The Dunzo story: When quick commerce proved to be a tough nut to crack

Dunzo's rush into quick commerce and search for funds have yet to deliver the goods, leaving it in a fragile state

The alarm bells began to ring in August, when two of Dunzo’s board members, Ashwin Khasgiwala and Rajendra Kamath, stepped down. They represented Reliance Retail, the largest shareholder in the delivery and logistics startup, which also has Google as a backer.

Since then, three other board members have left. One of the two co-founders, Dalvir Suri, has quit, while the other, Mukund Jha, is expected to resign formally soon.

Dunzo has been in a spot of bother, looking far and wide for funds. It has deferred salaries, more than once, laid off a part of the workforce, and received legal notices from at least seven companies for non-payment of dues.

According to sources, the Reliance Retail representatives resigned to ensure they bear no liability if the fundraise does not materialise. Others wanted to avoid liabilities beyond being minority investors.

Business Standard’s attempts to get comments from Dunzo for this article did not succeed.

Early promise

Biswas started Dunzo in 2014 as a concierge service for professionals over WhatsApp. It raised its first funding round of $650,000 in 2016 from venture capital firms, Blume Ventures and Aspada Ventures, and individual investors. In December 2017, it raised $12 million from Google, the tech giant’s first direct investment in an Indian startup. In August 2021, it launched its quick commerce venture, Dunzo Daily, which went on to compete with the likes of Blinkit, Zepto and Swiggy Instamart.

Quick commerce proved to be a tough nut to crack. “Their business model of partner stores wasn’t viable from the start. If you don’t have your own inventory, especially in grocery delivery, there is no chance you’d be able to make money. The margins are too slim,” says an investor requesting anonymity.

Meanwhile, as Dunzo flounders, Zepto, which created recognition for its brand with its promise of 10-minute deliveries, recently became the first unicorn of 2023 by raising $200 million.

“There are no silver bullets,” Zepto Chief Executive Officer (CEO) Aadit Palicha told Business Standard in a recent interview. “Efficiency is a function of hundreds of small initiatives coupled with discipline… This includes everything, from managing the procurement of the bags that customers get their orders in, to detailed supply forecasting and planning.”

Blinkit, also into quick commerce, is now in Zomato’s fold. Deepinder Goyal, CEO and founder of Zomato, says Blinkit will deliver immense shareholder value in the next 10 years.

“Succeeding in the quick commerce model necessitates efficiency in execution. Your supply chain needs to be really efficient. Dunzo’s execution was terrible and hence, their margins are so low,” said an executive at a large delivery firm, almost echoing Palicha.

Not delivered on promise

Dunzo’s losses in FY22 doubled to Rs 464 crore, according to filings with the Ministry of Corporate Affairs. Although revenues for the quarter ended March rose to Rs 54.3 crore, they paled in comparison to the losses. By June 2022, the firm was staring at an Ebitda (earnings before interest, taxes, depreciation, and amortisation) loss of more than Rs 176 crore. Dunzo Daily, its core business, was losing as much as Rs 230 on each order delivered.

Many in the industry wonder why despite having a formidable entity as Reliance Retail as an investor Dunzo could not grow as intended. However, an industry insider points out: “Reliance Retail works with third-party logistics players like Grab (Reliance has acquired it). It also works with Delhivery.”

According to people in the know, Reliance has informed the founders it does not plan to acquire Dunzo or increase its equity holding further. However, it is willing to support fundraising efforts.

Welcome breather

A revival in funding talks has come as a much-needed breather for Dunzo.

“For Dunzo, the most important step right now is to figure out a path to profitability. It needs to demonstrate that its business model is sustainable and viable enough to end up generating profits,” said one of the people quoted above.

The founders are now understood to be ready for a valuation markdown, which has happened with some other highly valued startups, as part of a funding commitment, people aware of the discussions said.

There is also speculation that Dunzo might increase its focus on business-to-business operations, making deliveries for its business partners only, to the extent of this becoming a pivot. This is expected to rein in the losses. However, all investors must agree to the new valuation before the deal goes through.

Funding Timeline
 

-  Raised first ever funding of $650,000 in 2016 from Blume Ventures, Aspada Ventures, and others

- In December 2017, raised another $12 million from Google

-  In January 2021, raised $40 million in a round led by Google

-  Raised a massive $240 million led by Reliance Retail in January 2022

-  In November 2022, raised around $6 million in debt funding from Blacksoil

-  In April 2023, raised $75 million from existing investors, Google and Reliance via convertible notes