Jose Manuel is providing families from the most vulnerable neighborhoods in Chile access to quality, more environmentally friendly, staple groceries at a low cost and just steps from their homes. By building networks of local vendors, he is creating the channels to revive not only local grocery stores but also the very social fabric of these failing communities.
The New Idea
José Manuel Moller is revitalizing neighborhoods in the most disconnected, isolated areas on the edges of Santiago, the majority of which do not have access to fairly priced or quality groceries. By working through local grocery stores, his organization Algramo (“By the Gram”) partners with grocers to reorganize the stores, doubling their productive potential; to offer lower priced and more varied goods; and to reduce packaging waste. Through partnership with the vendors, José Manuel is both lowering the cost of living in these communities and restoring neighborhood stores as local gathering spots, ensuring the vitality of the vendors in the face of large supermarket chains and rehabilitating lagging neighborhoods.
These peri-urban communities, defined by a lack of access to goods and services, are also known for social and environmental problems such as segregation, unemployment, and environmental degradation. José Manuel saw that in these areas, low-income families and individuals are held back by prices of basic groceries. With very little available cash to purchase products in bulk, people are left with two options: buy in smaller amounts, but at a much higher price per unit or, buy from large chains outside the community, but at a higher cost of transport and drain of resources from neighborhood-owned stores. As a solution, José Manuel is reducing prices for the vendor and the consumer by about 30%. To do this, he is bringing together trust-based networks of local “Algramo Vendors” and is creating smart buyers who look for fiscal and environmental savings without compromising quality.
Building these networks of local vendors as partners is rehabilitating both the dying stores and the neighborhoods. Vendors now look to each other and to Algramo as partners and problem-solvers. Through the power of the network, local vendors are positioned to negotiate lower prices with big food suppliers, and through improved sales and storefronts, a culture of the local grocery as community meeting point is returning. Furthermore, José Manuel is revealing a new base of buyers asking for lower prices while maintaining quality and environmental integrity. He designed this solution after living in and alongside these disconnected communities and seeing both the lack of local liquidity and deteriorating infrastructure as barriers to their success. With similar communities dotting Latin America, Algramo’s solution is now poised to spread across the region.
The reality of Chile, despite an image as one of the most developed countries in Latin America, is that 70% of those with the fewest resource struggle daily to satisfy their most basic needs. The price of a basket of basic food items, a key economic indicator, has increased by 6.3 percent in less than two years, and while the cost of living is rising, the wages are not moving at the same speed. Communities on the edge of Santiago are stuck in systems that reinforce their social and economic deficiencies. Urban sprawl has left the most vulnerable communities stranded in the periphery, with difficult or nonexistent access to basic services, such as reliable transportation, parks, libraries, and quality schools. With this lack of infrastructure, there are few places to congregate, accelerating fraying social fabric and increasing isolation and mistrust. (A study by the Organization for Economic Cooperation and Development shows that only 13% of Chileans have high trust in their fellow citizens.) Separated from the social center of the city by distance and the lack of reliable and affordable public transit, the most vulnerable neighborhoods become even more distant from the rest of the city.
Also disconnected from lower prices in supermarkets in the city, individuals in these peri-urban neighborhoods are stuck buying goods from local vendors that, on average, cost 30 to 50 percent more. Due to low liquidity, they must buy only small quantities at once. For example, these lower income consumers cannot afford an entire box of laundry detergent; instead their salary may be just enough to cover detergent for one or two loads of wash at a time.
The trend of being forced to buy at higher prices and in smaller quantities is the same for neighborhood grocery stores. Because they are small buyers themselves, often with little liquidity, local grocers do not get the lower prices from suppliers as do larger chains because, like their customers, they cannot buy in large quantities. Neither are they able to keep up variety offered by big chains, so they end up with very limited products and goods in stock. To compensate, the local grocers price goods higher than the supermarkets chains. This fundamental problem is compounded by the actual space and layout of local stores. Typically, the small stores have no storage space, leading to a poorly organized, often chaotic retail area. At the same time, large-scale, Wal-Mart style stores and supermarkets have increased their presence and lowered costs, pulling any customers that are able to access them away from the more expensive local vendors. Between 2009 and 2013, the number of large supermarkets in Chile nearly doubled, increasing from 972 to 1334 stores. Most of this surge came from four multinational companies, who together claim 94 percent of the US$15 million industry.
These vulnerable communities and the neighborhood stores within them are waning; two facts that unfortunately reinforce each other. Unraveling social fabric in low income neighborhoods due to lack of meeting space and mistrust is only sped along by closing corner stores, once vibrant gathering spots, and increasing prices for daily goods that quicken income drain. However, herein lies opportunity. Within a context of distrust, smaller communities are the best places to begin rebuilding it. With the increased competition on the national retail scene from large chains, a door is open for new disruptive business models in Chile and beyond.
José Manuel is restoring local grocery stores as community gathering places and rehabilitating vulnerable neighborhoods in Chile through a comprehensive system for local grocers that improves their business -- from the purchase of products from suppliers to the physical stocking and storage of goods to sales to customers. The method of entry is his dispensary machine, and from there he forms networks of grocers to both rebuild trust and lower the costs of daily living in the community.
An invention of José Manuel and his Algramo team, the dispensary machine issues basic household products and nonperishable foods, that are part of the market basket, such as laundry detergent, rice, and lentils. The machine is simple to use: place a reusable container on a ledge, insert coins, and wait for the product to dispense. The first purchase is free for the consumer and includes a reusable container that can be refilled in future purchases. Bypassing the need for packaging, the savings are not only economic, but also environmental, as a culture of recycling is not prevalent in these neighborhoods. The machine is the tool that enables grocers to sell such products for at least 30 percent less than they currently cost; however, it is only the hook for José Manuel’s solution.
First, the Algramo neighborhood leader connects with local grocers by offering the machine, for free, as an innovation that can give them a competitive advantage. Once a relationship is established, the store owner is invited to Algramo activities designed to consolidate the network of vendors. The goal of the meetings is to give the local owners a chance to get to know each other, share challenges, and look for solutions together instead of individually. The network is formalized by these “Algramo Vendors” actually becoming co-owners in Algramo and receiving a percentage of Algramo’s profit. Critical for success is the strength of the network. The stronger the community group of Algramo Vendors, the more negotiating power they will have with food providers.
In addition to informal gatherings, the Algramo Vendors receive more formal training and are offered support on several fronts. First, as a cooperative, they are now able to purchase in bulk from food suppliers. This enables the lower prices for their customers. They receive technical training to bolster financial and management skills, and after training, the vendors will have access to software for maintaining inventory online. With respect to the actual store, Algramo staff will help the owners redesign the floor in order to maximize space and make it more appealing to customers. The dispensary machine is key in freeing up space, due to fewer goods in packaging. Additional reorganization will allow vendors to offer a larger quantity and more diverse products, on average tripling their stock. To further improve the customer experience and encourage the stores to be gathering places, Algramo will connect its vendors to free wifi.
Algramo is not considered by the local vendors as a traditional “provider” but as a partner. José Manuel has carefully designed the organization to draw from and reinforce the community network. Algramo owns the dispensary machines and monitors the stores’ finances and inventory through the shared software. It asks the vendors what products they would like to be able to offer for a lower price, based on feedback from their customers. The Algramo “Zone Director” is in charge of maintaining relationships with the vendors and establishes a routine of having lunch with them, helping with technical problems in stores, maintaining the dispensary machines, and acting as a general advisor when necessary. Not only does this partnership create smarter stores but smarter buyers. Clients in the community see the cost of daily living drop, but what’s more they become aware of their right and ability to access quality, “eco-friendly” options at a fair price.
Jose Manuel designed a business model for Algramo in which consumer savings must always be greater than the profits of the business. Similarly, the local store owners cannot make a profit that exceeds the savings of the customers. However, if they increase sales, they are able to earn more than Algramo. Algramo is currently in the process of becoming one of the first B Corporations (B Corps) in Chile, certified by Sistema B, the Chilean partner for the United States-based founding group, BLabs. By definition, a B-Corp is a for profit business that meets rigorous standards of social and environmental performance, accountability, and transparency, and uses market tools to generate public benefit.
These transformed stores are transforming neighborhoods. Algramo’s strategy is designed to be replicated in other communities, cities, and regions, bringing together owners, multiplying points for community gathering, and building trust. Furthermore, these revived stores are spreading the concept of smart purchase, distancing the need for lower prices from the association with poverty. These small local grocery stores exist (and languish) in vulnerable communities across Chile and Latin America. José Manuel is seizing the opportunity for rehabilitating these anchors of community as points of vitality in otherwise deteriorating neighborhoods.
Founded in 2013, Algramo currently has four employees. In its first year of operation, it installed 20 dispensary machines in a community called “La Pincoya” (located on the northern edge of Santiago, known for high levels of unemployment and predominantly populated by lowest socioeconomic segments). For the year 2014 José Manuel expects to reach 500 new grocery stores and expand to new neighborhoods. Once established across Santiago, he plans to grow to the north and south of Chile, then to Perú, Colombia, and eventually México and Brazil. Simultaneously, he will be working to offer more products and to expand the benefits for the vendors, all with the objective of expanding the network and to spread the concept of smart-purchase.
In 2011, José Manuel made a decision that changed his life. Along with three other college friends, he moved to one of the poorest areas in Santiago, located in the peri-urban community of La Granja. He wanted to experience the realities of these communities in order to understand how to help improve their circumstances. For over a year and half, he lived a very humble life and was able to be accepted as a member the La Granja community. José Manuel was in charge of cooking for his household with very limited funds, which he earned from part-time, evening employment that fit into his schedule after his university classes. He faced the same problems as most of his neighbors: the budget was not sufficient to cover the household’s basic daily needs. He quickly realized that due to these limits, he was forced to buy products in smaller portions, and was therefore paying a higher price than he would if he were able to afford purchasing larger quantities. He and his neighbors were excluded from economies of scale. This realization led him to design Algramo.
José Manuel grew up in a family that demonstrated a great sense of social responsibility. His parents founded a kindergarten for children from underprivileged families, and they also organized the Pastoral Solidaria de Huechuraba (Social Ministry of Huechuraba). This allowed José Manuel and his siblings to volunteer in the social service programs their parents had developed starting at a very young age. Both in high school and college he continued to participate in various volunteer programs. He led workshops for at risk teenagers in the community around his school, Universidad Católica (Catholic University in Santiago), and he also founded a student group, InvolUCrate (Get Yourself Involved). José Manuel and the InvolUCrate movement helped improve the conditions of workers at the university and also promoted the study of social innovation in the business school through the creation of new, socially-focused classes.
In 2007 he coordinated the work of 150 volunteers in 14 camps for Un Techo para Chile (A Roof for Chile), a youth-led CSO working to relieve poverty across Latin America. His relationship with the different neighborhood leaders allowed him to share their convictions and ideas, understand different perspectives, and grasp how difficult it is for thousands of Chileans to succeed, regardless of the efforts they make as an individual. There, José Manuel realized he wanted to work side by side with some of the poorest families in the country, to collaborate with them in seeking solutions and gaining access to basic necessities. With resources from contest-based funds from Universidad Católica, José Manuel developed a mechanical prototype of the dispensary machine now used in Algramo. And through the government sponsored innovation contest Desafío Clave 2012 (Key Challenge 2012), he obtained the funds necessary to build the first operational machine. In everything he designs, José Manuel has a social purpose in mind. In all his communities -- from family to university to Techo -- he has been steeped in social change and continues to be driven by these principles.