The Reliance Retail and Google-backed startup uses Bengaluru as a model city across its segments
Dunzo’s marketplace and pick-up drop service categories are gross margin positive
For Dunzo Daily, it is seeing an average order value of nearly INR 400
The 10-30 minutes delivery segment, broadly termed as quick commerce, has been the talk of the town for the last few months. Although investors pumped money into the sector, there have been questions about its profitability, and scopes beyond the top metro cities. However, Kabeer Biswas, cofounder and CEO of Dunzo, is quite upbeat on the startup’s profitability, while he also noted that the quick commerce can exist in Tier 2 and Tier 3 cities.
Speaking at The Makers Summit 2022, Biswas said that the Reliance Retail and Google-backed startup uses Bengaluru as a model city.
“We tend to run Bengaluru about a year before every other city and what we do over there. Because we like solving problems in one unit and then taking them to every other unit,” he said. As claimed by Biswas, Dunzo turned profitable at a scale in Bengaluru about a year or 15 months back and the market is entirely profitable at an EBITDA level.
The Bengaluru-based startup runs its options in three categories. Under the Dunzo Daily category, the users can buy from dark locations. It also runs a marketplace business and pick up-drop service. According to Biswas, the second and the third categories are gross margin positive and the startup makes money from these categories.
“Today we are in that cycle where we are investing in the new category. We are going to use that category to scale the overall business by 2x. And then hopefully in another 12 months or maybe in about nine months time, we will turn the whole city of Bangalore profitable. Then every other city at some block of six to nine months after that tends to become profitable,” Biswas said.
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Elements That Make Dunzo
Hyperlocal delivery platform Dunzo launched its Dunzo Daily, a new delivery experience for groceries, meat, pet supplies, medicines and more, in Bengaluru in July 2021. The first ‘Dunzo Daily’ store was launched in Indiranagar, a suburb in Urban Bengaluru. Later, the service expanded to other cities such as Pune, Chennai, Mumbai.
For Dunzo’s warehouse business, it is seeing an average order value of nearly INR 400. However, this tends to come down when the startup has a plethora of new customers come through. But for existing customers who have completed at least three to four orders, their average order tends to range between INR 380-400, Biswas added. Further, the buy-sell margin of these orders range anywhere between 18- 20%.
“One interesting thing that we are noticing is that these transactions are very efficient. You start from one location and then deliver in a particular demand center. Taking geography, you have one location where the majority of your orders are generated from and the delivery partner has to deliver it and come. In that case, we have been able to see our cost of delivery come down to in some pockets as low as INR 45 and we think it will come down to INR 40,” Biswas said.
Moreover, because of the velocity of orders that are going through the warehouse, the warehouse cost tends to become very minuscule, Biswas added. Lastly, it is important to optimise how the startup is managing the supply-demand aspect to ensure that it is not procuring more products than required in-store.
“Our top 20 stores are starting to show profitability. Three factors are working here- average order values, buy-sell margins and the delivery cost is going down quickly,” Biswas said.
In the quick commerce segment, Dunzo is competing against the likes of Swiggy Instamart, Ola Dash, Zepto, BB Now, among others. According to the latest RedSeer report, India’s quick commerce market is expected to witness a 15X growth by 2025, reaching a market size of close to $5. Bn.
