Dunzo looks for an olive branch amid cost-cutting measures

Amid apprehensions around sustainability in the quick commerce space, one of the key players Dunzo is struggling on several fronts and requires urgent bail out from existing investors, say three sources familiar with the company’s situation. Over the past few months, the firm has downscaled its dark stores by two-thirds and stopped all growth levers to cut costs, the sources added.

“After raising $230 million, Dunzo bled heavily to chase growth throughout last year,” said one of the sources. “The company spent anywhere between Rs 1,200-1,500 crore in 2022.”

Entrackr’s data also corroborates high expenses for the Bengaluru-based company in 2022.

Dunzo lost Rs 230 on every order it raked in during the first half of the last year. In June 2022, its monthly burn stood at Rs 176 crore. According to Dunzo’s projections in July 2022, the firm set a goal to trim down monthly burn to Rs 100 crore by December last year.

Sources emphasized that the firm was assured that it will be able to pull-off a new round as sentiment around quick commerce was positive. However, sentiment changed swiftly and the ‘funding frenzy’ turned into ‘funding winter’ in the last quarter of 2022.

Last year, the company’s chief executive Kabeer Biswas had said Dunzo will expand from 75 dark stores to 200 by December-end.

But by November 2022, Dunzo realized that it had to cut costs and soon followed the downscaling of its dark store biz across Delhi (NCR) and Hyderabad. In April, the company laid off 300 employees and reportedly raised $75 million as convertible debt led by Google.

“Dunzo didn’t receive the entire $75 million,” said another source who also requested anonymity. “Otherwise, it wouldn’t have delayed salaries of 500 staff and capped salaries to Rs 7,5000 last month.”

Dunzo and Reliance have declined to comment on this story.

The hype around quick commerce has been clearly tapering down over the last several months. Besides Dunzo, Zomato-owned BlinkIt, too, shut some of its dark stores in Delhi-NCR. Zepto claims to operate 200 dark stores. While there is no report of shutting down any dark stores, it has slowed down the pace of opening new dark stores.

According to sources, Dunzo is likely to further downscale operations by shutting down clusters across all cities which are loss making. But the bigger question remains: will all these moves help Dunzo survive?

“Raising follow-on money is the only option for Dunzo as it left with a few months runway. If it fails to raise, the company will have to find a home [buyer],” said the person quoted above. “Reliance isn’t keen to lead another round in Dunzo but even if it provides some bridge capital it won’t last long.”

Going forward, there are three possible directions for Dunzo:

• Raise a sizable round and work relentlessly towards achieving break-even.
• Find a buyer. Reliance appears to be one of the options.
• Downscale operations and shut down all loss making clusters. Limit itself to one or two cities.

All is not lost for the quick commerce firm yet, and an olive branch in the form of a relatively large round may help keep the engine running. Dunzo’s struggles also reflect on the need to have a focused strategy for growth rather than spreading too thin quickly.