Investing in Estoca
Laura Constantini and Lucas Abreu
Behind it all is surely an idea so simple, so beautiful, that when we grasp it – in a decade, a century, or a millennium – we will all say to each other, how could it have been otherwise?
– John Archibald Wheeler
Will digital transformation of the logistics sector in a country like Brazil be one of those events which when we look back on it years from now will seem to have been blindingly obvious?
The answer we see is: yes.
The logistics sector in Brazil represents more than 25% of the country’s GDP; the warehouse and fulfillment industry is 34% of that 25% (i.e. 8.5% of GDP); and last-mile transport of merchandise (between the warehouse and the final customer) is approximately 25%-28% of the 25% (i.e. 6.3% to 7% of GDP). (1)
When we started to look at the sector, we were frankly surprised by the lack of technology or tools able to make the processes more efficient. The growth of e-commerce and digital native brands has brought with it greater complexity for sales support operations – all the effort that ensures an impeccable experience for the consumer, from purchase to receipt of goods. What we saw was that warehouses still use on-premise warehouse management systems (WMSs) – systems that are old, are not in the cloud, and lack integration with other software, and other business units, and as a result have very little of the flexibility that is inherent to today’s digital world.
Estoca is a logistics integrator: it digitalizes the supply chain, and adds providers of fulfillment and last mile logistics (3PL) into its clients’ management systems. This integrated network of service providers on the Estoca platform is able to give its clients – e-commerce operators and brands – efficiency and transparency, and, subsequently, intelligence to improve their inventory management and facilitate their regionalization of supply.
Estoca has been built from zero in the modality of IaaS: infrastructure as a service. It charges for each order individually, giving clients the flexibility that today’s dynamic context demands in use of warehouse spaces:
- Estoca will do for warehousing and movement of merchandise what operating in the cloud did for handling and storage of data.
Because logistics is the main bottleneck in Brazil’s e-commerce.
E-commerce is an inevitable trend. According to EuroMonitor, in 2021 e-commerce in Brazil handled an estimated total of R$ 154 billion, which is expected to rise to R$ 220 billion in 2024 – a CAGR of 22%.
The pandemic only accelerated the trend to online buying: today online purchases are around 12% of the Brazilian retail sector’s total sales – compared to 5% in 2019.
Clearly this percentage will increase over time. Morgan Stanley estimates that e-commerce will be 20% of Latin American retailing in the next 5 years. As an example: In South Korea online sales are already 37% of total retail activity, and this is estimated to grow to 45% over the next 5 years – especially because the country has a well-developed payment and logistics infrastructure.
Brazil already has an infrastructure in means of payment that is extremely competitive in comparison to the rest of the world – even more so now that it enables open banking – so that we do not expect means of payment to be in any way a bottleneck for the growth of e-commerce.
But the same cannot be said of the area of fulfillment and logistics – which continues to be a significant bottleneck. A report by McKinsey estimates that logistics costs in Brazil are currently between 12% and 20% of e-commerce revenues, and likely to continue to grow to between 15% and 25% in the near future.
In the sector of e-commerce alone, logistics (principally warehousing and transport) represent an opportunity on the scale of R$ 30 billion – and growing at 22% per year.
Estoca was founded by Caio Almeida and Rodrigo Cava, who met when they were working at Uber Eats. They were part of the team that expanded the operations of Uber into this segment – where they acquired experience in their respective areas about the importance of efficiency in delivery and the last mile.
When they decided to become entrepreneurs on their own, they could see that e-commerce and its related operations also needed solutions that would unlock an extremely important bottleneck: fulfillment and delivery.
They created Estoca on the principle that it would have its own technologies in all the stages of the process – WMS (warehouse management system), TMS (transport management system) and OMS (order management system). That is to say, Estoca’s technology enables management and monitoring of the order during the entire process, flexible and integrated with all the various suppliers.
We see this is a great opportunity for Brazil’s e-commerce and retail segments to be integrated, by Estoca’s technology, with a network of warehouses, suppliers and any other parties in the logistics chain. Since Estoca has the ability to aggregate intelligence for route finding with the choice of the best operators in all phases of the process, management of the order, and all movement of the merchandise, is more efficient and transparent than with the currently existing alternatives.
Estoca will be able to add value for various links in the supply chain:
(1) clients in e-commerce and retail, who need flexible warehousing and logistics to get their merchandise to the final client; and
(2) owners of warehousing and delivery transport logistics infrastructure – by adding the benefits of intelligence to provide more efficient use of their assets.
By integrating last mile operators into its platform, Estoca’s system is able to orchestrate transport providers so transactions to enable the client to choose the most appropriate supplier for each route/delivery and for the specified SLA that is demanded (or, the client can allow the system to choose the route for the cheapest option, in accordance with specified conditions and assumptions).
By offering flexibility and intelligence through this orchestration, Estoca has proved that it can reduce costs by about 20% for its clients. It aims to give brands a way to compete with marketplaces such as Amazon and Mercado Livre, which provide a high level of experience in service and delivery. That is to say, by delivering appropriate experience to the post-sales support activities, Estoca strengthens the trend to decentralization, and the use of sales and distribution options other than those of the major marketplaces – an analogy to the thesis of Shopify.
The levels of purchasing experience that have been achieved by marketplaces, and the possibilities created by omni-channel sales, have put immense pressure on companies to keep their supply chains increasingly agile and efficient. The bigger the network and infrastructure connected to and integrated with Estoca, the greater the added value offered to clients. With each new warehouse that is connected, the average last mile becomes shorter, and the intelligence available to the client on the behavior of consumer demand by region and by type of product is greater.
We expect that in the coming years Estoca will cover an area of Brazil corresponding to 80% of the country’s GDP, and be able to guarantee delivery in a maximum of 2 days.