Why Dunzo Continues To Be In Distress The quick commerce company's stint with a spate of top-level exits doesn't seem to end

Just like Xerox and Jeep, many trademarked brand names became generic words used for any product in the category over a period of time. Take, for instance, Band-Aid or Frisbee, or Ziploc. While Band-Aid is trademarked by Johnson & Johnson, Frisbee is by Wham-O Toys and Ziploc is a trademark of S.C. Johnson & Sons.

In fact, the list of such names is long. But one thing common among these names is that they are all legacy companies, mostly first-movers, that achieved this reach after being in the market for years. Dunzo was the first startup in India that joined this league with 'Dunzo it'. However, today, the coolest millennial company and term has found itself in the midst of a cash crunch and spate of exits.

Dunzoing trouble

The Reliance Retail and Google-backed company has been struggling financially, and looking to raise capital from investors. This has led to delayed salaries, missed repayment deadlines and even lawsuits. And, this has further led to many exits. The list of departures from the company includes the head of finance, Sudharshan, co-founder Dalvir Suri and another co-founder, Mukund Jha. The company also resorted to mass layoffs in the past one year.

The quick commerce firm raised $75 million in April this year and fired about 300 employees around the same time as part of cost-cutting measures.

Dunzo has made multiple pivots in its journey since its launch in 2015. Courier delivery, food delivery, B2B are some of the pivots. The most popular one was pivoting to quick commerce, which many believe is the reason behind the company's distress.

Is quick commerce the culprit?

Quick commerce or Q-commerce as a business model gained massive popularity in 2021. Many companies joined the bandwagon. Ola kicked off 15-minute grocery delivery in Bengaluru, Swiggy's InstaMart service started delivering in 15-30 minutes, Dunzo promised to deliver in 19 minutes through Xpress Mart and BigBasket started BB Express. Among the most popular players in the space were BlinkIt and Zepto.

Blinkit was acquired by Zomato, which said that with $1.7 Bn cash in the bank, it would look to capitalize on the growth seen by Blinkit in the past year as quick commerce took center stage. We also had Amazon Fresh which expanded to many cities and promised to deliver in 2 hours and Flipkart in 90 minutes under its Flipkart Quick service.

Quick commerce was a popular concept in Europe. When it picked up pace in India, many many criticised it for solving a problem that didn't exist. However, despite that it did find more takers in India in 2022 as well. However, not so much or so soon for companies to showcase growth.

In late 2022, we saw many questions being raised on the businesses' unit economics and path to profitability. As Shashank Randev, cofounder, 100X.VC, pointed out, "The inherent business model which sets the foundation of quick commerce involves faster turnaround times (TAT) coupled with low margins and higher delivery costs which leads to excessive cash burn for companies. Therefore in order to stay afloat in the competitive quick commerce landscape the companies require deep pockets, and they must be capable of running on negative EBITDA for years. Due to competition and the customer acquisition race, these companies are focussing majorly on driving top lines and working with unstainable margins of 1-2%, which clearly does not lead to profitability."

Like Dunzo, most players in the space, like Grofers, Swiggy, Zepto, and others, have been burning cash. This is because these businesses have an asset-heavy model. To explain further, a quick commerce business needs warehouses or dark stores at many places to make quick deliveries happen to a larger set of customers. They also have to develop driver networks across locations. Additionally, like any e-commerce player, they have to continue to offer huge discounts to attract customers and make this an irreversible habit. Further, they also have to stock up huge inventories to gain a competitive edge. All this combined seems to have put many players, currently Dunzo, in distress.