By Adele Peters
Chilean startup Algramo initially used vending machines to sell refills of staple goods in stores. Now it’s expanding to include a mobile refill unit—and it’s coming to the U.S.
If you live in Santiago, Chile, and run out of dish soap or detergent, you don’t need to toss out the empty bottle. Instead, in a pilot that the Chile-based startup Algramo been running since May, customers can bring a reusable plastic bottle back to a vending machine mounted on an electric tricycle that travels around the city offering refills. An RFID code on the bottle gives discounts on future purchases, creating an incentive for customers to bring the same package back over and over again.
“We offer a solution where we decouple consumption from packaging waste,” says Brian Bauer, who works on the circular economy and strategic alliances at Algramo. The company, which also offers refill stations in grocery stores, now plans to expand to the U.S. after a new investment from Closed Loop Ventures, a fund that makes early-stage equity investments in circular economy startups.
“We feel like there’s an opportunity and growth in new models for reuse,” says Bridget Croke, who leads external affairs at Closed Loop Partners, the New York-based investment firm that runs the venture capital fund. This year, for example, major brands started testing a platform that sells mass-market products, from shampoo to salad dressing, in packaging that’s designed to be returned, cleaned, and reused. In the U.K., the major supermarket chain Waitrose recently tested selling everything from beer to detergent in refill stations. Algramo is taking another approach.
The company first launched in small neighborhood grocery stores in Santiago six years ago, selling basic staples like rice in refillable containers. The founder, Jose Manuel Moller, was an MBA student at the time and living on a limited budget; he recognized a basic challenge for low-income shoppers, who couldn’t afford to buy products packaged in the largest sizes, and ended up paying a “poverty tax” on small packages (by weight, small packages can cost as much as 50% more than the same product in a larger size). The system also leads to more waste.
“When you buy in small formats, you pay from 30% to 50% more for the product, depending on what the product is,” says Bauer. “And then in doing that, you also produce a lot of packaging waste. That’s typically the type of packaging waste that’s most likely to escape into the environment because it’s smaller format, and it’s also in low-resource areas where there aren’t very good waste management systems in place. So there’s a lot of that packaging that ends up in the environment, ultimately, in oceans or other places it shouldn’t be.”
Algramo, which means “by the gram” in Spanish, started offering customers the chance to buy as much or as little of a product—in addition to rice, the machines sell things like lentils and cleaning products—as they wanted, in a reusable package, with no difference in the price per gram. Over time, the system has expanded to around 2,000 bodegas in Santiago, and the reuse rates by customers have risen from around 10% to more than 80%. Industry insiders have told the company that its reuse rate is significantly higher than the reuse rate for Coca-Cola’s glass bottles. That success attracted the major consumer products company Unilever, which is working to cut its own use of plastic. Unilever partnered with the startup on the pilot with the refill system on the electric tricycle, which launched earlier this year and will expand this fall to nine more vehicles. The tricycles travel a set route during the week, and set up at specific locations—like recycling centers—on weekends.
The new model, which is aimed at middle-income neighborhoods in the city, uses “packaging as a wallet,” letting consumers load funds into an account linked to the RFID tag on the package. A “sustainable consumption credit” offers a discount on the next purchase when consumers bring the package back. The system also makes it possible to sell detergent more cheaply than in stores in part because the brand isn’t paying for packaging for each sale. “Generally, the smaller the format the packaging, the more of the overall product cost it can make up—in extreme cases, packaging can account for up to 50% of the product,” says Bauer.
Because the overhead is less than a store and there’s only a single employee, the tricycle system means Algramo can charge Unilever less of a markup than a retail store would. Because the system is cashless, that also reduces cost because there’s less risk of robbery or harm to staff. The detergent or dish soap can be sold for 30% less than in stores, and consumers also get an additional 11% discount each time they return the package.
Saving consumers money, Bauer says, is a critical piece of getting adoption for a refill system. “We appreciate that people are looking into our system for environmental reasons,” he says. “But we do realize that we must have a significant cost savings to attract a lot of people into our systems, and we want to appeal to a wide cross-section of the market.” Convenience is also key, he says, and the company is using its mobile vending machine to meet consumers where it’s easiest to buy (including home delivery for refills).
When the new RFID system expands to retail stores, brands can also save money by shipping something like detergent in bulk containers rather than thousands of smaller packages, and a refill system also takes up less shelf space. The startup will soon launch a pilot with Nestlé selling pet food in a Latin-American retail chain. (The larger packages used in the refill systems are themselves refillable, so the system saves waste on the back end as well.)
In the U.S., the company may potentially offer refill systems in places like the laundry room in high-rise apartment buildings, or in retail stores. It’s something that could potentially be used broadly; a recent report from the Ellen MacArthur Foundation estimated that 20% of single-use packaging can be replaced by reuse models. Algramo plans to start with some of the products that are easiest to refill, such as liquid detergent, to prove out the model, before expanding to dozens more. “We want to have as many products in the system as possible, so that we can create that value and create positive network effects across the platform,” says Bauer, adding that the company is currently looking for new brand partnerships as it expands.