{"id":4927,"date":"2015-12-09T16:32:17","date_gmt":"2015-12-09T21:32:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/algramo-the-value-add-vending-machine\/"},"modified":"2015-12-09T16:55:04","modified_gmt":"2015-12-09T21:55:04","slug":"algramo-the-value-add-vending-machine","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/algramo-the-value-add-vending-machine\/","title":{"rendered":"Algramo: The Value-add Vending Machine"},"content":{"rendered":"

 <\/p>\n

\"Photo<\/a>
Photo sourced from fastcompany.com<\/figcaption><\/figure>\n

Background<\/strong><\/span><\/p>\n

Algramo, which means \u201cby the gram\u201d in Spanish, is a startup in Chile that is taking Latin America by storm due to its innovative vending machines which sell non-perishable staples such as rice, beans & detergent by the gram. Algramo solves a pressing need in rural areas of Chile and Colombia, where some of the most impoverished citizens are suffering from what CEO Jos\u00e9 Manuel Moller calls a \u201cpoverty tax\u201d. According to Moller\u2019s pitch video[i]<\/a> customers in rural areas often can\u2019t afford to buy in bulk, and are left paying a \u201c40% tax\u201d for the smaller food packages they need in order to feed their families. To solve this need, Algramo, which has won numerous prizes and accolades including a spot on Fastcompany\u2019s list of \u00a0\u201cmost innovative companies of 2015\u201d[ii]<\/a> has installed over 350 of its vending machines in local \u201calmac\u00e9ns\u201d (similar to bodegas) in rural areas serving over 44,000 people. Algramo captures value by leveraging their triple impact business model, while effectively aligning their operations to guarantee that families get the lowest price on the food staples they need.[iii]<\/a><\/p>\n

 <\/p>\n

Business Model: The Triple Play<\/strong><\/span><\/p>\n

Algramo creates and captures value in three distinct ways:<\/p>\n

1) Reducing prices by 30-40% for end consumers on key food staples<\/p>\n

2) Supporting almac\u00e9n owners through trainings and by compensating them financially; they split profits 50-50 with owners and cover the cost of installation of the vending machines<\/p>\n

3) Protecting the environment by reducing food package waste: Algramo customers use recyclable containers to collect food items they purchase from vending machines.[iv]<\/a><\/p>\n

\"Screen<\/a><\/p>\n

1)Algramo vending machine helps 120 families and saves 2kilos of trash\/month\/family<\/p>\n

Photo sourced from algramo.com<\/p>\n

Aligning Business and Operating Models<\/strong><\/span><\/p>\n

Relationships with Suppliers<\/u><\/p>\n

Algramo is able to reduce the end price (between 30-40%) that consumers pay for food staples by leveraging their operating model. Algramo works directly with suppliers and cut out costs associated with the the middle man (see image below) including packaging & marketing. Algramo is able to transfer these cost savings directly to the consumer. Additionally, as Algramo buys in bulk directly from suppliers, it has considerable bargaining power and can further reduce cost for end consumers.[iv]<\/a><\/p>\n

\"Screen<\/a><\/p>\n

Photo sourced from Algramo.com<\/p>\n

Translations provided by author<\/p>\n

Limited SKUs<\/u><\/p>\n

Another way Algramo cuts costs is by providing a limited number of SKUs. Algramo doesn\u2019t seek to provide every food item to everybody, instead it focuses on inelastic food products that rural consumers need. Additionally, Algramo only carries non-perishable SKUs which eliminates the risk that inventory will expire if there is a reduction in demand or if they over purchase from suppliers.[iv]<\/a><\/p>\n

\"Screen<\/a><\/p>\n

Photo sourced from Algramo.com<\/p>\n

Competitive Advantages from Operating Model<\/strong><\/span><\/p>\n

Relationships with Almac\u00e9ns<\/u><\/p>\n

In most rural areas in Chile & Colombia there are few supermarkets and the primary way to purchase food is through almac\u00e9ns.[ii]<\/a> In addition to being a store, almac\u00e9ns also serve as one of the key social centers that bring people together. Algramo provides quantifiable value to almac\u00e9n owners by installing the vending machines for free and by splitting margins with shopkeepers. In fact, according to an article in El Definido,<\/em> shopkeepers earn twice the margins on grains sold through the Algramo vending machines as they do on competing products.[v]<\/a> By creating value for the almac\u00e9n shopkeepers and establishing close ties with local communities, Algramo has effectively increased barriers to entry by limiting competitor\u2019s ability put their products in the almac\u00e9ns. If a competitor is unable to sell through almac\u00e9n it\u2019s very unlikely consumers will come into contact with their products.<\/p>\n

Simple & Flexible in house design<\/u><\/p>\n

Algramo has developed a proprietary vending machine which is able to be modified to accommodate a variety of different products based on the customer demand for certain products informed by the almac\u00e9n shopkeepers. For example, recent customer feedback from these shopkeepers led to the inclusion of sugar as a product in the vending machines; due to the flexibility of \u00a0Algramo\u2019s proprietary vending machines, Algramo was able to quickly get this product into the market without having to make large modifications to its vending machines currently in the field.[iv]<\/a><\/p>\n

 <\/p>\n

Conclusion<\/strong><\/span><\/p>\n

Algramo\u2019s strong value proposition has led to rapid expansion for the business; Algramo is expected to double the number of vending machines and reach profit breakeven by the end of the year.\u00ad\u00ad\u00ad[iii]<\/a>\u00a0Algramo is an effective example of how a social enterprise is able to align their business and operating models to provide greater good to the end consumer.\u00ad\u00ad\u00ad<\/p>\n

 <\/p>\n

 <\/p>\n

[i]<\/a> https:\/\/www.indiegogo.com\/projects\/the-venture-algramo-chile#\/<\/p>\n

[ii]<\/a> http:\/\/www.fastcompany.com\/3039604\/most-innovative-companies-2015\/algramo<\/p>\n

[iii]<\/a> http:\/\/www.economiaynegocios.cl\/noticias\/noticias.asp?id=169085<\/p>\n

[iv]<\/a> http:\/\/algramo.com\/<\/p>\n

[v]<\/a>http:\/\/www.eldefinido.cl\/actualidad\/lideres\/1136\/Dispensadoras_Algramo_El_ahorro_de_los_clientes_debe_ser_mayor_a_nuestra_ganancia\/<\/p>\n","protected":false},"excerpt":{"rendered":"

How a Chilean startup is eliminating the \u201c40 % poverty tax\u201d on food<\/p>\n","protected":false},"author":509,"featured_media":4937,"comment_status":"open","ping_status":"closed","template":"","categories":[33,13,401],"class_list":["post-4927","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-food","category-latin-america","category-social-enterprise"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nAlgramo: The Value-add Vending Machine - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/algramo-the-value-add-vending-machine\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Algramo: The Value-add Vending Machine - 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