillo Jassir, who studies labor. “And what has happened as a result is a sort of depersonalization.”
Rappi’s overreliance on impersonal tech is what tempted a different wave of competitors to try their luck against the local giant by doubling down on service.
On the top of this competition list is JOKR, a New York–based app founded by a former SoftBank employee in 2021. The startup locked down $170 million in funding just months after launching in Latin America, the U.S., and Europe in June. While Rappi’s success lies in the sheer quantity of services it offers, JOKR focuses on speedy delivery of a narrower set of products. This more limited app promises “groceries and more in 15 mins at your door.” In response, Rappi launched a remarkably similar service, Rappi Turbo, which promises users food delivery in 10 minutes, shortly after.
Another startup, Colombia’s Foodology, is quick to assert that it isn’t competing against Rappi. Co-founder Daniela Izquierdo instead talked about how her company, established in 2019, has found its success by “taking advantage” of the massive growth of delivery platforms.
Foodology runs a network of “dark kitchens,” delivery-only restaurants, and has piggybacked off Rappi, iFood, and other platforms to generate the majority of their orders. Izquierdo says Foodology’s earnings have grown eightfold over the course of the pandemic. Despite claiming to be collaborating with Rappi, the startup has its own customer service team to help and encourage customers to go directly to Foodology instead of intermediary platforms like Rappi.
Rappi, however, may still have the last laugh.
Records obtained by Rest of World showed that although SIC has no record of the number of complaints and refund claims Rappi received during the pandemic, its reports show that more than 1,150 requests for legal action have been filed against the app since March 2020. Yet, Rappi keeps growing and diversifying. Indeed, RappiPay, the fintech branch of the company, is now the most profitable and fastest scaling part of the platform.
Even in terms of its last-mile delivery, Colombians may be largely powerless to make a clean break from their homegrown unicorn. Users who complained about the service said they were open to switching to other options. But when asked if they ever had, the answer was a resounding “no.”
“For customers, what matters is the final price and that they have access to goods and services,” Jaramillo Jassir said. With over 50,000 products in stock, Rappi holds much power over its more than 20,000 vendors, who are often forced to give it better deals. iFood’s Rodriguez said his platform provided faster delivery, better products, and overall better service. But to many Colombians, this is a moot point as iFood continues to charge higher delivery and service fees than those offered by Rappi.
Camacho, who quarantined at home with his mother, canceled his Rappi Prime account — a premium subscription that cuts delivery costs — in anger after the Mother’s Day incident over a year ago. Two days later, a promotion popped up on his phone, and he immediately reactivated his subscription. “Rappi is a necessary evil,” he said.