How India’s darling delivery startup ran out of steam

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Happy Hump Day and welcome to the 98th edition of Weekly Olio - your trusted source for giggles, wisdom, and a dash of intrigue, courtesy of our tantalizing thought piece (yes, buckle up for Publisher's Parmesan). 🧀

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Publisher’s Parmesan 🧀

How India’s Darling Delivery Startup Ran Out of Steam

Dunzo, once synonymous with convenience and synonymous with quick, reliable hyperlocal deliveries in India, is in deep trouble. To say the startup is struggling would be an understatement. Dunzo had managed to carve out a unique space in the market by becoming more than just a brand—it became a verb, much like how "Google" means to search online. Need to send a cake to a friend? "I'll Dunzo it." Got some important documents to deliver across the city? "I'll Dunzo them over."

But despite its deep integration into urban Indian life, Dunzo is now hanging by a thread. The company that changed how India approached delivery now faces a crisis. It has laid off 75% of its workforce and is down to just 50 employees. What happened to Dunzo, and what led to this unraveling?

Dunzo’s story began in 2018, when it became the go-to app for city dwellers needing quick and reliable delivery services. From picking up groceries to transporting documents across town, Dunzo promised efficiency and convenience. Its service offerings spanned across six core categories:

1. Moving items within the city

2. Purchasing products from stores

3. Multi-point logistics (pick-up from one place, deliver to another)

4. Government-related tasks (like passport services)

5. Home services (plumbing, electrical repairs)

6. Secretarial tasks (booking tickets or making reservations)

These mundane, everyday tasks that people either couldn’t or didn’t want to do became Dunzo’s bread and butter. The simplicity and utility of the service led to its explosive growth. By 2022, it was on a roll.

Reliance’s $200 Million Bet and the Expansion Blitz

In January 2022, Dunzo secured a $200 million investment from Reliance Retail, one of India's largest conglomerates, in exchange for a 26% stake in the company. This was a massive endorsement, putting Dunzo in the big leagues with the likes of Swiggy and Zomato. The company launched major ad campaigns, including a high-profile run during the IPL (Indian Premier League), which dramatically boosted its visibility.

Buoyed by Reliance’s backing, Dunzo began expanding its presence across major Indian cities, opening up "dark stores"—mini-warehouses designed for quick commerce. These dark stores would enable the company to offer its quick commerce service, Dunzo Daily, which promised grocery delivery within 20 minutes. At its peak, Dunzo was processing millions of orders monthly, and the average order value soared to ₹350.

It seemed like everything was falling into place. The company was gaining traction, its customer base was growing, and it had the backing of a retail giant. But the rapid expansion came at a steep cost.

The Beginning of the End: Costs Spiral Out of Control

By mid-2022, trouble started brewing. Despite high order volumes, the costs associated with maintaining dark stores started eating into Dunzo’s profits. According to reports, the cost per task (CPT) for each delivery was ₹80—significantly higher than the ₹30 per delivery it had incurred when working with partner supermarkets. The added expenses of running dark stores—rent, electricity, and inventory management—proved to be unsustainable.

To compound the problem, demand began to taper off as the post-pandemic delivery boom faded. The market, once brimming with demand, became increasingly saturated with competitors like Swiggy Instamart and Blinkit (formerly Grofers), who were also slashing costs and scaling back on dark stores.

By the latter half of 2022, Dunzo’s strategy of rapid expansion started to backfire. Dark stores in key markets like Delhi NCR and Hyderabad were shut down, and by April 2023, the company was forced to lay off 30% of its workforce. The dream of Dunzo Daily started to crumble.

Layoffs and Retrenchment: A Company in Crisis

In 2023, as the dark store strategy collapsed, Dunzo retrenched further. The company cut off large sections of both its permanent and contractual staff. Despite earlier optimism, Dunzo had to revert to its original supermarket partner model, which had been cheaper and more manageable. However, by the time this transition began, the damage had already been done.

In the most recent round of layoffs in early September 2023, Dunzo reduced its workforce by 75%, leaving just 50 employees. The company’s headcount was a shadow of what it once was, signaling the dire state of affairs. The writing was on the wall: Dunzo, as it was, might not survive.

What Went Wrong: A Strategy that Failed

Dunzo’s downfall was not just due to external market conditions but internal missteps and operational inefficiencies. Former employees pointed to systemic issues within the company. Expansion plans were poorly thought out, particularly with the dark stores. In Delhi NCR, for instance, early operations were heavily reliant on manual processes and third-party software, which slowed down optimization efforts and made scaling difficult.

Additionally, when the post-IPL boom ended, many of Dunzo’s dark stores overstocked products that didn’t sell, resulting in increased wastage and further financial strain. The company also struggled with adapting to different regional preferences and demands, a problem exacerbated by poor planning.

A Pivot to Survival: Dunzo for Business (DMS)

With its quick commerce model faltering, Dunzo began to refocus on an earlier, lesser-known aspect of its business: Dunzo for Business (DMS). Launched in 2019, DMS was designed to offer last-mile delivery services to small businesses. This service gained traction, particularly with local restaurants and direct-to-consumer brands like Licious and Theobroma.

While DMS had been a side business, contributing less than 10% to Dunzo’s overall revenue in early 2022, it suddenly became a critical part of the company’s survival strategy. Reliance, in particular, saw value in DMS as a means to power JioMart deliveries, leveraging Dunzo’s hyperlocal expertise. With services like express delivery and same-day delivery, DMS became Dunzo’s best hope for recovery.

However, the shift to DMS came too late to prevent the larger fallout. By the time the company pivoted back to this model, its finances were already in tatters. Compounding the issue, two of its largest investors—Reliance and Google—decided to withhold further funding due to unmet service level agreements.

The Future of Dunzo: Can It Recover?

Dunzo’s journey is a cautionary tale of how rapid growth, fueled by massive funding, can lead to unsustainable strategies. The company’s over-reliance on dark stores, combined with rising operational costs and increasing competition, ultimately led to its downfall. Despite its strong brand and innovative solutions, Dunzo failed to strike a balance between growth and profitability.

As of 2024, the company’s future looks uncertain. With its workforce drastically reduced and its key investors pulling back, Dunzo must find a way to stabilize its business. The pivot to DMS may offer some respite, but with heavyweights like Shadowfax and Delhivery dominating the B2B delivery space, Dunzo faces an uphill battle.

Dunzo’s story, while still unfolding, serves as a powerful reminder that even the most innovative companies are not immune to market realities. Only time will tell whether the company can claw its way back from the brink or if it will become another cautionary tale in India’s startup ecosystem.

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