How Dunzo Lost The ‘It’ Factor

Dunzo's Evolution: From Hyperlocal Hero to Quick Commerce Challenger

In the bustling world of Indian startups, only a handful can claim the distinction of becoming a verb. “Dunzo it” was the catchphrase among early adopters of internet products in India from 2017 to 2020. Whether it was sending packages across town or ordering from a nearby store, Dunzo was the go-to solution.

Founded in 2015 by Kabeer Biswas, Dalvir Suri, Mukund Jha, and Ankur Aggarwal, Dunzo has stood out as a success story in a graveyard of hyperlocal startups that bloomed and withered between 2015 and 2016. Dunzo was the last startup standing in this challenging space.

By 2018, Dunzo’s unique model continued to shine in the Indian startup landscape. When the quick commerce wave surged in late 2019 with the emergence of the dark store model, Dunzo was poised to capitalize on this trend. And it did, especially in the early days of quick commerce. However, the competition has intensified.

For Dunzo, access to capital has become a growing concern. Recent reports based on anonymous posts on Grapevine allude to financial troubles, with some managers reportedly receiving a fixed salary of INR 75,000 for June 2023, with the promise of the remaining amount being paid later this month. While the company hasn’t provided an official response regarding the delayed salaries, insiders suggest that Dunzo is returning to its roots.

The hyperlocal delivery market presents low margins and unit economics challenges, and when combined with the demands of quick commerce, the situation becomes even more complex. While there was an expectation that Reliance’s investment would fuel Dunzo’s rapid expansion, the opposite has occurred.

According to insiders, Dunzo is making a strategic shift from a dark store-centric quick commerce business to collaborating with larger supermarkets and grocery stores on a revenue-sharing basis. This is a return to its original hyperlocal delivery model that Dunzo excelled in from 2015 to 2020 before venturing into quick commerce.

This strategic shift aligns with Dunzo’s cost-effective approach in mid-2023. However, it’s important to note that Dunzo will continue to focus on quick commerce through dark stores in areas where it anticipates high demand and favorable unit economics.

For instance, earlier this year, Dunzo decided to close dark stores receiving fewer than 1,000 orders per day. Now, it is reassessing more such dark stores and returning to the hyperlocal delivery model in several cities. In these cities, the plan is to use the same inventory management technology that Dunzo has relied on for years to enable quick deliveries from supermarkets and retail stores, often within 10-15 minutes.

This approach allows Dunzo to reduce the high overhead costs associated with expanding dark stores and instead concentrate on technology to match delivery riders with orders from retail stores, thus avoiding the labor costs of managing a dark store.

However, there’s a significant challenge in this plan. Shopping behavior in metros and Tier 1 cities has rapidly shifted to quick commerce platforms like Swiggy Instamart, Blinkit (owned by Zomato), and Zepto. These well-funded competitors have scaled up quickly in the quick commerce space.

While Zepto, launched in early 2021, has raised just over $360 million, Dunzo has secured over $450 million in funding over nine years. Zepto is on the verge of joining the unicorn club and has surpassed Dunzo in fundraising with its recent $150 million round.

In contrast, Swiggy and Zomato have raised billions and possess substantial revenue bases for further investments. As these rivals expand their quick commerce services, Dunzo had to close down its dark stores late last year.

The challenges are indeed substantial, but Dunzo’s strategic shift to hyperlocal delivery reflects the company’s determination to adapt and evolve in the dynamic Indian startup ecosystem.

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