Scaling Pedala: How a sustainable last mile delivery enterprise mastered Brazilian e-commerce

Scaling Pedala: How a sustainable last mile delivery enterprise mastered Brazilian e-commerce

Introduction

Introduction Pedala is a bicycle-based urban delivery social enterprise that trains, hires at-risk youth as deliverers, providing them with livable wages and preparing them for new career and education opportunities.

The enterprise provides services for the delivery of documents, items purchased through e-commerce sites and food. The delivery service is environmentally friendly, faster and cheaper than its competitors.

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In late 2019, three years after joining the NESsT portfolio, Pedala was acquired by Ame Digital, a fintech controlled by B2W Digital, one of the largest e-commerce companies in Latin America, and Lojas Americanas. How did this local Rio de Janeiro startup, generating BRL1,332,000 in sales in 2017 and employing 49 vulnerable youth, become an attractive model ready for scale in such a short period of time?

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Part I: Pedaling to Scale: The Background

Part I: Pedaling to Scale: The Background It’s not often that NESsT enterprises are able to achieve fast or substantive growth. We work with early stage high impact enterprises facing numerous challenges which require a longer period of time to reach scale. However, there were a series of ingredients in the Pedala model and timely strategic decisions made that allowed the enterprise’s two founders, Alexandre Messina and Vinicius Justa, to take the company to new heights.

First was the attractiveness of the solution itself. In 2017, the package delivery industry in Brazil was valued at US $24 billion per year and growing, powered by 1.5 million “motoboys” who delivered packages on motorbikes. Only 23% of motoboys work under formal contracts and with legal registrations, resulting in poor employment conditions. Their motorbikes add to congested roads, noise levels and pollution in the cities. Many of them are hurt or even killed from accidents.

Alexandre and Vinicius turned this reality on its head.

They launched a company that would train, provide safety gear, and employ young low-income people, many coming from the favelas, mostly in the informal economy, without hopes of education or work mobility.

A job with Pedala gave them a contract with higher and steady income, allowing them to afford health care, social security and safety equipment, while helping them to access opportunities for further career development. It would provide them with the dignity and confidence needed to do a great job, contributing

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to the overall success of Pedala.

Further, the solution was green. By contracting Pedala’s services, clients would be supporting one of the most efficient forms of transportation, cycling, as opposed to more carbon-intensive options. Pedala uses already established bike lanes, circumventing congested and dangerous traffic. Deliveries made by Pedala couriers were expeditious and clean, reducing pollution and noise of motoboys and other city traffic.

In sum, Pedala and its 200 clients avoided 85 tons of CO2 emissions per year through its cycling and logistics operations during the time of its exit.

However, an attractive product or service is not always enough.

There were a series of strategic decisions made by Pedala, with the support of NESsT and its advisors, that allowed the company to make key pivots, expanding its reach, reducing its costs, and improving its overall visibility and branding.

With several rounds of patient capital and one-onone tailored business services provided by NESsT, we worked with Pedala to improve the enterprise’s services, governance, human resources, operations, sales and marketing, financial analysis and systems as well as impact measurement as it continued to increase its hiring.

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Part I: Pedaling to Scale: The Background

The first strategic decision made was to stop food and document deliveries and concentrate on e-commerce. Through careful financial analysis, Pedala realized that the margins were much higher in the latter. The food delivery system is difficult to manage, often leading to idle time where the couriers are left waiting for the food to be ready. Delivery of products is easier to manage, increasing the number of deliveries that can be done in a certain period of time.

Trends in the industry also demonstrated a growth in e-commerce, allowing Pedala to develop long-term relationships with corporate clients who rely and value timely and efficient delivery.

Secondarily, the enterprise decided to stop investing in permanent locations. Instead, Pedala decided to invest in a less costly and more mobile

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system of storage facilities. Originally, investments went to the opening of new sites in popular Rio de Janeiro neighborhoods such as Barra da Tijuca and Botafogo. The brick and mortar approach was important at first to establish a physical space for the bikers to gather, be trained, and feel that they were part of a team. However, it was hard to maintain and implied greater complexity for management and inefficiencies in bicycle delivery routes. Pedala began to rent storage units in key delivery locations around the city, making it easier and faster for employees to meet deliveries in a wider radius, while also reducing the costs of materials and time spent on office management. This enabled them to service more clients and increase revenues.

A third pivot was a change in branding. Pedala

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Part I: Pedaling to Scale: The Background

was originally Ecolivery Courrieros, a franchise of a company by the same name based in Sao Paulo.

The enterprise decided to spin out of the mother company and then to change its name to Pedala, a friendlier and more visual brand, representing its unique value proposition. Alongside this new brand, Pedala launched an appealing marketing campaign, which featured its employees, moving through the city of Rio, making clean, safe and timely deliveries.

The fourth and perhaps most distinctive strategic decision made by Pedala was to offer a diversity of contracts to their employees.

When Pedala first established its model, it provided permanent contracts with benefits to

its delivery team believing that this was important to its employees. This was a costly proposition, so the management team began to explore other types of contracts including flexible ones. The Trafigura Foundation and NESsT wanted to ensure that Pedala would assess the full implications of this change. They helped the enterprise to conduct a survey of its workers, only to find out that many of them preferred the independent contractor option so that they could maintain flexible hours and have time to complete other smaller income generating activities in their communities. Based on these findings, Pedala began offering the more independent option allowing the bikers to set up more flexible hours but always with the option to transition to permanent contracts if they so desired. This hybrid approach allowed the enterprise to maintain fair wages while reducing fixed costs. In addition, the enterprise made sure that all of its staff had the adequate safety training and equipment, moments to meet and discuss their work, as well as information on accessing education and other career growth opportunities.

“Pedala helped me achieve financial stability. It is my main source of income.

The feedback I receive from Pedala customers is very positive” -Pedala Employee

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Part II: The Last Leg of the Race: Tips for a Successful Exit

Part II: The Last Leg of the Race: Tips for a Successful Exit Passion for social impact: Alexandre and Vinicius saw an opportunity where others might have seen a problem. When they first set out to find employees, they realized that many of the applicants were from low-income backgrounds and were struggling to get hired elsewhere, whether it was due to their lack of work experience or to a criminal background record. Rather than walk away, as many others would have done, they saw this as an opportunity to do well while doing good.

They realized that if the youth were given the possibility of a quality job, they would deliver quality.

Financial diligence: The team was diligent in their financial management, creating and making needed system changes that would allow them to know their business, and its key drivers of success. Rather than outsource this to external accountants, the team had an internal financial manager who, along with them, was on top of the numbers. Management also reinvested in their business, always making needed improvements, and preferring to put growth over profit. They were also open to taking recoverable grants from NESsT, demonstrating a transition to investment, and were in the process of timely repayment when the acquisition took place.

Open to learning: The Pedala team consistently showed itself to be a learning team. Not only did they listen and carefully take the advice from NESsT, but they also joined the transportation and mobility acceleration program of Conecta where they learned industry specific strategies and tactics. They also turned down other opportunities that had lower value-add, realizing

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that it was key to stay close to their young business and not be distracted by too many one-off sector events and programs. They listened to their clients, to their workers, to their peers, to their investors; learning to apply what was relevant and put aside what was not.

Commitment to measuring impact: For Pedala, social impact did not stop at the hiring process. While in the portfolio, the enterprise measured both the quantitative and qualitative aspects of its work, ensuring that it was indeed providing a service that resulted in good jobs for vulnerable youth and less carbon emissions.

It takes resources to measure this, and time away from other urgent matters. But this is what an impact business does. It sought to understand the effects of its contracts, not only from a financial perspective but also from a social one. Had it learned that full time permanent contracts were the preferred option, Pedala would have kept these in place, and assessed other ways to reduce costs. By surveying its workers, it learned a great deal also about their aspirations, and ways that they were helping each other as peers to achieve them.

Perhaps the biggest takeaway from the Pedala scaling story is that it’s compelling; compelling enough that in three years, the company was sought and bought by one of the largest e-commerce corporations in the region, at a time in history where e-commerce has become one of the fastest growing industries on earth.

By staying close to their numbers, getting their costrevenue structure right, providing a high quality service

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Part II: The Last Leg of the Race: Tips for a Successful Exit

“Not only did Pedala fulfill a need for highquality delivery services, but it went above and beyond by offering these services in an eco-friendly way with employees who felt empowered.”

-Renata Truzzi, NESsT Brazil Director

with social and environmental impact appreciated by its customer base, staying true to their employees and values, learning from what they were doing, and not being afraid to ask or to hear the hard questions, Pedala prepared itself for high growth and impact.

And as a result, B2W, the company that acquired Pedala, found a model that would help them to improve their own sustainability and impact. At the time of the purchase, Pedala was generating BRL 2.2 million in sales and providing employment to 175 at-risk youth.

NESsT invested in Pedala when they were starting off,

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Part II: The Last Leg of the Race: Tips for a Successful Exit

at a time that others thought they were too risky. With support from the Trafigura Foundation, we provided them with a hybrid package of philanthropic and investment support, helping them to make important pivots, reach milestones, grow rapidly while maintaining true to their social and environmental impact. As an impact-first and engaged investor, NESsT embraced Pedala, and we are thrilled to see them grow and become a model for doing business in Brazil and in the world.

“We at Pedala are very grateful for all the support you have provided since the beginning, we have learned a lot from NESsT and you Re, and we are very open to continue staying in touch! I’m sure it will remain a very rich win-win for everyone.

The fact that we made an exit to a large group like B2W also made us very happy, as it shows that businesses that encompass Conscious Capitalism, having as its main core a solution that actually impacts the world positively and shows that the path of impact companies is a path of no return. Let’s go! Little by little, with each one doing their part, we leave the world a little better for the people who will come next.”

-Alexandre Messina, Founder of Pedala

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In the year after leaving the NESsT Portfolio, Pedala increased its number of deliveries from 500,000 to 2 million, and it is currently on track to reach its delivery goal for 2021 of 4 million. Pedala was acquired in conjunction with Courreiros, a similar enterprise offering eco-delivery solutions in São Paulo, merged, and rebranded to Zity. The name is a nod to the impact that Gen Z’s entering the workforce has on the city. Zity hired 40 new operational employees and more than 200 bike couriers to its delivery team. This represents a 4x growth of jobs created for people from low-income backgrounds that are now able to access the job opportunities created by eco-friendly last mile delivery options for the growing e-commerce industry. To meet rising demand, Zity also began using electric vehicles in addition to bicycles, which has improved its delivery capacity. As for the founders, Vinicius da Justa has transitioned into Head of Expansion at Zity, overseeing all of the Rio de Janeiro and São Paulo growth plans, while Alexandre is leading B2W’s express delivery solution as Head of Open Innovation. Zity continues its commitment to its employees and its focus on impact measurement fosters a positive company culture with employees who stay for the long term.

NESsT’s investments in Pedala were made possible by the Trafigura Foundation’s financial and strategic support. The Foundation partners with NESsT to support social enterprises in Brazil, among them Pedala, as well as in Peru and Chile.

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ABOUT TRAFIGURA FOUNDATION The Trafigura Foundation provides long-term funding and expertise to improve the socio-economic conditions of vulnerable communities around the world. We support non-governmental organisations and social enterprises in the development and implementation of programmes in the fields of Fair and Sustainable Employment and Clean and Safe Supply Chains. Another essential part of the Foundation’s mission is to help Trafigura employees organise and fund staffled community-oriented activities.

To learn more, visit www.trafigurafoundation.org.

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About NESsT

ABOUT NESsT NESsT invests in social enterprises that generate dignified jobs for people most in need.

We believe that all people deserve an opportunity to earn a decent livelihood and that community-based enterprises led by resilient and visionary entrepreneurs can make this possible. NESsT carefully selects earlystage enterprises that are committed to empowering low-income communities to confront barriers and overcome poverty, thus transforming lives. We accompany these social enterprises with business services and patient capital, positioning them for high growth and impact. And we ensure that each and every one of our enterprises has the tools to measure their social, financial and environmental impact.

The NESsT Incubation Program: Since 1997, the Incubation program has been accelerating early-stage social enterprises. The program provides tailored business assistance alongside flexible financing, mostly in the form of grants and recoverable grants, to assist social enterprises to become profitable. The NESsT team supports each company with technical assistance and mentoring to reach key milestones.

The NESsT Fund: In late 2018, NESsT launched an investment fund to provide patient loans to social enterprises and socially-focused small and medium enterprises (SMEs) in Latin America. The NESsT Fund complements our existing programs by financing cash flow positive enterprises raising growth capital to increase their impact.

The NESsT Fund ultimately addresses the missing middle in social enterprise financing with loans ranging from $50,000 to $500,000 USD. Furthermore, its business facility strengthens the performance of its portfolio and derisks repayment rates.

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