How Shopee wins market share in the Latin American market

Brazil is considered as an unexplored gold mine of e-commerce, but it is not easy to achieve immediate success because of its limited logistics infrastructure and low proportion of users of online shopping platforms. Argentina MercadoLibre holds the majority of the market share in this segment in Brazil.

Shopee entered the Brazilian market at the end of 2019. Less than a year, Shopee Brazil expanded to 250 employees. The company also started partnerships with retailers here. Mr. Pine Kyaw, former CEO of Shopee Vietnam, is driving the company in this new market.

This startup recruited many employees of rival MercadoLibre and recruited many new positions in the city of Sao Paulo. Although the staffing staff has been steadily increasing, Shopee in Brazil is still relatively modest in size compared to other markets.

Earlier this year, Shopee launched the app in Mexico, the second market in Latin America. The company strives to build its image through celebrity marketing campaigns or deep promotions. In-app game features and other cross-selling strategies to drive customers head-on.

User apps are items from the game Free Fire, a popular Brazilian game developed by Sea (Shopee’s parent company). Shopee has used similar strategies in Southeast Asia as well.

Shopee Brazil Headquarters. Image: TechInAsia.

Last year’s business report showed that the growth of Shopee in Brazil mainly came from acquisitions, mergers and subsidies of delivery and payments. The company also increased incentives such as vouchers and discount codes, and reduced delivery fees for customers through coupons. Each customer can use 5 free shipping coupons per week.

After the initial free period, Shopee started charging a 5% intermediary fee from February, but still waives all shipping fees. In January, Shopee had a higher number of active users than other international competitors like Amazon and Alibaba, according to SimilarWeb data. Compared to rival MercadoLibre, Shopee’s distance is still quite far.

Brazil accounts for 40% of the total B2C e-commerce traffic in Latin America. In 5 months of 2020, e-commerce revenue here also increased 60% over the same period last year, reaching 20.5 billion USD. Shopee benefits significantly from the growth thanks to the pandemic. At the same time, companies pour money into logistics services, digital payments and food delivery.

The Latin American market is being monopolized by many local and regional companies with the ability to offer better priced goods. MercadoLibre alone, this e-commerce platform took about a quarter of the market last year. In addition to domestic e-commerce and cross-border delivery services in Brazil and Mexico, MercadoLibre also offers digital payment and credit services. MercadoLibre has more than 126 million users, according to the latest business report.

The logistics segment is a daunting chapter for newcomers like Shopee. Brazil’s logistics infrastructure gives traditional companies like MercadoLibre a better advantage with five new logistics centers under construction here, according to Tech In Asia.

Shopee’s delivery cost is 20% higher than other competitors in the market. The company mainly uses state-owned Correios, which is arguably not the fastest and most efficient solution. In contrast, MercadoLibre not only guarantees one-day delivery, but 80% of all orders are processed using its own logistics network.

Shopee is targeting customers in small cities with better disposable income and more leisure time. This is the point that sets the Southeast Asian company apart from MercadoLibre.

Lindsay Lehr, chief executive officer of Americas Market Intelligence, said that operations in Latin America need subsidies to increase the number of customers. Customers in Brazil do not want to pay for delivery charges. Besides logistics bottlenecks, high taxes and payments are also major barriers for new companies to enter the market.

Therefore MercadoLibre has been unprofitable for many years because of the high cost of marketing, subsidizing the delivery of goods and launching new services. In 2019, MercadoLiber lost $ 172 million, up 4 times from a year earlier. It was not until the second quarter of 2020 that MercadoLiber became profitable for the first time.

In 2020, the e-commerce adoption and adoption rate in Brazil will only reach 5%. As a result, growth opportunities remain open, including for newcomers Tech In Asia.

Experts say that Shopee’s market strategy in Brazil may not be sustainable in the long term, but is now working. What the company needs to do now is to build logistics infrastructure in Brazil to increase delivery times and reduce operating costs.

One plus point of followers like Shopee is being able to learn from their predecessors’ experiences while not spending time “training” customers.

Thanh Duong (synthesized according to TechInAsia)