CO_Capital Invests in Tienda Pago to Expand Mexican Footprint

Tienda Pago, the leading funder to Mom & Pop (M&P) shops via cashless, inventory-linked loans in Mexico and Peru, has raised a long-term debt facility with CO_Capital to expand its loan portfolio of productive, beneficiary-aligned financing to thousands more shops across Mexico.

Messages from CO_Capital and Tienda Pago

“At CO_Capital we are very proud to join Tienda Pago in its mission to empower Mom & Pop shops through its innovative financing product. We’re excited to support Dan and his team in generating further access to inventory-linked capital that is helping to increase incomes, generate resilience, and develop long-term, productive assets. This is even more important post-COVID, where access to quality financial products can help reignite the economy in a sector on which many millions of Mexicans depend for their livelihoods”, said Alberto Gomez-Obregon, Managing Partner at CO_Capital.

Dan Cohen, CEO and founder of Tienda Pago, is a successful Venezuelan entrepreneur who has spent the last two decades working with M&P shops in Latin America, bestowing him with a deep understanding of their business challenges, and ultimately leading to the conceptualisation and launch of Tienda Pago’s credit product which has won prizes from MIT Inclusive Innovation and the UNDP.

“CO_Capital funding is an important milestone that allows TP to fulfill its mission: help micro entrepreneurs improve their own lives and those of their families with solid financial backing. We believe that, with the right tools, Mom & Pop shops can be the center of their communities, providing all the necessary products and services for their neighbors. CO_Capital will help us to reach more stores and more families,” remarked Dan.

---

M&P Shops: Background, Challenges & Opportunities

It’s been a tough 18 months for individually-owned brick-and-mortar retail. In Mexico, with lockdowns during the COVID-19 pandemic it is estimated that 300 thousand M&P shops, or tiendas de abarrotes, closed, with a similar story in the rest of LatAm. As the economy rebounded, numbers recovered, with some 150 thousand reopening according to industry body Anpec. M&P shops’ socio-economic relevance is hard to understate: there are over 1 million active M&P shops in the country, accounting for ~6% of retail sales and ~1% of GDP, being the source of income for 5 million Mexicans who are mainly in lower-income segments (63% socio-economic level D, and 12% E).

The current challenges faced by the traditional channel, or canal tradicional, are significant, including: increasing competition from convenience store chains (an estimated 7 to 15 M&P shops close for each new chain store opening), a deficit of administrative and financial expertise, a lack of high quality and affordable funding sources, and a still nascent digitalisation of the industry. This said, collectively they are still in a strong position, representing USD 40-50 billion in retail sales with a commanding volume majority in multiple FMCG categories, in strategic locations within neighbourhoods which convenience store chains can’t easily access, acting as a social and economic focal point of the community, together representing a significant commercial and impact opportunity.

Cashless Inventory Loans Mean Genuinely Productive Use

Existing MFI products, even when branded as “productive”, rarely are; there can be no certainty that the money was indeed invested with a business use. Tienda Pago, through its app and digital platforms, offers 7-day cashless loans to shops to purchase FMCG inventory upon delivery, leaving no doubt that the loan went to productive use.

This access to productive, short-term liquidity in an environment of limited capital allows shops to avoid out of stocks, increasing product variety and depth, spending the next week selling the product to repay the loan and earn a profit. Solving for the problem of the shops -- offering the correct type of additional credit at the right moment of product delivery -- helps them generate additional, profitable sales. In extreme scenarios like COVID lockdowns, shop owners mentioned how they had consumed their own supplies and were without capital upon reopening; Tienda Pago’s product was a lifeline to restock and kick-start sales.

Win-Win Partnerships With FMCGs For Scaled Growth

M&P shops represent the most important distribution channel for well-known FMCG brands, representing >50% of sales for various categories. In turn, from a shop perspective they are heavily reliant on these FMCG-owned verticals, with 80% of sales concentrated in the beer, soft drinks, salty snacks, tobacco and packaged food categories.

Providing pertinent financing to the shops to increase profitable purchases naturally generates significant value for the FMCGs via a sustained double-digit increase in sales volumes, according to FMCGs' own data. For Tienda Pago, partnerships with large FMCGs such as that with ABI / Grupo Modelo permit it to leverage existing sales and distribution activities for shop affiliation and loan origination, increasing operational efficiency whilst accelerating access to an otherwise highly pulverised market.

A Credit Product Which Can Help Generate Long-Term Productive Assets

One of the most compelling elements of the loan from an impact perspective is its alignment with the weekly inventory cycles of the shops. Unlike other MFI products, explicitly maintaining the link between inventory purchases and sales can over time develop practical administrative and financial capabilities in shop owners, something which many other financial education platforms have tried and failed using content-based learning.

Ultimately, over time though increasing sales, profitability, access to short-term capital and the development of capabilities, it can transform the shops into more profitable, long-term, productive assets, helping to break the cycle of poverty and positively impact the lives of hundreds of thousands, and with time millions, of Mexicans.