Daybreak - Dunzo fans made it a verb. Then it became just another delivery firm

Episode Date: October 2, 2023

What makes Dunzo unique is that one could never imagine a company its size to have the kind of influence it does.In 2022, a $200 million funding from Reliance Retail sent the quick-commerce startup flying high. It began expanding its dark stores and even ran advertisements in IPL.But the IPL led boom did not last long. The same year, the number and volume of orders began to decline. Dunzo was forced to recalibrate its focus and rethink its strategy.Tune in!Daybreak is produced from the newsroom of The Ken, India's first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. What makes Dunzo unique? Apart from the fact that it's become quite literally a whirp,

is that you could never imagine a company the size of Danzo to have the kind of influence that it takes. does. Its revenue was just $7 million in the year that ended in 2022. To give you a better sense of how little that is, Zomato made more than 70 times that amount in the same period. But it did not matter because Dunzo changed our lives. Made a chocolate cake that you want to send to your friend who lives at the other end of the city? Dunzo it. Forgot to order mixers for your party that's already started. Dunzo it. Not feeling too well and you run out of Paracetamol, Donzo it. You get the drift. It's become the kind of consumer brand that tech

companies would do anything for. January 2022 gave Dunzo another high when Reliance Retail became its biggest backer. It got $200 million in funding in exchange for a 26% stake in the company. I don't know if you remember, but it even ran ad campaigns in IPL that year, which we all know is super expensive. But it saw a boom in the number of orders as many as 3 to 4,000 per dog store. So it began expanding these dog stores across cities. But all of this, of course, cost the company. By the second half of the same year, 2022, the number and volume of orders across cities began rapidly falling. And by the middle of this year, Dunzo was shutting down its dock stores. In April, the startup cut its workforce by 30%. But now it is all set to receive

another shorten the arm to get back on its feet. Last Monday, we heard news that it is nearing arrangements that may see it get $30 to $35 million in fresh funds. So today, I thought it is a good day to take you back to the story of how trouble began brewing at Dunzo and what was its plan to get out of that slump. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time.

Today is Monday, the 2nd of October. 2018 was a year when Danzo blew up. The same year, sometime in November, Rohan Dharma Kumar, the Ken's co-founder, interviewed Kabeer Biswas, the co-founder of Dunzo. He told him that they looked at six months' worth of consumer data and they figured that people were mainly using Dunzo for six things. Apparently, people are very predictable. Even if you tell them that anything is possible, they will still stick to the usual stuff. So the first of the six things that people were using Dunzo for was to move stuff around and within the city. The second was for buying stuff from stores.

The third was for multi-point logistics, which basically meant, take this from me, go to the store and bring it back. These three formed over 90% usage of Danzo in its early product stage. The fourth was government tasks like passport and adhar formalities. The fifth was for home staff like plumbing, electricity and carpentry-related problems. And the last was for secretarial tasks, like book a table for me, book a flight ticket for, for me, etc. So you see how with these mundane everyday tasks, Donzo became a trailblazer of sorts. At the beginning of 2022, Donzo was on a role. Reliance retail had given it $200 million in funding. It was all set to advertise in the Indian Premier League or the IPL. And in the meantime, it was also

expanding its dock stores into new areas such as New Delhi and the National Capital region. the main driver of all the success was its quick commerce service called Dunzo Daily. It promised the delivery of products from more than 200 dark stores and other local supermarkets in under 20 minutes. One employee who spoke to the Ken reporter Somijit Saha said that Dunzo Daily grew its average order value to as much as $350 in early 2022. Another employee who worked in operations told us that it was getting. getting a couple of million orders every month. Things were great. Plus, the success was a validation

of sorts for Dunzo's leadership team. And that's because for a long time, the company had been thinking of moving away from its model of sourcing products from local supermarkets. They wanted to move to a dark store-led model. So when the boom in the demand for delivery came after the pandemic, DUNZO joined Swiggy and Blinket in the race to acquire as many dark stores as possible. The idea was to have better control over the quality and availability of products. And it kind of made sense because it was becoming increasingly difficult for them to standardize products across partner supermarkets. It would be much easier if they had their own dog stores.

But this boom came at a cost. Stay tuned for the next. segment. Dunzo was spending about 80 rupees on every order that it was shipping. This is called cost per task or CPT. Turns out, as we discovered from a former employee, the CPT on dark stores was much higher. Because having their own dark store also meant that they would have to pay for rent, inventory, electricity. But the CPT on the supermarket partner model, which Dunzo originally had, was just $30. Plus, let's not forget how the delivery market in India is so overcrowded now.

And the kind of rise we saw in the demand for delivery too has kind of slowly slumped a little. Other delivery companies like Swiggy and Blinket are already cutting down on the number of their dark stores. So by October 2022, it was clear that there was no option left for Donzo. Scaling back was inevitable. So earlier this year, it started shutting down its dark stores in cities, including Delhi, NCR and Hyderabad. And it also began laying off large sections of both its permanent and contractual employees.

It began to transition back to what had proved to work for it in the first place, the supermarket partner model. Coming up next, high costs were not the only issue with dark stores. Former employees of Danzo told Somerjee, that the dramatic shutting down of dark stores was also because of certain systemic issues. One of them said that Donzo's expansion plans was simply not good enough. For example, a lot of the early dark store operations in Delhi NCR were being carried out manually or through third-party software like ShopTree, which turned out to be quite glitchy for employees to use. The employee also told us how they would often be stuck filing

the same task on multiple sheets. He told us that because of this, optimization was really slow and bad. And not just that, when the IPL lead boom ended, many of the dark stores continued to either over procure or procure the wrong products. This obviously led to more costs. And there were other related issues as well, especially to do with seasonal and regional preferences. The same employee also told us that Dunso often ran expensive. experiment successfully in Bangalore, but it would fail in new geographies when expanding. So clearly, the plan to pivot to a dog store-centered model did not quite work out for Danzo.

So what then is its plan B? Stay tuned to find out. Dunzo Daily might have been the superstar, but the company also has an underdog. And it is called Dunzo for business, in short, DMS. It is Dunzo's business to business arm that provides lost mile delivery services to small enterprises. For example, local restaurants and direct-to-consumer companies like meat delivery company Lishes, bakery Theobroma and others. DMS came into the picture when Dunzo executives noticed something.

They realized that some merchants were repeatedly using the platform to deliver products. This courier service used by customers to ship things hyperlocally was one of Dunzo's earliest and most popular offerings. The firm then decided that it would be better to have a tailor-made service to facilitate this last-mile delivery for merchants. So in 2019, Dunzo for business took off formally and the dashboard put merchants first. But DMS was contributing under 10% to Dunzo's overall revenues in early It was, after all, meant to be a side business.

But everything changed when Reliance entered the scene with its investments. DMS was the perfect fit for GeoMot. Reliance sent its product managers and other executives to work closely with the DMS team at Tanzo. The idea was to provide last-mile delivery services for GeoMart. The division now offers services in various forms such as express delivery, same-day delivery, next day delivery and so on, working with about 25,000 merchants. Suddenly, Dunzo was paying extra attention to DMS. And it is quite evident because the company is scaling down half of its stock stores.

Dunzo is now betting big on DMS to get itself out of the tough spot. The vertical is actually slowly closing in on Dunzo daily as the biggest revenue contributor. But before we think about whether this bet will bear fruit for Dunzo, let us not forget one basic reality. The segment already has established players like Shadowfax and ExpressBees. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.