What Went Wrong With Dunzo In The Last Two Years?

Taarik pe Taarik. Taarik pe taarik, taarik pe taarik! This might be the feeling of Dunzo employees, who are waiting to get their June salaries, which the company has been delaying since July 20 and now has been shifted to the next year. Dunzo had first withheld a portion of June and July pay, initially promising that all dues would be settled on July 20.

In an email to workers, the Bengaluru-based business stated that former employees would only receive their full and final (F&F) payment in January or February of 2024. It will also include pay for the employees’ days worked in August and September. The corporation had previously stated that laid-off employees would be paid their due salary for June and July by the first week of October. Dunzo has partnered with payroll finance provider OneTap for the August salary.

So, what went wrong with Dunzo in the last two years?

We all want to live hassle-free lives, and cell phones may help humans achieve the goal. Mobile applications have provided us with levels of freedom and potential that were unimaginable even a decade ago. Product delivery is one example of how significant advancements in mobile applications have expedited the process. However, pick-and-drop services in India were relatively expensive, chaotic, and inconvenient, dominated by unorganised operators until Dunzo introduced the promising delivery services at low prices. Dunzo, which was founded in 2015, has been a blessing for many when it comes to delivery-related responsibilities.

But everything changed upside down after the pandemic when Dunzo started encountering massive losses. Dunzo, like any other startup, had a number of setbacks and difficulties. The company’s biggest pain points were an inefficient delivery system, the time runners took to complete deliveries, website and mobile application administration, and significant financial losses.

It cannot withstand the competition in the market.

Last year, it was evident that Dunzo’s massive push to become an ultra-fast grocery delivery platform, fighting against bigger rivals like Swiggy’s Instamart, Zomato’s Blinkit, and Zepto, had failed. Soon after, the company began modifying its business model, indicating that its unit economics for grocery delivery in 19 minutes (its product promise) were not working. 

High expenses.

In FY22, Dunzo generated Rs 54.3 crore in income from operations, up from Rs 25.1 crore in FY21. However, its net loss has more than doubled, rising from Rs 229.1 crore in FY21 to Rs 464 crore in FY22. Employee benefit expenses accounted for most of the company’s expenses, at Rs 138 crore. This was followed by advertising and promotional costs of Rs 64.4 crore, an almost six-fold increase over the Rs 11 crore spent in FY21. Furthermore, during the first half of 2022, from January to June, Dunzo lost Rs. 230 on each daily order.

The battle of words centred on valuations.

Existing investors in Dunzo are in talks to seek new financing at a 50% discount to the startup’s prior valuation of over $800 million. Reliance Retail, the company’s largest investor, who gave a $200 million cheque in January 2022, is opposed to such a sharp decline. Reliance had invested $240 million in the now-troubled company. A shareholder argument regarding the extent of Dunzo’s valuation drop is proving to be a hurdle to additional investment for the struggling quick commerce business.

An insight into mismanagement.

At the beginning of the year, there were several internal discussions on whether Dunzo ought to give up all other sites and concentrate just on Bengaluru, where it might be successful. However, the firm continued to handle its issues while waiting for new capital, resulting in the company accruing further debt. In retrospect, that is a fundamental issue. Dunzo has been experimenting with higher order values for free deliveries and restructuring pricing for its pick-and-drop service and other services in light of the present cash crunch. In these trying circumstances, let us hope that this pilot experiment does not aggravate the situation. 

Miscellaneous Issues that have been a cause for the bad image of the company.

The pernicious waves of legal notifications.

Dunzo has received legal notices from Google India, Nilenso, Clover Ventures, Facebook India Online Services Private Limited (FBI), Cupshup, Koo, and Glance. Dunzo’s outstanding vendor obligations were over Rs 11.4 crore, more than double the previously estimated Rs 5-6 crore. This is yet another major issue in the midst of the crisis.

Problem with Data Breach.

Dunzo experienced a data breach in July 2020 when the firm announced that hackers had accessed the Dunzo website, which contained user information, email addresses, and other information. The actual quantity of customer data obtained was unknown at the time, although the hackers did not get access to the users’ payment information. Following that occurrence, the Dunzo technical team strengthened the security pattern. Dunzo has launched an internal inquiry into the matter. The research finally concluded that the unauthorised access to the information might have resulted from a breach in a third party’s systems.

Legal cases compromising the company’s reputation.

Some Dunzo delivery agents were detained in Bengaluru as part of the then-current drugs investigation, including two males. Police apprehended two delivery agents who were seen transporting large amounts of narcotics across the city. Police, however, stated that meal delivery services “cannot be blamed” for their employees’ involvement in crime. But market image is a susceptible aspect, and no one knows what one thing will compromise the image in the market!

How do the layoffs affect Dunzo employees?

1. In the first round of layoffs, Dunzo laid off around 3% of its workers in January 2023. While the organisation did not identify the actual number of layoffs, reports said the company fired off 60-80 people.
2. In April, the Bengaluru-based company let off 30% of its workforce, affecting over 300 people. This decision was made by the firm to ensure profitability over the next 18 months.
3. On July 21, Dunzo publicly informed its employees of the third wave of layoffs, which are estimated to affect 150-200 people. 

Dunzo’s fall from grace: from rising star to collapsing ship? 

Last year, Dunzo’s massive effort to build an ultra-fast grocery delivery platform to compete with Swiggy’s Instamart, Zomato’s Blinkit, and Zepto failed. Soon after, the company began to shift its business model, indicating that its unit economics for grocery delivery in 19 minutes (the company’s product promise) were failing.

Worryingly, the market is reluctant to invest in startups, let alone in a cash-hungry industry like rapid commerce. Dunzo elected to give up its aspirations for expansion, whether for Dunzo Daily or its business-to-business product, Dunzo Merchant Services (DMS).

The quick-commerce firm had fewer funds than other e-commerce organisations and needed to invest in and expand the business to acquire further investment. Slowing growth helped, but only somewhat. Given the limited resources and financial winter, it was evident by the end of 2022 that even on a lesser scale, the company couldn’t function.

Conclusion.

Startups are crumbling due to their unwillingness to commit time and money to projects that do not have an immediate impact. With the arrival of the tech winter, investors are more unwilling to lend capital, forcing most Indian startups to suffer. Employees are the ones who suffer the most as a result of these occurrences, whether via layoffs or not being paid. It’s strange that an employee who sweats and blood to keep the startup’s wheels turning confronts the most painful wave when the losses are observed.