Dunzo, the quick commerce startup in India, has found itself in hot waters over the last couple of years. The latest financial result for the fiscal year 2023 has only added to its troubles. On the surface, there’s reason to be optimistic as Dunzo’s revenue from operations increased an astonishing 318.5% YoY, to Rs Rs 226 crore in FY23. However, as the revenue grew by more than 4.1 times, losses also shot up by a significant 3.8 times. Dunzo losses in FY23 amounted to Rs 1,801 crore, up 288.1% YoY from Rs 464 crore in FY22.
In other words, Dunzo incurred losses nearly eight times its operating revenue to fuel its operations in FY23. Surprising, isn’t it?
In the span of just one year, Dunzo has seen its losses swell from three-digit to four-digit figures. This financial downturn has been accompanied by the departure of top-level executives, including its co-founders, as well as unsettling issues such as salary delays and massive layoffs. Collectively, these developments have prompted industry analysts to raise serious doubts about the company’s viability in the dynamic Indian startup ecosystem.
Let’s delve into the detailed breakdown of Dunzo’s expenses to gain deeper insights into the company’s financial situation and its prospects for future growth.
Dunzo’s Expenses FY23
In January 2022, Dunzo achieved a significant milestone by raising a substantial $240 million (equivalent to Rs 2,000 crore) in a Series F funding round, with Reliance taking the lead. This capital injection propelled the company’s valuation to an impressive $775 million. What’s particularly surprising is that, within just a single year, the quick delivery startup allocated even more than this capital to cover its operational expenses, which expanded by a remarkable 3.8 times.
Dunzo’s overall expenses in FY23 surged 286.1% YoY to Rs 2054 crore, from just Rs 532 crore in FY22.
Being an on-demand delivery platform, the most significant cost centre for Dunzo was the fees paid to its runners, accounting for 17.9% of the company’s overall expenses in FY23. The costs related to runner contract fees and incentives swelled a whopping 173.9% YoY to Rs 367 crore in FY23, from just Rs 134 crore in FY22.
Dunzo’s commitment to its workforce was evident in the fiscal year 2023, as the company more than doubled its spending on employee benefits. The employee benefit expenses increased 144.9% YoY to Rs 338 crore in FY23. It’s worth noting that these expenses include Rs 74 crore allocated for ESOP (Employee Stock Ownership Plan) costs, which were settled in cash. In terms of the company’s overall expenditures for the last financial year, Dunzo’s investment in employee benefits accounted for a noteworthy 16.5%, underscoring its unwavering commitment to its employees.
These escalating expenses had a substantial impact on Dunzo’s EBITDA margin, which stood at a disconcerting -677% in FY23.
On a unit level, Dunzo spent Rs 9.09 to earn a unit of operating revenue, indicating the significant financial challenges faced by the company during FY 2023.
Dunzo Efforts to Keep Operations Afloat
A significant portion of Dunzo’s total operating revenue, approximately 62%, was generated from the sale of traded goods, amounting to Rs 141 crore in FY23. This revenue stream was initiated by introducing Dunzo’s dark store model in 2020. However, more recently, in the current FY24, the company had closed down nearly all of these stores due to their unsustainable investment requirements. Consequently, Dunzo has reverted to its original operating model, involving partnerships with established stores for product offerings. In this revised approach, the startup provides technical and logistical support under a revenue-sharing model.
It’s worth noting that Dunzo has resumed operations at seven dark stores in Bengaluru following the disbursement of July salaries to off-roll workers.
As of FY23, Dunzo’s current assets are worth Rs 347 crore. These assets include a cash and bank balance of Rs 216 crore, with trade receivables accounting for Rs 45 crore.
In the meantime, Dunzo’s direct competitors, such as Zepto, Swiggy’s Instamart, and Zomato-owned Blinkit, appeared to be on more solid footing. Even smaller players like Porter are making inroads into profitable segments.
Zomato, in its recent Q2 FY24 report, revealed that Blinkit generated Rs 505 crore in revenue, representing an impressive 17.7% of the company’s total revenue. Another quick grocery delivery startup Zepto achieved unicorn status in August 2023 and reported an impressive Rs 2,024 crore in revenue despite incurring losses of Rs 390 crore for FY23.
India’s largest food and grocery delivery company, Swiggy, is actively working on making Instamart profitable in anticipation of its upcoming initial public offering (IPO).
Despite being backed by prominent companies like Google and Reliance, Dunzo’s revenue model raises questions on its long-term sustainability, and, more broadly, the viability of the quick commerce market in India. The investment from Reliance had initially fueled hopes for a potential path to profitability, particularly through a strategic collaboration that could have harnessed the extensive logistics infrastructure of Reliance Retail. However, this partnership has not yielded the anticipated benefits for Dunzo, leaving the company in a challenging situation.
