Dunzo’s financial challenges

Dunzo, the hyperlocal service, has recently been at the center of contrasting narratives regarding its financial health. Deloitte, the company’s auditor, expressed concerns about Dunzo’s financial viability, citing an imbalance between liabilities and assets that could potentially lead to an inability to meet its obligations. However, Dunzo countered these claims by announcing plans to achieve corporate-level profitability within the next 12 months, sparking questions about the true state of affairs at the company.

Founded in 2015 by Kabeer Biswas, Dunzo began as a personal concierge service in Bengaluru. Its popularity soared, with the brand becoming synonymous with efficiency as people began to say “Dunzo it” for completing tasks. This phrase reflected the company’s successful penetration of the market and the development of a loyal customer base.

To diversify beyond its initial pick-up and drop service, Dunzo ventured into daily essentials delivery from local supermarkets and kirana stores. However, this move faced skepticism on two fronts. Critics argued that running a pick-up-and-drop service for supermarkets posed efficiency challenges, as the need for rapid deliveries clashed with supermarkets’ established layouts. Moreover, the model’s profitability was questioned, relying solely on commissions for delivered orders without the ability to negotiate higher margins with FMCG companies.

In response to these challenges and spurred by the surge in demand for grocery delivery during the pandemic, Dunzo opted to establish dark stores, essentially warehouses to store, pack, and ship products. Reliance, a major conglomerate, invested nearly ₹1,500 crores, acquiring a 26% stake in Dunzo. However, the shift to dark stores proved costly, with high rent in affluent areas, inventory expenses, and increased delivery rider costs.

Dunzo’s cost per task (CPT) under the dark store model soared to ₹80, compared to ₹30 under the previous third-party store model, highlighting the financial strain of this transition. Furthermore, Dunzo faced stiff competition from newcomers like Zepto, as well as established players like Swiggy, Zomato, and BigBasket.

In an attempt to retain customers, Dunzo resorted to massive discounts and aggressive advertising during the IPL. However, this strategy proved unsustainable, leading to a staggering loss of ₹1,800 crores in FY23, eight times its revenues. Notably, from FY19 to FY23, Dunzo raised $408 million but spent $401 million, indicating financial challenges.

Deloitte’s warning about Dunzo’s financial position, coupled with difficulties in paying employee salaries, raised serious questions about the company’s future. In response, Dunzo is pivoting once again, focusing on its B2B vertical called Dunzo Merchant Services to position itself as a logistics player. Acknowledging the struggles with dark stores, Dunzo has already closed over 70% of them and undergone significant workforce reductions.

Despite the uncertainties, Dunzo remains optimistic about its prospects, emphasizing a return to its roots as a quick and efficient service. With a leaner team, a revised business model, and a small fundraise, Dunzo aims to prove detractors wrong, asserting that profitability is within reach in the coming months. As the situation unfolds, the industry awaits to see whether Deloitte’s concerns or Dunzo’s optimism will ultimately align with the company’s future trajectory.