dunzo business plummets: Dunzo’s business in free fall amid severe cash flow issues

Quick commerce startup Dunzo has seen its scale of operations fall to almost one-fifth of the peak it hit last year as it continues to grapple with cash flow issues and scouts for a lifeline, multiple people aware of the matter said.

The Reliance Retail-backed firm is clocking somewhere between 1 million to 1.5 million monthly transactions for its consumer-focused grocery delivery service Dunzo Daily, they told ET.

Dunzo Daily had clocked 5.5 million transactions in June last year and predicted moderate growth to 5.7 million in December, according to internal presentations reviewed by ET.

It had achieved these numbers after spending heavily on marketing and discounts during the popular T20 cricket tournament Indian Premier League last year.

The data on orders placed do not include its B2B vertical and pick-up-and-drop services, a business Dunzo originally operated before jumping on to the instant delivery model.

The descent in its scale of operations accelerated earlier this year as the firm’s funding was delayed in the backdrop of a larger stress in the technology industry.

Also read | Dunzo’s downfall: from startup star to sinking ship?

Dunzo managed to secure only $45 million from the planned $75 million debt funding through convertible notes in April this year, ET had reported.

“Funds were supposed to come much earlier, but as it took longer, the reduction in burn had a direct impact on the scale of quick commerce business,” one of the persons cited above said. “Dunzo Daily rivals were still being aggressive on discounts while the company tried increasing average order value (AOV) by reducing minimum order value for free deliveries.”

While the AOV did increase, Dunzo witnessed consumers dropping out and moving to rival platforms because of pricing changes, people aware of the changes said.

The Kabeer Biswas-led startup, which was founded in 2015 , now operates only around seven dark stores – all in its home market of Bengaluru. It used to run 150 dark stores across the country till at least the middle of last year.

Dark stores are small warehouses in key areas in a city to fulfil orders in 15-30 minutes — but they need to service a certain volume to be profitable.

A spokesperson for Dunzo said these numbers were “completely inaccurate” with “many inconsistencies in the data”.

“We have talked about our hybrid business model many times in the past. Our focus is on building on the fundamentals of the business and on hitting profitability before year-end,” the spokesperson said in a statement.

People close to the company said a number of Dunzo’s third-party partner stores are exploring setting up their own dark stores, but these are yet to be finalised.

“This is something the company is hoping to try and make it its key business model,” one person aware of the matter said. “Bengaluru is the key market and if it can work here, it will be scaled further in other cities.”

It is, however, not clear what the arrangement would be between Dunzo and its third-party partners for such dark stores.

Servicing orders through third-party stores has its own challenges, and in fact dark stores were first started by all quick commerce players to ensure they have adequate inventory of uniform quality, as well as control over timing and other factors, which get disrupted while fulfilling orders via third-party partner stores.

“Dunzo’s own dark stores were shut outside Bengaluru by April-May,” the person quoted above said.

The Bengaluru-headquartered firm is mostly operating the Dunzo Daily business through 70-75 partner stores across the country. This includes about 15 stores in the Delhi-NCR region and a similar number in Bengaluru and Pune, people in the know added. Dunzo also runs roughly 10 or more of these partner stores in Mumbai and Chennai.

Last week, ET reported that Dunzo had fired around 150-200 employees in what was the third round of layoffs at the startup backed by Google and others.

The retrenchment was a part of a plan to internally reduce costs by 30-40%, people close to the matter said. It also deferred the payment of employee salaries to September 4.

Meanwhile, top leadership of the firm continues to hold discussions with potential investors to secure new financing to urgently clear its pending debts due to vendors – many of whom have sent notices seeking clearance of payment.

Dunzo has been in talks to raise at least $20 million (about Rs 165 crore) from Reliance Retail, its largest shareholder, as well as others, ET reported earlier.

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