Dunzo’s many problems are not exactly undercover — From severe cash crunch to multiple rounds of layoffs to strikes by delivery partners, and from the resignations of key board members and cofounder Dalvir Suri to the near-retreat from quick commerce, as we have uncovered in the past few weeks 

Dunzo’s downfall pretty much happened in the ongoing fiscal year (FY24) but the company’s FY23 financials released this week show just how the situation went from bad to worse for the Bengaluru-based startup.

Here’s the bottom line: The startup’s loss surged nearly 4X to INR 1,801 Cr in FY23 and operating revenue stood at a mere INR 226.6 Cr. 

The 8x loss-to-revenue ratio shows just how severe the cash crunch was and why the company does not have funds to even pay employees since July this year. 

However, the poor financial performance also indicates an underlying problem with Dunzo’s operations. The fact is that Dunzo’s expenditure, which is on par with most of the rivals, did not result in the revenue push that others have seen. The inability to generate sufficient revenue despite substantial cash outflow tells us in many ways that while Dunzo had the right idea, the failure was in the execution.

Before we delve into the company’s operations, here’s a snapshot of Dunzo’s FY23: 

• The Reliance Retail-backed startup’s operating revenue rose to INR 226.6 Cr from INR 54.3 Cr in FY22.
• Dunzo’s overall expenses jumped over three-fold to INR 2,054.4 Cr in FY23 
• Dunzo’s procurement expenses surged a staggering 9,079% YoY to INR 174.4 Cr, which is direct spending towards quick commerce 
• The startup’s advertising costs ballooned  381% to INR 309.7 Cr 
• Employee costs increased 2.4X to INR 338 Cr from INR 138.3 Cr in FY22 leading to oversized salary bills which went through mega cuts in FY24
• Dunzo spent INR 367.4 Cr on its delivery agents or runners, again pointing to how its operational scale-up on quick commerce came at a dear cost 

What Led To Dunzo’s Rise In Expense

As we can see, Dunzo’s expenses skyrocketed since FY22 largely because of the expansion of its quick commerce operations under Dunzo Daily.

Dunzo Daily was piloted in Bengaluru and Pune before it came to other major regions such as Delhi NCR, but the competition in this space was also intensifying with the entry of Zepto as well as Swiggy’s Instamart and Zomato-owned Blinkit. 

While Dunzo was more or less like a courier startup till 2020, this changed in 2021 as quick commerce became the biggest use case in metros and Tier 1 cities. Dunzo’s earlier model of picking up individual items from retail stores was not quite as hip as quick commerce. Dunzo was more or less compelled to go the quick commerce way and it had the funds to make a big play. But this also led to hockey stick-like increases in expenses.

Besides the major expenses such as advertising and employee costs, the quick commerce foray meant that Dunzo also had to bear procurement costs. 

This is essentially what Dunzo spent in purchasing grocery and other related items from FMCG brands which were then resold or supplied to the dark store partners.  

The procurement cost would have only grown exponentially as Dunzo launched more and more dark stores, which is the reality of the business model, but where others managed to eke out sustainable unit economics to some degree, Dunzo was well under par.   

In FY22, the startup’s revenue from operation increased merely by 1.1X to INR 54.3 Cr from INR 48.8 Cr. In contrast, Zepto, which only entered the conversation in FY22 outperformed Dunzo in terms of operating revenue. 

Zepto, reported an operating revenue of INR 140 Cr in FY22, almost 2.5X of what Dunzo earned. In FY23, the gulf between Dunzo and other competition only widened.  

In FY23, Dunzo reported INR 227 Cr in revenue compared to Zepto’s INR 2,024 Cr and Blinkit’s INR 724 Cr. While Zepto outspent Dunzo considerably, Blinkit’s FY23 expense of INR 1,826 Cr is still lower than Dunzo. 

Dunzo’s Expenses To Outpace Funding

Given that the revenue needle has not moved as much as some of the competition, Dunzo’s reliance on external funds is very high. Indeed, the startup has only earned around 10% of what it spent. And it has exhausted all the VC money it has raised till date.

From the above numbers, it is quite evident that the startup is only generating minimal revenue after spending so much capital.

Since FY20, the startup has raised total funding of $408 Mn and counts backers such as Reliance Retail, Google, Lightspeed, Lightbox, and Alteria Capital among others. 

Incidentally, the startup went on to raise its biggest round from Reliance Retail in January 2022 to fuel its quick commerce operations. Mukesh Ambani-led Reliance Retail has a 25.8% stake in the company.

The investment also meant Dunzo became a delivery partner for Reliance’s JioMart, and incidentally the B2B arm or Dunzo For Business is now cofounder Biswas’s biggest focus. Especially. with its consumer-focussed operations and the linked spending in that regard not paying off. 

B2B operations are asset-light since Dunzo would not need to procure products for dark stores plus it does not have to routinely offer high discounts to businesses that use its service. 

The biggest costs for Dunzo under a singular B2B focus would be employee benefits and delivery partner fees, and the heavy spending on consumer-focussed marketing can be trimmed down significantly as well. 

Dunzo declined to comment on whether it will focus purely on B2B deliveries or continue forward with a mix of consumer deliveries and Dunzo For Business.

On the consumer side, Dunzo offers some of the lowest prices for deliveries. When comparing Dunzo to other package delivery startups such as Pidge, Porter, and Swiggy Genie for a 2.5 Km delivery, we found that Dunzo offered the service at INR 79. 

In contrast, Pidge charged INR 140 for the same service and Porter’s price for the same parcel delivery was INR 95. 

Swiggy Genie was the only player that offered a lower price than Dunzo, charging just INR 65. This can be attributed to Swiggy’s substantial funding of $700 Mn in its last funding round, affording the startup to absorb the cost. In contrast, Dunzo, which is already operating at a loss and currently lacks visible funding prospects, continues to maintain the lower pricing strategy despite it not being profitable.

In contrast to the situation at Dunzo, Blinkit and Zepto have sufficient capital to support their expansion efforts and they have made measurable progress on the unit economics front. Blinkit received a capital injection of $568 Mn from Zomato during the acquisition. In Q2FY24 results, Zomato said that Blinkit turned contribution positive for the first time on a quarterly basis.

Zepto, which recently became a unicorn, got another infusion of $31 Mn this week on top of the $200 Mn it raised in August 2023. 

The Tough Question

Even as its one-time quick commerce rivals are growing, Dunzo is left with a huge bill of overdue salaries, vendor payments and more. 

Compounding Dunzo’s challenges, Reliance JioMart, the biggest client of Dunzo For Business, lowered the rates it paid for last-mile deliveries in June 2023. JioMart accounts for 30-40% of its total business and Dunzo’s gross margins on the B2B fell by 50%-75% after the change.

On the B2B delivery front, Dunzo faces challenging competition from well-established players such as Shadowfax, Xpressbees, Pidge, Porter, Shiprocket and others. These startups are capitalising on their existing customer base and delivery infrastructure for last-mile delivery and many have signed up big retail chains as clients. 

More importantly, most of these players have recently secured funding or in advanced talks to raise fresh funding rounds. Further adding to Dunzo’s woes, Zomato initiated trials of B2B logistics services in May this year, whereas Bhavish Aggarwal-led Ola introduced Ola Parcel last month in Bengaluru. 

Although Dunzo claims to have secured $45 Mn in debt funding, it’s not clear whether this money has hit the bank. 

In a desperate bid to secure the much-needed funding, Dunzo is said to be cutting its expenditure to $300K from September and will also be reducing its employees headcount to 200. As per LinkedIn, Zepto has an employee headcount of around 3,800 and BlinkIt has around 7,000 employees. 

While the startup’s cofounder Dalvir Suri left, Dunzo’s board members – Ashwin Khasgiwala, group chief of business operations at Reliance Retail, and Rajendra Kamath, finance head at Reliance Retail, and Vaidehi Ravindran, a partner at Lightrock India have also resigned this year.

Dunzo is a shell of the company that it once was. At a time when investors want sustainable models and unit economics before writing cheques, the B2B arm could be the messiah for Dunzo. Will it be enough? 

[Edited by Nikhil Subramaniam]