Unravelling Journey of Dunzo
Save the excuses and time. The better way to get things done, just Dunzo it!
Hello friends,
A hyperlocal delivery startup that immediately gained traction is now struggling to find its way ahead. Dunzo's journey from rising star to struggling startup is a perfect example of the Icarus Syndrome.
There was just not enough gas in the tank for Dunzo to accelerate. “The inability to scale its revenue compared to a much younger rival like Zepto in FY22 and FY23 cornered Dunzo. Reliance doesn’t like to be the fourth or fifth player in any industry, and its Dunzo bet did not pay off. It also made it difficult for the company to raise funds at a lower valuation.
Initial Journey:-
Founded in Jul-14, Dunzo was started as a WhatsApp group, which Kabeer Biswas, the founder, personally managed. Along with his friends Mukund Jha, Dalveer Suri, and Ankur Agarwal, he organized hyperlocal deliveries ranging from grocery shopping to document delivery in selected areas of Bengaluru. Incidentally, this was also when dozens of hyperlocal startups mushroomed but no one survived the hype cycle like Dunzo. The initial investment by Lightrock catapulted the journey, evidenced by the steep rise in monthly orders from 15,000 to 2 million and funding from marquee investors.
Revenue Model:-
Commission from Delivery Partners: Dunzo started making money by charging depending on the distance covered; which was within the range of ( Rs10 to Rs 60 ). Dunzo earned commissions from delivery riders who used its platform.
Commission from Vendors: Dunzo charged commission from the partner’s store per order ranging from 10 % to 30 %.
Surge Pricing / Demand Pricing: If the demand in a specific area increases suddenly then only the surge charge applies to each order at that time.
Quick Commerce Gamble:-
It was in FY-23 when Dunzo ventured into the quick commerce space with Dunzo Daily, however this decision proved to be a double-edged sword. With hyperlocal delivery, Dunzo simply picked up stuff from neighborhood shops and delivered them to customers. The quick commerce space offered immense potential and demanded a completely different infrastructure: the 'Dark Store' model, requiring hefty upfront investments where you open dark stores in high-density areas to deliver goods in the shortest time possible. They had to spend tons of money to add hundreds of these dark stores or warehouses while still not turning their hyperlocal business profitable. The company could not keep up its pace and failed to leave an indelible print in the minds of customers. Instead, it faced stiff competition from well-funded and established players like Instamart, Blinkit, and BigBasket. Despite raising over $ 400 million, Dunzo's USP – its hyperlocal expertise – began to fade, and the company struggled to keep pace. It was hard to scale up and maintain its presence with the local retailers.
Partnership with Reliance:-
Dunzo raised a $200 million funding round led by Reliance Retail, where latter secured a 26% stake in the business. This gave Reliance veto powers against any big decision in the company, such as share issues or acquisitions. When Dunzo decided to raise their next funding round, Reliance simply refused over valuation disagreements.
Later, Reliance backed Dunzo's B2B logistics efforts through Dunzo Merchant Services. However, its integration with the Open Network for Digital Commerce (ONDC) was not enough to address its cash flow issues. Finally, in Jan-25, Reliance wrote off its investment in Dunzo.
Financial Performance:-
Dunzo's transition to quick commerce strained its financials, leading to substantial losses despite increased revenue. They experienced a doubling of revenue to ₹54 crore in FY 2022, but losses shot up to ₹464 crore, underscoring their ongoing struggles. Revenue reached ₹226 crore by FY 2023, but losses shot up to an even greater ₹1,800 crore.
Delivery costs increased dramatically, from Rs 29.4 crore in FY21 to Rs 134 crore in FY22 and Rs 367 crore in FY23, primarily due to investments in delivery staff and dark stores.
Marketing expenses skyrocketed from Rs 24.7 crore in FY21 to Rs 64.4 crore in FY22, indicating determined efforts to gain traction in the cutthroat world of fast commerce.
Employee Benefits expenses accounted for 26% of Total expenditures in FY22.
Key Takeaways:-
Dunzo's saga offered valuable lessons for those navigating the business world:-
Protect your identity:- The company failed to keep up with the economic moat; the king of hyperlocal delivery and instead sacrificed its brand identity after entering the quick commerce space.
Build a sustainable core business:- The company ventured into a different space without achieving profitability in operations.
Choosing the right partner:- Dependence on Reliance hampered its ability to make independent decisions.
This tale defines how wrong decisions can destroy the future of the company. Success entails maintaining your USP, achieving sustainability in operations, and joining hands with the right partners at the right time.
I hope you enjoyed reading. See you soon.
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