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Here's How This E-Commerce Giant Managed the "Firehose of Demand"

By Danny Vena - Dec 30, 2020 at 1:00PM

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The onset of the pandemic brought unprecedented demand, but having systems in place helped some companies thrive.

When the coronavirus hit earlier this year, things changed seemingly overnight. Consumers largely stopped frequenting brick-and-mortar stores, instead opting for the convenience of digital shopping. This resulted in unparalleled demand for online retailers, straining fulfillment and logistics operations.

On this episode of Fool Live that aired on Nov. 23, Motley Fool co-founder David Gardner and contributor Danny Vena were joined by Federico Sandler, MercadoLibre's ( MELI -6.75% ) head of investor relations, who explained how the company handled the "firehose of demand" that accompanied the pandemic.

Danny Vena: Having said that, one of the things over the past couple of quarters are growth rates for MercadoLibre on several metrics have been off the charts. You've produced triple-digit growth in revenue in local currencies, in gross merchandise volume. Can you tell us with growth that's exploding, how has MercadoLibre's managed that growth?

Federico Sandler: Yeah. I'll split it a little bit in two. I briefly mentioned it, but I'll give you more details.

I think on the commerce piece clearly the situation caught us in a very good state of progression on our managed network because of the investments that we did over the past three years, we were actually being able to handle the fire hose of demand that we received over the pandemic. So the pandemic caught us well prepared. In fact, when we looked at penetration of managed network and service levels, they continue to improve in spite of the holiday season, increasing week on week on week. That is very positive. We've increased the percentage of items being delivered in 24 hours or less, in next day, in two days or less, and this is in spite of the incremental demand.

Also, we've been very successful in moving quickly, like I said, to deepen assortment in high demand categories like CPG [consumer packaged goods] essentials, while also honing in on consumer electronics. So that the influx of the business was handled because we were not relying so much on third-parties, but we were more of the owners of our own destiny because we have the stuff in the fulfillment centers, the technology was built up, we could select carriers. So we were very well-geared to sustain a level of growth. If we wouldn't have had invested in the managed network the story would be something completely different.

Then on the payment side, like I said, we shifted from a more supply driven business and demand-driven business with salesforces and what not with pre-COVID. Then as COVID started to hit, we began to see demand from merchants, especially people that did not want to receive cash. But actually, other solutions that were practical, cheap, and easy to use. So payments, being able to receive payments to the wallet, buying our [mobile point-of-sale systems] so they don't have to transact in cash. I think we were very successful in being able to onboard more and more merchants, which reflects clearly on the [total payment volume] numbers particularly on the wallet, which has been growing well into the triple-digits and we're incredibly satisfied with the growth in those verticals because many of these verticals like utility's payments or cellphone top-ups or peer-to-peer are sticky, generate loyalty.

Believe it or not pre-pandemic, there was a whole bunch of people who were actually [stand in] line to pay an electricity bill then the utility's company get to charge 7%, you spend like 30 minutes [standing in] line. With your wallet, you can scan the utility bill and you're off in less than a minute. We've been able to ride the wave of the pandemic pretty well and now the challenge is to continue to onboard users and the users that we have to drive stickiness and have them use their wallet to pay, to invest, to buy in the marketplace. We're very optimistic of both ecosystems and the synergies among themselves.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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