In recent weeks, the streets of Santiago have been awash with protestors
expressing their anger over the cost of living in the city. The high levels of
inequality in the Chilean capital and more broadly across the country have
resulted in mass upheaval and unrest, leaving the ruling elites struggling to
restore public order.
Against this backdrop, it’s perhaps not surprising to understand how successful
one circular startup, Algramo, has become since its
launch in 2013. Algramo’s purpose is not only to help consumers rethink grocery
shopping, but to use its model as a force for social good. In Santiago, that
means tackling what Algramo’s Brian Bauer calls the “poverty tax” faced by
shoppers on low incomes.
“When you live in the bottom of the pyramid in Latin America, you tend to buy
your food from small, family-owned grocery stores,” he says. “People often don’t
have money to buy food in large amounts, so they are forced to buy it in small
amounts.”
Store owners will repackage bulk staple items such as rice, lentils and cleaning
products into smaller packages — so, instead of buying a kilogram of product, a
customer might purchase a 250-gram bag.
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“That smaller weight significantly increases the cost of the product, typically
anywhere from 30 percent to 50 percent,” Bauer says. “It also produces more
packaging waste.”
Bauer works on circular economy and strategic alliances at Algramo. He is
helping to scale up the original model, Algramo 1.0, that founder Jose Manuel
Moller set up. Moller wanted to not only address these prohibitive prices
faced by low-income food shoppers, but enable them to access the right amount of
product they required without the need for single-use packaging.
Algramo, which literally means "by the gram," combines a number of circular
principles —
refill, reuse and optimized reverse logistics. It is basically a
refillable packaging system allowing customers to buy as much or as little of a
product as they want, in reusable containers, with no difference in the price
per gram. Once the containers reach the end of their life, they can be traded in
by shoppers for a new container — this deposit ensures packaging goes back to
Algramo, for recycling at end of life.
Since its inception, the Algramo 1.0 model has expanded to 2,000 stores in
Santiago, reaching roughly 350,000 customers. In 60 of those stores, Algramo has
installed vending machines, which automatically dispense the products. In the
others, Algramo’s own reverse logistics team visits on a regular basis to stock
up product while collecting any empty packaging containers, which are
subsequently cleaned and refilled for delivery back to the stores.
“We always strive to offer products that are in demand and used a lot,” Bauer
says. “If you’re going to the trouble of doing reuse, you want to make sure you
do that with fast-moving products to create more impact.”
Bauer says when the model was first rolled out, initial reuse rates weren’t even
hitting 10 percent, but they now stand at over 80 percent: “We played around
with the price of the packaging and got people more interested about the
benefits of reuse.”
In 2018, these impressive reuse rates attracted the interest of major brands
including Unilever and now
Nestlé. Interest from global
brands has paved the way for Algramo 2.0 — in which, as Bauer explains: “We are
taking the technology and distribution systems that we created with the 1.0
model and integrating those into the supply chains of global brands.”
Both models target different markets. Algramo 2.0 is aimed more at middle-income
neighbourhoods, and will be built on brand partnerships. The startup is working
with Unilever on the first Algramo 2.0 model, which launched in May on the
streets of Santiago. It’s a mobile home-refill service selling cobranded
Algramo-Unilever products such as laundry detergent and dish soap — the
dispensing machine is mounted on an electric tricycle — and can be hailed to
your home, free of charge, for onsite refill.
“It’s kind of like an ‘Uber Eats’ service,” Bauer says. “For people in cities
who don’t have cars, this creates a compelling value proposition. If you have to
walk several blocks to the grocery store, you don’t want to be carrying back
heavy items. With us, you can get refill at your house and have transport
provided for the bulkier items. This is especially valuable for our next
product, Nestlé dog and cat food.”
The system encourages cashless payments through RFID
tags
on the containers and an app; but until the app is fully developed, tricycle
drivers also have the ability to take cash payments and transfer the funds
digitally onto the packaging. A ‘sustainable consumption credit’ offers a
discount on the next purchase when shoppers bring the containers back,
incentivising reuse rates further.
“A key part of the rationale is that, to make reuse popular, you need to lower
the product cost — the more the better,” Bauer says. “A lot of evidence I’ve
seen says a 30 percent to 40 percent discount is a critical threshold number to
get people interested in reusable packaging. You also need to make reuse
convenient, and the tricycle provides that.”
Brands who sell through the Algramo system can also expect to see significant
cost benefits due to reduced packaging and optimized logistics, enabling them to
offer products at a lower price.
Algramo founder José Manuel Moller with Nuria Hernández, CEO of Unilever Chile, and the Algramo 2.0 tricycle | Image credit: Algramo
“With our Unilever model, Omo laundry detergent is about 30 percent less
expensive then what you’d pay for them in a corporate supermarket at the regular
price,” Bauer says. “Brands are excited to be able to lower their product costs,
as this gives them a significant competitive advantage.”
Algramo funded the first tricycle and Bauer says Unilever has agreed to fund a
further nine tricycles, which should all be on the streets by the end of the
year. Going forward, the company intends to expand into international markets —
first and most notably, the US — before expanding across Latin America; Bauer
says expansion into certain markets will depend on the right implementation
partners.
“We have a strategic implementation partner set up for the US, and that is
enabling us to move a lot faster than originally planned,” he intimated. “In the
second half of 2020, we’re hoping to be in the US. Shortly after that, we hope
to enter into other geographies, as well.
“We’re keen to give this opportunity to as many people as possible, in as many
countries as possible. In the higher-income markets, that’s where most of the
consumption and packaging waste occurs, so we can have a big impact on reducing
the plastic
footprint
there.”
In scaling up, Bauer anticipates a few issues along the way, one of these being
co-innovation risk.
“We’re working with a lot of different brands, technology providers, government
regulators … and we need them all to be working together optimally and
efficiently as possible to ensure the system is robust.”
Circular business models that can deliver both sustainability and social impacts
are still thin on the ground, which is what makes Algramo’s proposition so
compelling. As Bauer aptly puts it: “What we are doing has never been done
before.”
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Maxine Perella is an environmental journalist working in the field of corporate sustainability, circular economy and resource risk.
Published Oct 29, 2019 2pm EDT / 11am PDT / 6pm GMT / 7pm CET