Solving Latin America's eCommerce Achilles' Heel
In an influential article “Everything you need to know to create the next big company in Latin America,” investor Juan Pablo Capello, challenged us to create companies that cater the needs of the “250+ million [Latin Americans] that have come online in the past 13 years.“
With the addition of those new internet users, Latin America’s total 290 million users now top the 280 million users connecting from the US. Having similar number of internet users, we would expect the relative size of B2C ecommerce sales to simply reflect differences in purchasing power between the average user from Latin American user vis-à-vis the average user from the US. Using the size of their respective economies as a reference would lead us to suggest that Latin America’s B2C ecommerce market should be around $150 billion dollars equivalent to about 1/3 of that of the US.
However, in 2014 ecommerce sales in Latam were only around $60 billion, a level no greater than 15% of ecommerce sales in the US for the same year. Another striking fact is the more than 10X difference that exists between the $8.5 billion reported by Ebay as net revenue from the US in 2014 and the $556 million reported by MercadoLibre in Latin America for the same period.
So what explains this discrepancy? Why is the Latin America B2C ecommerce market lagging behind?
In the article “E-commerce in Latam is a tough business!” investor Diego Serebrisky summarizes some of the challenges that have slowed ecommerce in the region. These include low penetration of payment methods and trust and convenience issues. Even though the region is arguably making progress on both obstacles, I believe that on-demand delivery startups will generate game-changing improvement on the latter issue. Receiving goods immediately is a sure way to increase trust in customers and provide an ever more frictionless experience.
In the last couple of years, about a dozen on-demand delivery startups have raised VC rounds from top-tier VC firms including Sequoia, KPCB, Spark Capital and Charles River Ventures among others. So far, VCs have poured in more than 150 million dollars into US startups like Postmates and Door Dash among others.
Considering relative B2C ecommerce volume, Latam investors may find opportunities in funding on-demand delivery startups. Using as a yardstick the $150 million funding that US startups have attracted so far would mean that Latin American delivery startups could attract over $20 million in funding based on last year B2C ecommerce volumes or even approach $30 million based on projected 2015 figures just published. So far, Brazilian startups have received at least 6 million dollars, which partially reflects their 1/3 share of ecommerce volume in Latam. However, there may be more money coming to this market down the road. After all, the Latin American ecommerce market is growing at more than a 20% rate, double the rate observed in the US, and it has a potential to be 2 or 3 times its current size by tackling problems such as the last-mile delivery.